How Things Could Get Harder for Us
We budget constantly. As an accountant, I’m always reviewing our spending, and trying to find ways to cut back. We take the subway. We don’t buy name-brand clothes, and we don’t buy anything unless it’s on sale. We take only one fun trip a year and the most we’ve ever spent on that is $1,600.
My husband isn’t even putting money in his 401(k), so we can save more for a house. (I contribute to mine, but we have diverted all of our emergency fund to our house savings.) It’s something we argue about, but these are the choices we have to make.
I’m not looking for a pity party. We work hard, and enjoy what we do, but I’m tired of people saying that we’re not paying our fair share.
Don’t get me wrong–our lives are good. We work very hard, and enjoy what we do, but I’m tired of people saying that we’re not paying our fair share. How much more are we supposed to pay?
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Why the Tax Code Needs to Change
We both come from middle-class families and were taught that if you go to school and work hard, you can live the American dream: own a house, have a family. It’s really all we want. We don’t live—or long for—an extravagant lifestyle.
Look, I know it’s relative. I realize there are families raising three kids on $50,000 that are just trying to put food on the table. My husband and I are very thankful for what we have. And we don’t begrudge paying taxes. We even understand why people think we’re rich. Compared to many people, we are.
We just can’t figure out how we’re supposed to make the American dream work for us while giving away half of our income in taxes.
The tax code needs to change, and if it were up to me, I’d like to see the following:
- Adding a cost of living factor. The tax code should have a “factor” that takes into account location-specific costs, like average home price, the price of an equivalent bag of groceries, the average price of a car and the average cost of gas in a region. Once taxes are calculated, the factor would be applied to achieve greater geographic tax parity.
- Phasing out deductions and loopholes. If we lowered tax rates across the board, and cut the deductions and loopholes in the system (there are plenty of them to pick from!), we would put everyone on a more level playing field. I know it’s a touchy subject, but capital gains rates probably also need to be increased from the current 15%–even if it’s just a bump to 20%.
- Broadening the tax base. Right now, deductions and loopholes mean that many people don’t pay certain federal taxes. If we eliminated them as described above, more people would pay taxes that they owe. By no means do I think that families in dire circumstances should be asked to dole out money to the government. But if more families could help chip in a small portion of their earnings, it would work toward generating more revenue–and a little bit, spread across a large number of people, could go a long way.
- Lowering the tax rates. I’d be fine paying in the 30% range. And if my husband and I did make it to a point where we were making above $500,000, reasonable tax increases (35%-39%) for this income would be acceptable.
There’s something really wrong with a system that considers us “rich” and not paying our fair share at 40%–but billionaires are only paying 20% or less.
Something is obviously broken.
We just hope it gets fixed soon.
*The author’s name has been changed to protect her privacy. Money isn’t always easy to talk about, and the author has shared details about her finances and her life. When commenting, please give her the respect due to a member of the LearnVest community.
** New York City is one of the few cities in the United States with city taxes.
Sophia Bera, CFP® from LearnVest Planning Says:
While everyone’s finances are their own, LearnVest doesn’t recommend diverting your emergency fund to use as a down payment on a home or delaying 401(k) contributions. The emergency fund should remain intact to help this writer and her husband through any worst-case scenarios, such as if they bought a home–only to have one of them become unemployed.
Regarding taxes, because these people are higher income earners, they need to be maximizing their 401(k) contributions to come even close to replacing a high enough percentage of their income in retirement. Additionally, if they maxed out their 401(k), they would not pay taxes on $34,000 of their earnings, resulting in considerable deductions. At LearnVest, we place a high priority on getting on track for retirement, eliminating credit card debt and building emergency savings before focusing on other goals.
Update, December 5, 2pm: The original version version of this essay claimed that if the Bush-era tax cuts for married couples expire, the couple’s taxes would increase by 3%, which would be thousands more dollars they would pay in taxes. This was incorrect: the 3% increase would only apply to any money they make over the $250,000 threshold. Citizens for Tax Justice estimates that families with $250,000 to $300,000 in taxable income would on average owe an additional $199 a year.
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