Sunday, April 13, 2008

Welcome to the real world

This was the first year my wife and I paid income taxes on a two-income household. I'm a general surgeon and she's been a full-time anesthesiologist since last August. Our combined salaries put us in the 33% tax bracket this year. Next year we'll be in the highest bracket (35%). Now I don't want to complain about our state of affairs. We live confortably enough. We have a nice home. We don't live paycheck to paycheck. We're able to donate to charity and help out family members in need. It's everything I could have hoped for when I was a younger man just trying to get through college. But nothing can prepare you for the first time you receive notice that you owe the federal governmemt a five figure check on April 15. It literally takes your breath away. When you factor in the not insignificant chunks of change that the state and local agencies hit you up for, the final tabulation ends up being somewhere close to 40% of your income. That's a big number, folks. Forty percent. Even for a two doctor household. Now, I'm all for the concept of "doing your share" for society. But I'm being taxed at the same rate as the Warren Buffets and Peyton Mannings of this country. When your income is well over a million dollars a year, the difference in being taxed at 25% versus 38% may mean one less summer home, or perhaps having to wait another year for that 80 foot yacht. For people like us, it means a whole lot more. It means plumbing into retirement funds to help pay for a child's college education. It means living modestly and watching your monthly budget. The highest tax bracket is meaningless to the Forbes 500 guys. For a family like my own, it's a significant burden. Doctors are still remunerated well in this country. No doubt. But you have to keep in mind that most graduates of medical school these days, in addition to a diploma, are burdened with a school loan debts totaling $150,000. Moreover, physicians defer their wage earning days until after the age of thirty, sometimes into the mid-thirties when you factor in fellowships. College graduates who go into finance or consulting or take jobs on Wall Street have already accumulated 10 years of earning power by the time a doctor deposits his/her first significant paycheck.

There's a piece in Parade magazine today that discusses corporate tactics to evade income taxes. Last year, corporations shouldered just 14% of the federal tax burden. Ordinary wage earners will pay $1.21 trillion in taxes in 2007. That strikes me as outrageous. It's shocking that this country isn't in an uproar. That there aren't protests in the streets. You have disgraced corporate CEO's walking away with $10 million dollar settlements. Bear Stearns gets bailed out by the federal reserve. A hundred million dollars a day is spent in Iraq. And now we have the two leading democratic candidates unabashedly saying that Bush's tax cuts need to be repealed and that "sacrifice", i.e. higher taxes, will be necessary in order to implement universal health care. It's easy to say: just raise the taxes on the "rich". But that burden increasingly falls on people like my family. The people who have worked hard, delayed gratification, and provide a service for the community in which they live that goes beyond merely increasing the exchange of commodities. Is that just? Is it reasonable to expect the individual taxpayer to foot the bill for our gargantuan, overwrought, inefficient bureaucratic monster rather than the multi-billion dollar corporations that sell out the American worker in the blink of an eye given the opportunity to reduce labor costs by moving manufacturing operations to Thailand or India or wherever they can play third world workers $1.50 an hour?

I grew up in modest circumstances. Single parent household. Latchkey kid through grade school. We lived paycheck to paycheck. Summer vacations were spent visiting a trailer on a local lake on weekends. I never had the cool shoes or the latest video game equipment. Fortunately, I was able to rise above that with hard work, family support, and a little bit of luck. And now I find out that the subsidization for all the solutions to our nation's ills is going to fall squarely on the shoulders of people like my wife and I. Welcome to the real world. Oh well... better make sure my schedule is full next week....


Devorrah said...

You need a good CPA or tax attorney.

Anonymous said...

re: For a family like my own, it's a significant burden.

OMG you must be kidding me. Your combined salary should be in the neighborhood of 400-500K per year (in private practice). If you think 150 K (or 300K combined) in student loans on that type of salary is a "significant burden". Then you didn't truly grow up in a modest home.

Jeffrey Parks MD FACS said...

Do you write checks for over two grand a month to Wells Fargo? Well we do. It isn't pleasant. And my point is that the burden of taxation in this country falls on the people who are making a good living but aren't mega-rich. Doctors generally are in the same tax brackets as CEO's and actors and professional athletes. And still, on top of that, we have to pay separate for our health insurance. The top tax brackets in Europe run from %28-%48 and this buys them all-encompassing social benefits like health care, schooling, etc. What do we get with our buck? Bigger local and federal bureaucracies, the occasional patched pothole, and a public school system that fails many of our kids despite increased spending per pupil( Our government is an inefficient, bloated, wasteful monster that has shown no ability in the past to manage our finances. On a personal level, I prefer Barack Obama to John McCain, but I'm concerned that his platform seems to advocate a return to bigger government, more taxation, and the creation of new bureaucracy (national health care). Why should we trust that such a plan would make our lives better? You mean to tell me that my family doesn't give enough? That the solution to our national ills is for the Buckeye family to fork over 45-50% of our income? I don't buy it.

Anonymous said...

the mental burden of these loans is hard to explain to people who don't have them. if you don't think 2 grand a month for 30 years is a lot of money, then we will never see eye to eye. loans until your children are out of college? pay it off early at the expense of your as yet extremely underfunded retirement savings? your kids will never qualify for financial aid so you should save something for their education, depending on your personal values. we all hear about how powerful compound interest is-it works against physicians with student loans and again in lost time to save for retirement. for people who grew up poor, the gross amount of $ going toward loans is stunning, even if their income is in a high range and can cover it. i acknowledge that it is hard for people not living the dream to understand the situation.

physicians also are not guaranteed a salary-their income every year depends on them running their practice efficiently, while at the same time praying congress doesn't reduce their revenue by 10% or even 20% as they are scheduled to do so. i am sure this nice family is adjusting to the rigors of being in practice-estimating taxes quarterly can be tricky and even for experienced people, the amounts can be stunning. moreso early on while you are accumulating a nest egg. it's not that they can't do it (i presume), it is that they are not feeling as wealthy as the numbers would imply.

it could be worse for them-they could both be in primary care and make 1/2 the money. of course, some would still think it is ridiculous to worry about the loans.

Anonymous said...

You are so right. I had an income this year for the first time in my life, and I'm appalled by the realization of how much money, from a resident's salary, the federal and state and local authorities want. Income tax, property tax, school tax - get your hands out of my pockets! I can only imagine how much worse it'll hurt when I move up the tax brackets.

Hillary wants to undo the tax cuts. Yeah, like with millions of dollars flowing through her fingers it'll make any difference to her. Talk is free for her. I don't understand how anyone who has a job can not vote Republican - not that the Republicans do such a great job of keeping the government's hands off our money, but sometimes they get the concept. Go Ron Paul!

HMS said...

This is definitely sad to hear and dreadful to look forward to (i am a foreign medical graduate preparing for the board exam). I wonder whether that is why many US healthcare professionals are opting to practice abroad (e.g. in Thailand, Singapore). Politicians nowadays do seem to forget what human suffering means to average citizens. Thanks, Dr. Buckeye for the informative post, as always.

Anonymous said...

great post and spot on re: which citizens (americans?) support the US government. While I wouldn't change our system of government, I wonder why we are surprised when via the democratic process, people on the receiving end of benefit programs vote to elect people who promise them even greater benefits.
Creating dependence rather than independence seems to be the goal of both Clinton and Obama.

When Obama talks about wanting change he really means that he wants the coins in your pockets.

When Hillary says she wants to make America better she fails say for who or how. Her support for the repeal of the bush tax cuts suggests to me that I am not on her list of who to make America better for!

Anonymous said...

As a matter of fact I DO write checks for OVER 2K per month for school loans. Been doing that for the better part of 15 years. So I know EXACTLY what it is like. Did somebody hold a gun to your head to take out the loans? I made the decision (like you and your wife) that it was worth the loans (undergrad and med) to become a doctor. Trust me, unless you guys are academics, you probably bring home significantly more than I do being in the fields you are in. We can talk about which "tax bracket" (as with CEO's) we are in, and how unfair it is, but since you are new to the game let me show you how it used to be:

Tax year Top marginal
tax rate (%) Top marginal
tax rate (%) on
earned income,
if different<1> Taxable
income over--
1913 7 500,000
1914 7 500,000
1915 7 500,000
1916 15 2,000,000
1917 67 2,000,000
1918 77 1,000,000
1919 73 1,000,000
1920 73 1,000,000
1921 73 1,000,000
1922 58 200,000
1923 43.5 200,000
1924 46 500,000
1925 25 100,000
1926 25 100,000
1927 25 100,000
1928 25 100,000
1929 24 100,000
1930 25 100,000
1931 25 100,000
1932 63 1,000,000
1933 63 1,000,000
1934 63 1,000,000
1935 63 1,000,000
1936 79 5,000,000
1937 79 5,000,000
1938 79 5,000,000
1939 79 5,000,000
1940 81.1 5,000,000
1941 81 5,000,000
1942 88 200,000
1943 88 200,000
1944 94 <2> 200,000
1945 94 <2> 200,000
1946 86.45 <3> 200,000
1947 86.45 <3> 200,000
1948 82.13 <4> 400,000
1949 82.13 <4> 400,000
1950 84.36 400,000
1951 91 <5> 400,000
1952 92 <6> 400,000
1953 92 <6> 400,000
1954 91 <7> 400,000
1955 91 <7> 400,000
1956 91 <7> 400,000
1957 91 <7> 400,000
1958 91 <7> 400,000
1959 91 <7> 400,000
1960 91 <7> 400,000
1961 91 <7> 400,000
1962 91 <7> 400,000
1963 91 <7> 400,000
1964 77 400,000
1965 70 200,000
1966 70 200,000
1967 70 200,000
1968 75.25 200,000
1969 77 200,000
1970 71.75 200,000
1971 70 60 200,000
1972 70 50 200,000
1973 70 50 200,000
1974 70 50 200,000
1975 70 50 200,000
1976 70 50 200,000
1977 70 50 203,200
1978 70 50 203,200
1979 70 50 215,400
1980 70 50 215,400
1981 69.125 50 215,400
1982 50 85,600
1983 50 109,400
1984 50 162,400
1985 50 169,020
1986 50 175,250
1987 38.5 90,000
1988 28 <8> 29,750 <8>
1989 28 <8> 30,950 <8>
1990 28 <8> 32,450 <8>
1991 31 82,150
1992 31 86,500
1993 39.6 89,150
1994 39.6 250,000
1995 39.6 256,500
1996 39.6 263,750
1997 39.6 271,050
1998 39.6 278,450
1999 39.6 283,150
2000 39.6 288,350
2001 39.1 297,350
2002 38.6 307,050
2003 35 311,950

I think this speaks for itself. Graphs are all over the internet Google "historical top tax brackets". Being a doc in the late 70's would have sucked from a "tax" perspective. Do CEO's and other business types rip off america with outrageous salaries while sending or middle class manufactoring jobs overseas to China and other countries. Of course and I don't agree with it especially in light of the fact that China is STILL COMMUNIST AND VERY LIKELY WE WILL GO TO WAR WITH THEM AT SOMETIME IN THIS CENTURY (I have pre-teen/teenage boys by the way). Have you seen the hypernationalism in China related to the Tibet and the olympic flame. Utterly scary given their illegal occupation of Tibet. But given our illegal occupation of Iraq, what are we going to say. The sad fact is we have an awful neocon president who doesn't have the political will or interest in changing the status quo. Hell, his answer is to increase our federal debt to give us some of that debt back to us (ie the rebates). This man is NOT A FINANCIAL CONSERATIVE. He is a slime ball who avoided the draft by sitting in the national guard (I am a vet) and went to Ivy colleges thanks to daddy. But I digress. Yes our government is bloated and inefficient, but so are the europeans. Every been in the UK for awhile (I have). Their NHS is terrible when it comes to getting thing done in a timely basis (they now have a two tier private/NHS system). The germans are better, but if you where just paying attention to the news, German docs were on strike recently due to their poor pay and the expectation that they would work more hours for no additional pay. Given where you live I am sure you know about the problems of the canadian system. That stated there is coverage for all in these countries. The simple fact is for Americans to accept that type of system, they will have to accept A: Rationing, B: longer waits, C: loosing the ability to sue their docs. I am a practicing doc (for a long time). I think americans will not be willing to accept that trio, yet. That stated I do think some type of univerasal coverage (not single payer NHS) will be instituted eventually. But as Mass has shown this will be a messy issue. If we do ever have NHS, I GURANTEE you our salaries are going to take a huge drop. Then given are debt load you and I are really screwed. As far as a obama, I like the guy to. However, you are fooling yourself if you don't think he is going to rasie taxes. HE WILL raise taxes on the upper-middle and upper classes. My opinion is that as long as he does it to the united HMO CEO's of the world more so than us, and honestly tries to get a grip on our out of control national and budget debt, then I don't have a problem with it. In conclusion buckeye, you (and I) actually pay less in percentage income than previous docs but we make less relatively speaking. It is not going to get better and you better face that fact right now. But look on the bright side, you are not a blue collar cleveland manufactoring worker who is about (or has) lost his job due to a greedy CEO/CFO sending his job to China, about to lose his house due to the subprime debacle, and barely able to feed his family due to the increase in food/gas prices. Life could be much much worse. Good luck and welcome to the "real world"
PS: If you want to fight a fight you can win then lobby against the 10.1% medicare cuts coming down the pipeline this summer which is going to kill care for our aging and poor (ie. the WWII generation who really deseve our protectection and respect). Specifically send your later to Pete Stark D-California who is the head of the ways and means committee and has shown a distinct dislike and lack of respect for doctors.

Anonymous said...

PPS: Don't forget about the repeal of the death-tax and the decrease in the capital-gains tax. In reality a working stiff gets screwed much more with taxes then some trust-fund baby living of his/her previous generations. Tell me, is that fair?

Jeffrey Parks MD FACS said...

Great post. I AM new to this tax game and my initial response to the absolute number I had to pay was frankly staggering, like a fighter with a glass jaw who gets hit really well for the first time. My point was to highlight the fact that doctors aren't living the high life anymore. Dropping reimbursements plus rising medical school costs (and college for that matter) plus raising taxes on those who make over 250,000 to fund a NHS (HIlary's plan) does not equate to a lifestyle of country clubs and three Lexuses in the garage and kids going off to prep school.If we want to create a social safety net, why not raise taxes on the tuly rich; say incomes >$750,000? Or go after corporations who profit at the expense of the American worker (and the the toil of 14 year old Guatemalens)?

Your're right; Obama will raise taxes. It's on his website. Hilary too.

Anonymous said...

"Our government is an inefficient, bloated, wasteful monster that has shown no ability in the past to manage our finances."

Just like healthcare...


Anonymous said...

Yo Buckeye... you are absolutely right. I was a vascular surgeon in New Mexico for 10 years until I just wore out. Too much work...too little rest... income static despite working harder every year. Money went THROUGH me to everyone else (office, staff, liability ins, taxes) and little stayed with the engine of all this... me and my family. I was out of medicine completely for 7 years before I realized that I really loved it. I am back now doing another residency in a field that I think I can control a bit better (Emergency Medicine). Doctors deserve every dime they get and then some. Unfortunately many like Anon are jealous and that is too bad. Their petty attitude and Obama's monstrosity of a health care plan will result in fewer and fewer docs... more and more health care will be from mid-levels. This is goin' to get far worse before it gets better...