I’m Not Rich. Why Am I Being Taxed Like I Am?

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?

RELATED: Which Is Better–An IRA or a 401(k)?

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.

RELATED: Everything You Need to Know About Taxes

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.   

Love reading other people’s financial tales? Check out more great LearnVest-exclusive personal stories.

  • CatherineClaire

    I agree that the tax codes need an overhaul. I agree that money is relative and how much you make doesn’t always translate to a more extravagant lifestyle, especially living in a super expensive city. Compared to my husband and I you are rich, but I don’t judge you for making more money than I make. You work for it. You went to school for it. Good for you guys. If I were in your shoes I would not do what so many people here are suggesting and move further from work for cheaper rent. I also would think long and hard about switching from renting to buying if affording it meant having a longer commute to the places we frequent. There is more than money at stake, there is also time (your most valuable asset). Forgive me for not having links handy, but I’m sure I’ve ready studies that show as home to work commute distances increase, health and happiness decline. So wait it out. You will get there eventually if you continue to spend wisely and live reasonably, like you say you have been. Yes, the tax system is whack but it sounds like you have it pretty good in the meantime. Be here now.

  • http://profile.yahoo.com/L6PPZQR6WHUR2VSTXXTZC7KTGM Angel

    Anyone who lives in America should pay their share of taxes. Period. If you use a road, school, hospital, public park, public transportation, sidewalk, lake, river, water, electricity, grocery store, television, etc., you should pay taxes. A flat tax or a fair tax would help level the playing field. Example – everyone age 18 and over pays 10% a year. That’s the only “fair” way for taxes to work. Don’t punish people who have achieved a certain level of success (whatever the word “success” means to you) and don’t reward people who are too lazy to get up and go to work. If America is to continue to be a melting pot, then everyone has to contribute to the pot.

  • faye

    I agree with Brendy and the Learnvest consultant (at the end of the article), they need to see a financial counselor.  They are setting themselves up for financial failure and honey I’m sorry – I understand cost of living but 250K is living pretty decent because even the author admits that they CHOOSE to live in Manhatten.  I agree that we need to look at the tax codes but people also learn to champion themselves – not just complain via articles but go to their congressmen.

  • Guest

    The article is citing a very real problem. The middle class is getting squeezed. I don’t make what they do but I also don’t live in New York City. I am single, make about $50k a year and all my savings go to paying my annual tax bill. I rent and don’t have a retirement or investment fund because I can’t afford it. Don’t just look at their numbers…there are many people who are paying taxes instead of saving or investing, or for that matter buying homes. Let’s revise the tax system so it is equitable, AND even helps the economy grow. Maybe it shouldn’t be politicians creating a plan but financial experts, economists, experts that can create the proper plan.

  • kat

    If you pay for convenience, why are you complaining? Your tax rate is so high BECAUSE you live in the state of NY. Look at your federal tax rate if you want any of us to have sympathy for you. I make 50k a year, have the same amount in student debt as my annual salary, and live in Boston, where the cost of living is still expensive, but yet my taxes are manageable, and astoundingly we are taxed at nearly identical federal rates. I couldn’t agree with you more that it is unfair that you would need to make more to pay less, but frankly, two people with that much student debt should not be spending their lives living in NYC and looking at 500K houses and then complaining that your taxes are what’s holding you back.

  • Pedro Junior DeSouza

    I think some people were missing the point here. Perhaps because they’re angry that they can’t make that, which most of us would have to come to terms with, I being included.

    I’d like to say that I completely agree and I believe that this country should make things more fair. If we’re being taxed more then we should be getting more help, as in having the prices of things go down and student loans get cheaper.

    I don’t know if that made much sense, but its the thought that your article inspired.

  • Dubbs

    A lot of you trolls are ridiculous. Why are they successful? Because they worked their asses off. Many of you do not realize how much debt one must incur to become ‘successful’ in this country. I recently became an optometrist. My loans will be entering repayment this month ( I owe $214,000+ ). I do not work full time at my job (because I cannot get hours…) and yet I am still taxed at 33%. You do the math.

  • endrightwinglunacy .

    Clearly this “accountant” doesn’t understand marginal tax rates. If you’re bumped up to the next tax bracket, you don’t pay the higher rate of tax on ALL of your income, just on the additional income that bumped you into that bracket. I cannot see how this couple paid anything like $100k in taxes, based on the information provided.

  • Adam

    Don’t you love it when people making six figures complain?