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

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.

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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.

  • 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?