To Work or Not To Work: That is the Question

The impetus for this particular post was this articlewhich talks about the middle class tax squeeze. The upper-middle class featured in this article do not sound very sympathetic. Only, I can relate to them. The Hub and I probably fall into the upper-middle class category, but living where we do, it does not feel like it, either. For starters, I checked out the property taxes in Alpharetta, Georgia on Zillow. Their property taxes on a comparable home are half of what we pay here. That is a savings of $4,000-$5,000 in property taxes alone, per year. That could buy us a pretty nice vacation. Or some extra retirement or college savings (which we could really use, by the way.) 

In a recent post, I posited that taxes ought to be calibrated based on one’s regional cost of living. I also surmised that one needs *at least* $50,000 just to “get by” in the Chicago suburbs. That got me wondering: What is the cost of living in Chicago Burbsville? How much money does a family of four truly need to earn in order to own their own home, feed their kids, and not fall into debt? And, how does being a working mother and taxes relate to all of this?

Let’s talk about what it costs to raise a family of four in today’s Chicago suburbs. (If you want more kids, you can increase all these figures.)

If you check out Zillow, you will see that if you want to live an hour or less outside of the city, you pretty much cannot find a home around here for less than $250,000, and the home you will find will be mediocre, at best. I could put examples on here, but I feel that would be insulting to the homeowners. Actually, I just ran a search of the most middle-class, middle-of-the-road suburb I could think of, and the least expensive home was $260,000. I’m going to try another….$257,000.

Okay, so to live an hour or less outside of Chicago, you can find a 1950s ranch or split level for $260,000. Oh boy, I just checked out the inside. You will NOT be getting your dream kitchen. In fact, you might be a developer tearing the place down and starting anew. Compare that with what you can get in Alpharetta, GA: This is the cheapest house I could find. But for only $39,000 more than the fixer-upper I was just telling you about, that is getting a LOT more for your money. (I really want to link and post the comparison Chicago home, but I am just too nice of a person to do that.)

Okay, back to our calculations. So, you have your little tear-down in the middle of middle-class Chicago Burbsville. That is costing you $1,033/month (I used the Zillow mortgage calculator), because you somehow had $50,000 for the 20% down payment. (I have no idea where you got that money, but we’ll give you a generous head start from your parents.) Your property taxes were just over $7,000 in 2015, so, they are probably inching closer to $8000/year now. (Note, our example fixer-upper is in Cook County, which has less expensive property taxes than Lake County, where we live. If the house was in Lake County, I’d bump them up to $9,000.)

I am going to venture to say, that to live in the cheapest tear-down house in the most middle class suburb of Chicago, your minimum monthly mortgage will be $1800/month. That’s assuming you had $50,000 to put 20% down. If you didn’t, you are paying PMI, and your mortgage is probably closer to $2000-$2200/month. Okay, so you need a minimum of $21,600/year to own your own home. Minimum. Guess what? Renting will cost you just as much, if you want to live in a house.

Now let’s make a list of essentials for a family of four:

Food – I am going to say $600/month, because I think most families could live on this budget, though you are probably not eating organic and cutting some corners.  $600/month is $7,200/year

Clothes – If you shop at the Goodwill (which I sometimes do for the kids!) and get lots of hand-me-downs and rarely buy clothes for yourself, I bet you could do a $400/year budget. This will be mostly shoes for the kids.

Utilities – I’m not quite sure what ours run per month, but I’m going to guess $200/month ($2400/year)

Medical insurance – If you are not self-employed, this is still coming out of your paycheck at about $500/month, plus a $2000 deductible. There are probably cheaper plans, but if you have allergic/asthmatic kids, you aren’t risking it. So, minimum – $8,000/year

Two cars, because you both have to drive to work – $500/month –> $6,000/year  (Even if one of you could take the train, that will cost you $200/month in train tickets)

Home and car owner insurance$600/year

Phones – We only pay for our landline. We have both our cells through work. Our landline is also our internet. We don’t have cable. – $100/month ($1,200/year)

Am I forgetting any essentials?

Oh, school fees and school supplies. $470/year 

And childcare! How could I forget?! As I said before, camp is a minimum $6,000/summer. That is for a camp that goes from 9 to 2:30. Last I checked, most jobs have longer hours than that. You have two options: You can use the camp’s before and after care (if they have it), or get a sitter. Regardless, this is going to run you between an extra $50-$200/week. I know. But we’re doing minimums. So, for 10 weeks of summer, that’s an additional $500. ($6,500/year)

You also need before and after school care (B/ASC) during the school year. (We’re letting you have elementary school aged children. If you had younger kids, I would put it at $2,000/month for daycare). Your B/ASC is going to run you about $2800/year for two kids.

Okay, those are your minimums. You have not gone out to eat or seen a movie. You don’t have cable or cell phones, unless your job gives you one. You have not gone on vacation. You have not bought any gifts for anyone or entertained. Your kids are not getting any extracurricular activities. Nor are they getting any special services, like speech therapy, occupational therapy, or tutoring. You live in a very modest fixer-upper. You do not have a cleaning lady or gym membership. You are cutting your own hair at home. Your clothes are are close to a decade old. You also have not tithed or given any charitable donations (except for maybe some of your threadbare clothing).

You need $57,170.  If you have preschool-aged children or younger, you need $14,200 more  — right when you need to cut back on your work hours, not raise the bar!

But wait! You have not paid taxes, yet! If you make $57,170 and pay taxes on this, you don’t have enough to cover your basic cost of living. So, you actually need to make 20% more than your bare-bones. You need to make: $68,604/year.  That is just to squeak by. If you want any of the “extras” listed above, you need to make a lot more – and pay tax on it. Again, if you have preschool aged children or younger, you need even more: $85,644, based on my calculations.  ($57,170 + $14,200 = $71,370. Multiplied by 1.2, because, again, you have to pay tax on all this childcare you are paying for, even though the babysitters and/or daycare centers are also paying taxes on the same income.)

Is it any wonder than women drop out of the workforce? Which makes more sense economically: To try to get by on less, so you don’t need to work longer hours in order to pay extortionary income tax on income you are paying someone else to raise your kids so you can work, or to work harder so you can pay extortionary income tax on income you are paying someone else to raise your kids so you can work? (Did you like that? How do you think I really feel about it?)

And what if you are a single parent and have no choice but to work?

(An aside: One of my best friends is a widow. A non-working mother in our community once had the gall to say to her: “I would like to work, but I don’t have the time.” This is one of my favorite quotes of all time, and I would like to see it written on cocktail napkins.)

As I said before, I really think people should not be taxed on their hard-earned labor until after they have paid for their basic minimum needs. For working parents, childcare is a basic minimum need. Especially single parents! And most of those single parents, as we know, are single moms. Single moms need a BREAK, people! The least we could do for them is let them fully deduct their childcare costs.

But wait, if this single mom is making over $85,000/year to pay for all her basic minimum needs, she is actually paying MORE in taxes! Econ-mom, you are the math whiz. What is the actual number someone needs to make so they can pay their taxes and have the minimum amount leftover to pay for all their basic needs without falling into massive amounts of debt?

Ho! Wait a minute! This hypothetical single mom making $85,644/year so she can put a roof over her head and food in her kids’ mouths has NO STUDENT LOAN DEBT! Now what is the the actual minimum figure you need to get by in Chicago Burbsville?

Is it any wonder that you need two-parent working families?

Please note the tension between the two bolded questions above. How does ANY family make the numbers work? Our family is still trying to figure that one out.

Econ-mom’s comments:

Yes, the conundrum of women both needing the income from working and also not being able to afford to work (due to childcare costs) is bizarre and confusing to me.  I have literally NO IDEA how a single parent making under $60k/year can live.  I once went to McDonald’s with my kids and there was only one other boy in the playland (because despite the fact that it was pouring rain outside no one in Seattle will deign to eat at McDonald’s).  After wondering for awhile where his parents were, I surmised that his mother was working at said McDonald’s.  This is honestly the only way I could imagine making a McDonald’s salary work when you have a child, unless you have a family member willing to watch your child for free.

I am definitely 100% in favor of the government increasing the maximum childcare tax deduction.  If you have one child you can claim up to $3,000 in childcare expenses.  What on earth?! According to this article, the average cost of daycare is $196, or approximately $200 per week.  (BTW I find that number astoundingly low, given that we were paying close to twice that amount in Seattle, but let’s go with it.) If you were lucky enough to be paying that average rate, $3,000 would get you 15 weeks of care.  Isn’t that lovely.  And what exactly are you supposed to do the other 37 weeks of the year?

Now, my desire for more childcare tax breaks (or I would also accept government subsidized childcare) may sound self-serving.  But even if you don’t care at all about gender equality issues, there is a legitimate case to be made that making this change could increase GDP.  Interruptions in work lead to fairly large decreases in lifetime earnings.  According to this article, “Each year out of work can cost a family significantly more than three times a parent’s annual salary in lifetime income.”

Another big issue that Law-mom (LM) has raised here is the prohibitively high cost of housing.  It is, to use a technical economics phrase, completely nuts.  So perhaps it may surprise you that I am actually in favor of eliminating the mortgage deduction. Of course you would need to phase it out slowly, and probably grandfather in those who already have mortgages.  But I’d be happy to see it gone, because all it does is drive the equilibrium prices of homes higher and help home owners at the expense of renters.  Instead, what I would like to see is less land-use regulations.  There is a large body of research out there (summarized nicely here) saying that land-use regulations are a big part of the problem.  I saw this firsthand in Seattle where there are several (very expensive!) neighborhoods that only allow single family housing to be built.  This is a case where I strongly believe that you want to give the “free” market more freedom to do its job.

However, I’m not 100% convinced that loosening zoning regulations would solve the whole problem.  I think a less-appreciated issue is the strong tendency for jobs to cluster in certain regions. It’s not at all clear to me what can be done about this issue, if anything, but I think it deserves a lot more thought.  Anyway, for now I think we’re just stuck in the hamster wheel, trying to get by.  I’m pretty sure that if current trends in housing prices and income inequality continue, more and more people (even families with children) will be moving in with their parents or even other families until the hallmark of being “upper-middle” class will be that you get to live in a home with only your immediate family members.  And hey, perhaps we shouldn’t try to fight this.  I for one like having other people around me, and as this hilarious tweet points out, millennials are doing it!

3 thoughts on “To Work or Not To Work: That is the Question”

  1. You left out saving for retirement. I know this is not an immediate concern but… (the sooner the better). Trust me when I say Social Security is so far from a living wage, it’s in another galaxy. (Not to mention, it probably won’t be around when it’s time for you to get back what you put in). Pay yourselves so at least there will be someplace for the Millennials’ kids to go.

    1. Oh, believe me, I did not forget. The whole point of this exercise was merely to try to calculate the bare-bones minimum budget a family with two kids would need just to “get by” and to show how difficult that really is. I did, however, mean to point out that this included zero savings. I also forgot to include a gas budget in order to drive those two cars. My original figure probably needs to be increased by $200 just for gas. And another $300 for student loan repayment. So, if you want to set money aside in savings and a 401(k) (which as you point out, one absolutely should), the minimum cost-of-living also needs to be increased substantially more. If you ask me, the so-called “upper-middle class” salary is now just paying for a roof, food, bills, childcare, commuting costs, and some meager savings. As our President would say: SAD!

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