We are not rich.

I think I’m in love with this article.

I must first preface this post with the observation that I’m grateful we earn what we do.  We are extremely lucky to have chosen two careers which have resulted in two high paying jobs.  We make well more than the median American household income and for that I am thankful.  But since I’ve been up here in this bracket of ‘riches’  I’ve noticed some slight inconsistencies.  One elephant in the room is that at $250k household income will take you a LOT farther in some parts of the country (say…for example Iowa) than here in DC.  Even the article points this out:

“Consider, for example, the tab for the same assortment of ground beef, tuna, milk, eggs, margarine, potatoes, bananas, bread, orange juice, coffee, sugar and cereal: In Twin Falls, Idaho, $23.41. In New York City, you would shell out $40.29, or 72 percent more…”

Of course housing costs are way different too, I won’t belabor that obvious point.  I know many of our friends in the Midwest who make less than we do who own houses and property far newer, nicer and larger than our home AND pay less for it.  Some are even capable of living rather luxuriously (owning vehicles nicer than ours, homes bigger than ours, vacations more often than ours) on a single income shockingly far less than our two salaries combined.

According to many we are considered “rich” because of this arbitrary $250k number that’s been assaulted over TV as of late.

“In the heated battle over extending the expiring Bush-era tax cuts, a single number has emerged from the crossfire: $250,000. It’s the annual income that President Obama and others have repeatedly used to define what it means to be “rich” in America today. And even though a tentative deal has been reached on the cuts, $250,000 is etched in the minds of policymakers and pundits as the number that separates the middle class from the wealthy.”

Let me get something straight.  I don’t feel “rich” or “wealthy”.  And neither are my countless friends here in the area making similar salaries.  We sound so much like the Jones in this article it is almost creepy:

“Mr. and Mrs. Jones – are both working professionals. They take advantage of all tax benefits available to them, such as pre-tax contributions to 401(k) plans and medical, child care and transportation flexible spending accounts. They have no credit card debt, but Mr. Jones racked up $40,208 in student loan debt…”

OK we have way more student loan debt that them, but we don’t have any car loans so it equals out.  And if we had two kids in day-care we would be paying way more than the article quoted $19k/year…it would be something more close to 25-33k/year depending on the age of the kid.  The article also fails to mention that because Mr. and Mrs. Jones are so ‘rich’ they according to our tax-law they can not take advantage of many tax deductions available to couples who make less….like student loan interest deductions…or that new cars sales tax deduction they offered in 2009.   And of course the more they add to their standard deduction the  more their AMT goes up (see below).  In a way the AMT honestly hinders my desire to give to charities because I don’t get to use it as a tax deduction like everyone else can, and that irritates me.

I don’t mind taxes, I really don’t.  They pay for lovely things like libraries, schools, roads, firetrucks, my salary.  They keep shit civil…I get that…I PREFER that.  I do not want to put out my home if it is on fire, nor do I want to quit my job to educate my kid full-time, and heck I LOVE me my free books.  What I don’t like is putting the same amount in the tax-pot as someone making the same amount in Idaho who pays less for their larger house and whose groceries don’t cost as much.  The government has used locality pay for as long as I’ve been working for them.  What that means is that living here in the DC metro area I get 24.22% more for the same GS scale/step than my fellow government worker living in Missouri who is also at the same grade/step.

I’ve said it many times, and I’ll say it again…taxes should be based on locality AND income, not just income alone.  It would level the playing field and ensure that those living in high cost areas were taxed at the same extent as those living in low-cost areas.  Although Obama says he is going to push for tax reform, and as much as I want to believe he will do it, it won’t happen because I’m starting to think that our political system is set up for failure.  If you need an example of why I think our tax law will never change read up on the insanity that is the Alternative Minimum Tax

And I’ll end with my favorite quote:

“Whether $250,000 represents affluence “depends a great deal upon where you live,” he says.”

Amen.

Comments

  1. mandysmusings says:

    Great article! and very insightful post. I agree that money goes a lot further in the midwest, and 250K doesn’t make you very rich here. James is making six figures now, but it sure doesn’t feel like it to us. I like your idea about locality factoring in to the tax law. That would help even out the burden of living in such a high cost city. But I’m with you about the government — I’m throwing up my hands in disgust most days with what I hear about bickering in the house and senate. Perhaps we should just move back to Missouri…or Europe 🙂

  2. midwestkids says:

    Which gets me started on another rant: the idea that my education/job is so disposable that I should quit just to move back to be in a cheaper area (that happens to be closer to family). If I could find a stimulating job that uses my skills I could probably accept moving back, or to some other cheaper place! I probably feel this pressure more so because Royce can do what he does literally anywhere in the continental US. My job prospects would only lead me to similar high paying localities such as NJ or CA…I would rather just stay in MD.

    So because of those reasons I’m not so excited to move to MO but I would love to move to Europe! Let’s GO! : D

  3. Burden of the beast I suppose. As someone living in the midwest and not making six figures (not that I expect to; we both have bachelors degrees because a masters hasn’t yet shown to be lucrative enough for the expense in this area), not living in a fancy house (our house is 1600 square feet), or driving a nice car, it’s still a burden at this level too. And I don’t know anyone here that makes $250,000 (not that I have a huge sample of friends to pull from). I barely make over $30K. I think it probably evens itself out in other ways. Where we live we pay almost a 10% sales tax. Significantly higher than surrounding counties, and I’m sure our property taxes are higher too. But we also chose to live here. Salary ranges out here take into account the cost of living. In this country, to reap the benefits, you either have to be piss poor or really effing rich. Now, both of you should look at what state employees make! LOL! You think you got burdens or hang ups with the feds. Seriously freaking scares me sometimes thinking we’re bringing a child into this world making what we do. But again, our choice and I don’t expect anyone but myself to be held accountable.

    • midwestkids says:

      Well this should make you feel better. Our house is only 1400 SF and it cost us $549k.

      The point of the post wasn’t to argue my salary. I actually think I get compensated quite well compared to my private sector counterparts. The point was that even if I took my job to MO the fed would cut my pay by 24% because they realize that it costs LESS to live in MO that it does in MD. My argument is that if the fed can do this with employee pay why can’t the IRS figure out a way to adjust taxes based on locality as well? I agree that someone making 250k should pay more taxes than someone making 80k in the same AREA but once you get outside localities the numbers should probably adjust. I should pay more taxes than someone in my area making less than me…fair is fair after-all.

      However, because your tax rate increases as your income increases it eventually becomes a disincentive to make more money. I actually just got finished begging my boss to give me a time-off award instead of a cash award…I now value time-off more than I do extra $$ (cause if I’m lucky I’ll only see $1 out of every $3 given to me).

      Our property taxes are cheaper because there are way more people putting into the tax bucket here. Less $$ but more traffic…I’m not sure who has it better. Get back to me after you sit in a traffic jam at 1:00 on a Saturday while trying to run errands with a screaming baby in your backseat. ; D I know I would give an extra 2k to get rid of a few thousand people on my roads.

  4. “What I don’t like is putting the same amount in the tax-pot as someone making the same amount in Idaho who pays less for their larger house and whose groceries don’t cost as much.” So the person in Idaho should be contributing more to taxes is what you’re saying? I can only imagine that that would drive jobs and people away from that area, an area that isn’t as desirable to live in. There’s a reason it’s cheaper. There has to be incentive to live in those areas. I get what you’re saying though. There needs to be a middle ground for even the middle class and the upper class, because as you rightly pointed out, what’s the incentive to make more money if you aren’t going to see any of it?!

    As for screaming babies: I’m not looking forward to that. Baby screams are the worst sound in the world. I’m thankful we live five minutes away from a store. Wanna move back?! 🙂

    • midwestkids says:

      Yes, I do think they should pay more. Why? Because last year we paid 26% of our taxable income (income after deductions and adjustments) to federal income tax. That’s just federal. I haven’t even added in state tax to that. Most Americans pay 17% or less to federal tax (go to the tax tables in the back of the 1040 instructions and see for yourself). So why is my income taxed at a higher rate? Do I have more disposable income? No, I actually have less…because where I live everything costs more. Offsetting the tax calculation by locality would help with this discrepancy. Either that or everyone should be taxed at a 17% rate even if their income is greater than 100k.

      I love my job and it just happens to be located in this ridiculously high-cost area. But we can’t live somewhere else…my job is sadly here and not by MY choice. If I called the shots the FDA would be in Nebraska. We have no need to be anywhere close to DC.

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