Location is critical
Moving to a state with no income taxes or low taxes in general would help the Joneses' bottom line. In Pinecrest, Fla., a suburb of Miami, they would owe zero state income tax, and pay an annual $10,976 in property taxes, $1,833 in sales taxes and $350 in phone service taxes, for a total state and local tax burden of $13,476. Because they would have no deduction for state and local taxes on their federal tax return, they would have to pay Uncle Sam more than they did in Huntington: $31,768. Still, the total tax burden would be significantly less: $61,621, versus $78,276 in Huntington and $71,683 in Glendale, a suburb of Los Angeles.
But for most people, moving to a low-tax state in midcareer is difficult, if not impossible. People are generally bound to their high-tax states by their jobs. And often it's tough to find high salaries in low-tax states like Florida.
How far the 'big bucks' really go
The $250,000 threshold was first mentioned in a campaign speech by Barack Obama when he was running for president in 2008. "It's an historical accident," Williams says of the number's importance. "I don't think there was any thought given to why $250,000 -- it became a mantra." Whether or not $250,000 represents affluence "depends a great deal upon where you live," he says.
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, the cost would be $23.41. In New York City, you would have to shell out 72% more, $40.29, according to The Council for Community and Economic Research. That higher percentage carries across all expenditures, from child care to haircuts.
Of course, housing costs are among the biggest variables. In Glendale, the Joneses can live reasonably well -- but not extravagantly -- in a three- or four-bedroom home valued around $750,000. In Twin Falls, they would need to spend only about half as much for an equivalent home.
After covering taxes and only essential expenses for housing, groceries, child care, clothing, transportation and their dog, the Joneses would still be in the red by $1,787 in Huntington. In Plano, they would have $27,556 to spare. Factor in common additional expenses for a working couple with two children -- music lessons, day camp costs and after-school sports, entertainment, cleaning services, gifts and an annual weeklong vacation -- and the Joneses get deep in the red in Huntington, to the tune of $23,178. In Plano, the best-case scenario, they would still have money to spare, but just $4,963.
Some of the expenses incurred by couples like the Joneses may seem lavish -- such as $5,000 on a housecleaner, a $1,200 annual tab for dry cleaning and $4,000 on kids' activities. But when both parents are working, it is impossible for them to maintain the home, care for the children and dress for their professional jobs without a big outlay.
And costs assumed by the Joneses could be significantly higher if their circumstances changed. For example, if they worked for themselves, they would have to foot the bill for all their medical insurance premiums, which average $14,043. As it is, they pay 30% of the premiums, and their employers pay the rest.
The bottom line: For folks like the Joneses -- who live in high-tax, high-cost areas, who save for retirement and college, who pay for child care to enable them to earn two incomes and who pay higher prices for housing in top school districts -- $250,000 does not a rich family make.
This article was reported by Karen Hube for The Fiscal Times.
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