» This Story:Read +|Watch +| Comments

Where does $250,000 a year go?

(Marco Marella For The Washington Post)
  Enlarge Photo    

Network News

X Profile
View More Activity
Discussion Policy
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
By Karen Hube
The Fiscal Times
Sunday, December 12, 2010

In the heated battle over extending the expiringBush-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.

This Story

By any measure, a $250,000 household income is substantial. It is six times the national average household income, and just 2.9 percent of couples earn that much or more. "For the average person in this country, a $250,000 household income is an unattainably high annual sum - they'll never see it," says Roberton Williams, an analyst at theTax Policy Center, a nonpartisan think tank in Washington.

Just how flush is a family of four with a $250,000 income?

To find the answer, this analysis considers the household budget, piece by piece, from housing costs to health care, Internet service to summer camp for kids, and even the cost of the dog. And of course: taxes.

BDO USA, a national tax accounting firm, computed the total state, local and federal tax burden of a hypothetical two-career couple with two children, earning $250,000. To factor in varying state and local taxes, as well as drastically different costs of living, BDO placed the couple in eight locales across the country - including the District, Alexandria and Bethesda - with top-notch public school districts using national data on spending.

The outtake? They're comfortable. They're secure. But they're not Donald Trump.

The analysis assumes that this couple - let's call them 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 in undergraduate and graduate school, and Mrs. Jones borrowed $22,650 to get her undergraduate degree (both amounts are equal to the national averages for their education levels). They also have a car loan on one of two cars, and a mortgage for 80 percent of the value of a typical home in their communities for a family of four, which includes a toddler and one school-age child.

The bottom line: Living in high-tax areas on either coast can leave our $250,000-a-year family with little margin. Even with an additional $3,000 in investment income, they end up in the red - after taxes, saving for retirement and their children's education and a middle-of-the-road cost of living - in seven of the eight communities in the analysis.

The worst: Huntington, N.Y., and Glendale, Calif., followed by the District, Bethesda, Alexandria, Naperville, Ill. and Pinecrest, Fla. In Plano, Tex., the couple's balance sheet would end up positive, but only by $4,963.

Taxes take a hefty toll. Everything from property taxes and the alternative minimum tax to the taxes tacked on to cellphone bills and the cost of gas, when combined, takes a large bite out of earnings - in some cases even more than the federal income tax toll. And it's not likely to get better anytime soon. States and municipalities have been steadily raising income tax rates to close gaping holes in their budgets.

Property taxes are also increasing even though real estate values have cratered. And sales taxes are hitting record levels, in some areas nearing 10 percent. Gas taxes, alcohol taxes and surcharges on things such as flights, ferry rides, soda, vehicle registrations and rental cars have also climbed.


CONTINUED     1           >


» This Story:Read +|Watch +| Comments
© 2010 The Washington Post Company

Network News

X My Profile