Unless you define wealthy as a married couple with a one-bedroom apartment and a leased car
When I read a BusinessWeek.com Debate Room posting recently from a reader who said $250,000 per year is "rich" and that, even in New York City, that amount should buy you a house and leave you with an extra $5,000 per month, I laughed and then seethed.
Let me first explain my background. I grew up an impoverished (by U.S. standards) Puerto Rican girl in Bushwick/Bedford Stuyvesant, a part of Brooklyn, N.Y. My drug-addicted mother completed ninth grade and my alcoholic father, fourth. While I was fighting the rats and roaches in our apartment and trying to put myself through school with our electricity turned off, I promised myself that my life would be better and I wouldn't have children too early.
Today I live in Manhattan, work as a marketing consultant, and am married to a marketing vice-president. Despite how far I've come financially, in my mind $250,000 a year doesn't make me and my husband—or any other couple living in Manhattan—rich. Here's the math.
High Child-Care Costs
Assuming you have the post-tax six-figure real estate down payment and closing costs to begin with, it takes $700,000 to buy the equivalent of a 700-square-foot one-bedroom or studio apartment, not a "house" by anyone's definition. Depending on your down payment, you should add to your $5,000-a-month mortgage about $2,000 per month in maintenance fees, insurance, and taxes. If you have an infant or preschooler and work outside the home (likely if you're making $250,000), you will have to pay a relatively high cost for child care (starting at $3,000 per month for a full-time nanny).
You then need to factor in the significantly higher costs of everything from parking ($300 to $1,000 per month), tolls (yes, I need the car for my consulting job), lunch ($7 to $10 a day), clothing, home goods, groceries, nominal retirement funding, and savings. You will discover quickly that $250,000 is not only not rich but also bizarrely inadequate to enjoy the basic standard of living that you might have in Houston or Atlanta. And by the way, if you want the luxury of having an actual bedroom for even the one child, you should know that a two-bedroom apartment in Manhattan starts at about $1 million.
My husband and I both put ourselves through college and graduate school, so we had the commensurate student loans. We both work 60-plus hours per week and have a 3-year-old. We choose to live in New York City because of the great cultural and educational riches it offers and to be closer to our remaining family members in New York City and New Jersey. I was living in Tampa on September 11 and felt compelled to move to Battery Park City to do what I could to support the area.
Disincentive to Job Creation
I say all this not because I expect anyone to feel sorry for us. On the contrary, I am the one who feels sorry—for families who don't have enough to eat, have lost their jobs, or don't have health insurance. I totally accept that I should contribute a certain percentage of my income to support programs for people who by virtue of age, illness, or mental ability cannot support themselves. I also accept that we should have quality public services available for the greater good.
What I do not accept or agree to, however, is that people who make more should pay incrementally more percentage-wise. It serves as a great disincentive to business owners, investors, and those who create the jobs in America.
On a day-to-day basis in my personal and business lives, I have to make decisions on balancing income and expenses. If the two don't match up, I either increase income (by working harder and smarter) or reduce expenses. One of our largest expenses is taxes. If the entity to which I give my tax dollars doesn't budget well, mismanages the funds, or simply spends more than it earns, should I then be further penalized? Should I let employees go or work even more hours to get myself "even"? Does Robin Hood really work in a capitalist country, or anywhere for that matter? Does anyone believe that paying everyone the same regardless of education, risk, hard work, or investment will actually promote the well-being of the economy?
I suggest we start posing tough questions to the brilliant people who have given us the one-shot, feel-good rebates and have bailed out irresponsible financial institutions and homeowners. And for the record, I still haven't decided who to vote for in the upcoming election. I sincerely wish I had more choices. Run, Bloomberg, run.