> To hit 55% tax rate in California after this, you only need to make like $250k total. It's a good amount, sure, but if you compare cost of living... it's still hard to live on.
Excuse my ignorance but would you be able to lay out basically how this amount of money is hard to live on?
Perhaps not hard to live on, but it's easy to see how the state taxes away any chance you have to build any semblance of wealth due to the insane cost of living in the Bay.
Basic 1 bedroom apartment rent, at least 45min commute or less to Menlo Park/Palo Alto - $4000/mo
CalTrain/BART/car insurance/bus/Uber - $1000/mo (this is conservative, since car insurance costs more in the Bay since the DA won't enforce anti-theft laws)
Groceries - $400/mo
Utilities and phone bill - $400/mo
Health insurance - $300/mo
Miscellaneous other expenses (e.g. soap, toilet paper, etc.) - $500/mo
CA tax bracket for the 57k-295k income range is 9.3%, so your average rate for that 250k is going to be pretty close to 9%. Your effective federal rate under the new tax plan being discussed in Congress right now is going to come in the mid 30's - let's say 32% to be conservative. Social Security adds 6.2%, Medicare another 1.45% under current rates. CA SDI is another 1%. Total effective rate: 49.65%. Post-tax earnings: $125,875 out of $250,000.
What about your expenses? Well, if you do the math, the above comes out to $79,200/year. You now have $46,000/year to save towards a house... which oh by the way, costs $1.5M at present day for a shack in Fremont. Oh, and forget about having kids too.
Yes, you aren't starving, but considering you're making $250k it's kind of egregious that you aren't able to purchase a run-down house in 30 years from your income. The problem is twofold: the state taxes away half your income so you can't build wealth, and NIMBYs opposing the development of new housing suck away the rest of your income.
And before you say we should be focusing on actual poor people first: perhaps consider that the state clearly has the resources for both?
Everything in this list is overinflated, or you're really poor at budgeting. A $4k a month 1br is going to be a luxury high rise; not a basic 1br. $1k a month on travel expenses is insane. I never spent more than $400 a month and I used Lyft at least twice a day every day. Health insurance is covered by your employer, unless you're working for a really shitty employer.
Also, you don't understand marginal taxes. Please, go read up on them, because anytime you talk to someone who understands them, they're going to think you're an idiot when you start whipping out your calculations.
I quoted the effective tax rate. The marginal rates are higher. Federal marginal rate at 250k under the new proposed tax plan is 35%, excluding Medicare and Social Security. CA's marginal rate at 250k is 9.3%. All of the numbers I quoted are lower than that.
Maybe try to understand that your taxes are composed of more than just federal+state and that Medicare+Social Security+CA SDI actually adds a substantial amount?
> luxury high rise
Have you seen real estate prices recently? Luxury high rise has you paying much more than 4k if you're anywhere close to a good neighborhood. And if you're trying to argue you can spend 2k to live in a 1930s apartment in the Tenderloin while making $250k, I think you're too far in the echo chamber to have your mind changed.
> Health insurance is covered by your employer
This is in the context of startups, so no, it's not. The employer will subsidize it but it isn't free.
You're comically overestimating the effective tax rates.
SSI maxes at 140K, so you're paying an effective 3.5% rate at 250K. The effective federal and state tax rates for 250K of AGI are going to be below 32 and 9% and they won't be affected by any current Biden plan. The calculator I'm looking at[0] suggests an effective federal rate of 23.5%, CA rate of 8%, and FICA (SSI + Medicare) of 5%, for a total effective rate of just over 36% overall, 13% (or 32,000 a year) off of what you suggested. This more or less matches my experience with an AGI of around that much, although in practice my effective rates were lower than those.
To put that in perspective, that ~32,000 you're misestimating by is enough to afford a second apartment, or, you know, the annual SF minimum wage.
To hit an effective federal tax rate of 32%, you need to be making 800K/year. To hit an effective overall tax rate of 49%, you need to make more than 2 million/year (less after this year, but not a whole lot less, like 1.8 million a year or something).
> And if you're trying to argue you can spend 2k to live in a 1930s apartment in the Tenderloin while making $250k, I think you're too far in the echo chamber to have your mind changed.
I can find a handful of 1 and 2 bedroom apartments with W/D and dishwasher for <=3K. I can find plenty under 3.5K. Like, tons. And that's on zillow. You can usually find better rates on craigslist. "I want to live in a luxury high-rise downtown" is a very particular interpretation of the requirements you laid out.
It is a great way to inflate budgets if you want to demonstrate that it is impossible to live in the bay without making seven figures.
We see this pretty consistently in media where crocodile tears are shed over a family making 500k and barely able to keep it together but you look at the budget and they are saving 80k in retirement and spending 20k on travel or whatever.
> What about your expenses? Well, if you do the math, the above comes out to $79,200/year. You now have $46,000/year to save towards a house... which oh by the way, costs $1.5M at present day for a shack in Fremont. Oh, and forget about having kids too.
$46,000/year is a decent pre-tax annual household income in most of the country, and saving 20% of your income is doing very well for yourself. If you're putting that much away even after those inflated expenses (are you seriously paying $50/working day for your commute?) you're in no position to complain about your tax rates. The bay-area housing situation sucks, but that doesn't mean you're entitled to take out of the tax fund.
> If you're putting that much away even after those inflated expenses (are you seriously paying $50/working day for your commute?) you're in no position to complain about your tax rates.
Ahh the classic “well you aren’t poor so you don’t get to complain”.
Can we not aspire to have a middle class in this country?
I would consider being unable to purchase a rundown house in a mediocre location after 30 years of saving from a high income to be pretty bad. You obviously aren't poor but it's not exactly a good situation to be in.
$46,000/year is $3833/month, which if you go by this calculator for mortgage payments [1] is less than an $800k house. If you live in the Bay Area, you know that you can't buy a shack for $800k unless it's in the Tenderloin.
The mistake you made was using the future value of the saved money to pay for the present value of a home. Home prices in the Bay have also historically appreciated about as quickly as the stock market, but even if we assume they appreciate at 5% and you could get an 8% return investing money, you get taxed on the extra returns of your investment in the range of 30% after LTCG and state taxes, so your post-tax return discounted by the house price appreciation is basically 0.
A lot of words to say that your calculations are wrong and even if you take on a relatively high amount of risk+reward by investing in the S&P 500 you probably still won't save enough for a house in a region with good schools in 30 years. Which I think if you're making two hundred fifty thousand dollars a year, is pretty unreasonable.
> $46,000/year is $3833/month, which if you go by this calculator for mortgage payments [1] is less than an $800k house. If you live in the Bay Area, you know that you can't buy a shack for $800k unless it's in the Tenderloin.
They were including $4,000/month rent in the original calculations. If you're talking about buying on a mortgage then you should be using $7833/month.
Renting a nice 1bdrm apartment in a decent neighborhood in SF or LA is going to cost you over $48k per year. Probably closer to $60k. That's close $100k+ pre-tax.
Even with a modest spending budget, if you want to max your 401k - which you will need to do to keep this life style in retirement - you're going to need to make $180k.
Definitely not "hard to live on". But also, you are decidedly far from rich.
$250k - if you are single - you should be able to save a lot and make some investments and have more financial freedom - or more spending, whichever you prefer. Still, you are far from "rich". Even at ~$450k (top 1%), you're going to need several years of savings at that level before you start to feel "rich".
Should people feel sorry for you? No. But are you just riding around on yachts and drinking umbrella drinks all day? No.
My 2BR in SF is $2.6k a month. The other apartments in my neighborhood that are similar are ~$3k a month. People in SF need to get away from the idea that you need to live in a downtown highrise to live in SF.
You don't need to be riding around on yachts to be rich. If you never need to be concerned about money, you're rich. When I was making $150k a year in SF I didn't need to be concerned about money. At $250k a year, I could invest half my income and still never think about money.
You just argued in the same comment that a person who is supposedly rich should downgrade on their life style so that they can afford a certain housing situation. That is not being "rich".
You're not rich if you can forgo thinking about money for only one month.
Being rich is when your job is just for influence and power and not the salary. Being rich is when you can fly from your vacation home in one exotic destination to another exotic destination. Rich is when you have a million dollar painting hanging on your wall that your grandfather acquired in the 1920s for $500. Rich is when you don't even have to think about whether you can afford the private school for all three children with 50k tuition per year each and when you don't even have to think about budgeting for any of it. Rich is when you have a maid at home and a private chef living on your estate. Rich is when your wife can buy the $5000 dress for a one time party and it's not even a wedding or anything special. Rich is when you can afford to hire a doctor to come to your house in this economy. If you live in a 2 BR apartment I don't care how luxurious it is. You're not rich.
If you make less than $500k a year and you don't invest 90% of it you don't even have a chance at being rich in your life time.
We're 10 years away from everyone being a millionaire because inflation is really that high but the difference between barely eking out a 1.1 million dollar net worth based on all your assets and living in a 50 million dollar house may as well be the difference between flying at 30,000 feet and being in actual orbit.
If you live in an apartment in a high cost of living area and your concern is buying property at the same area you’re rich. I understand that this isn’t what your assumptions of being rich looks like, but your quality of life is significantly higher and opportunities for you are significantly greater than most of the country. It’s important to recognize reality and understand ones feelings may be presumptive.
The average person making $180k in SF is not much better off than someone making $100k in Dallas.
In Dallas, you'd be called upper middle class. In SF, people lecture you that you're "rich".
Post-tax, the difference is only ~$45k. Your rent is going to be an extra ~$20k. Your cost of living is going to be an extra ~$10k.
Okay, so you've got an extra ~$15k, maybe 20% more purchasing power. But this only works if you're single.
If you have kids or a dependent, you're going to lose all of that to rent and expenses (and probably more).
And, until this year, it's not like you could just take your $180k job to somewhere cheaper. If you got a job somewhere cheaper, you'd get paid less to where it wouldn't make much of a difference financially.
Really - the only benefit is how regressive the 401k system is. You can dodge taxes on your high marginal tax rate in SF. So you're much more likely to contribute to your 401k - which will almost certainly work out for you in the long run.
In the short run, you're likely to pay for it significantly with a reduction to your quality of life.
To be honest I recently made a ton on crypto and I'm using it as a down payment. It made me painfully aware that if I had to save up for the same down payment it would take me 10 years to save that much money and chances are along the way some financial emergency would ruin it all. And with the rate housing prices are increasing right now you can be priced out fairly easily.
Rich is when you don't need to think about any of this shit at all. People keep trying to put a dollar amount on what being rich is. We're all middle class arguing about how much we make PER YEAR. The truth is you're only rich if you control enough wealth that you can not work for a decade or more.
For example my step father start a trucking business that required him to work from 5 am to 5 pm every day for more than 10 years. Slowly he added more and more drivers. Recently he sold his business for 1.1 million.
Now is he rich? I personally don't think so. They live in a modest townhome in a low cost area. He just has a low burn rate relative to the amount of assets he has. There are way larger houses all around them.
And the truth is most normal people will agree with me because that's what their lives are. What you make per year can't be used as a metric for wealth. It's just earning potential not actual wealth.
Those are borderline, but they’re pretty close to being fully in the Tenderloin. That’s the roughest and one of the cheapest parts of San Francisco proper.
Not terrible? The first link is a modern 80m2 flat (sounds huge for 1 bedroom to me) with great facilities right on the sea front. Do you have example of what you would consider good, because it already sounds pretty luxurious to me?
Because of graduated taxation and government benefits, many of those people making 5 figures receive free or subsidized healthcare and other benefits from the CA government while paying a much lower effective tax rate. Essentially CA is just taxing the middle class but instead of the middle class it's the upper middle class.
An actually effective tax would be a wealth tax with no exemptions for all the homeowners sitting on 1000% gains and angrily voting against all new development. Highly taxing high incomes in my opinion _reduces_ socioeconomic mobility, since the wealthy don't pay rents and therefore spend much less than high income earners who are not yet wealthy.
You’d be hard pressed to buy a 2 bedroom condo in most of California with that income. The places that pay that much have the most expensive housing in the US.
Rents for a small apartment can be around 3000/month. Food in the area is quite expensive. So are things like car maintenance, movie theatres, gasoline, etc. If you live in SF, you'll need to budget 2-3 car break-ins per month and 1-2 catalytic converter thefts per year to deal with. On top of that, CA has a quite high income tax. It adds up fast...
Excuse my ignorance but would you be able to lay out basically how this amount of money is hard to live on?