In our “Money Mic” series, we hand over the podium to someone with a strong opinion on a financial topic. Today, one woman shares what it’s like to be disproportionately taxed based on her income–and how it’s holding her back.
If someone had told me as a kid in Louisiana that my husband and I would have a combined income of $250,000 a year in our late twenties, I would have been pie-eyed. It sounds like a crazy amount of money. But after taking into account taxes, debt and living expenses in New York City, we’re actually finding it difficult to meet our financial goals.
Why Our Taxes Are Nearly Unmanageable
Last year, we paid $100,000 in taxes, which is almost exactly 40% of what we make. Even though we also paid $22,000 in student loan payments (we have about $145,000 in combined loans for my husband’s law school and my grad school), we don’t qualify for deductions–if you make more than $150,000 filing jointly, you can’t deduct student loan interest.
We also don’t get a deduction for home ownership–because we can’t afford to buy one. We’ve been saving for three years, and after another three years of diligent budgeting, we hope to have about $100,000, which would be enough for a 20% down payment on a home in a New York suburb with decent schools–the average “starter” home in these areas is about $500,000–plus an extra $20,000 for closing costs and incidentals.
We’re in a weird place: We don’t have enough money to invest in a house or the stock market, which would get us tax exemptions. So we pay the full 40% of our salary in city**, state and federal taxes. People who are much wealthier can take advantage of tax loopholes, capital gains preferential tax rates and a larger mortgage deduction, so they end up paying only about 20% in taxes. For instance, in 2011, Barack Obama paid 20.5% in taxes. Mitt Romney paid 14% in taxes.
We find it ironic that we’d have to make more . . . in order to pay less.
If we’re being honest, it’s not only taxes that are killing us. Living in Manhattan is expensive—up to three times the cost of living in other cities—but I work for a private equities firm and my husband is in securities litigation. This city is the industry hub for both of our careers.
We’ve discussed moving, but it’s unlikely that we would both be able to get jobs elsewhere. We rent a one-bedroom apartment near our offices in a neighborhood where they go for $3,000 a month. We could move to a slightly cheaper outer borough, but we’re both called into our offices at odd hours and we also work long days. So we pay for the convenience of living near work.