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Tax code and health care reform: Redefining the wealthy surgeon
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Much of America’s wealth has been lost the past 2 years. The Federal Reserve released figures indicating that in 2008, Americans collectively lost $11.2 trillion. Many have lost between 30% and 40% of their net worth and some much more. Some of our retired physician colleagues are coming out of, or delaying, retirement because of their losses. Physicians and others have not just lost money, but they have lost security in not knowing where the bottom of this fall is and how much more they may lose.
Even after going through previous economic bubbles that took significant tolls on Americans, such as the savings and loan debacle of the 1980s and the tech crash of the 1990s, many of us were caught up in the 21st-century housing–mortgage bust. We should have been all the wiser through the lessons of the previous collapses, but many of us were not. I know several surgeons who were caught up in leverage practices in the past and then were caught again at the onset of this latest bubble rupture.
The Spectrum Group, a research company, reported that between 2007 and 2008, the number of American millionaires declined from 9.2 million to 6.7 million. There will be more of a drop between 2008 through 2009. Certainly, many of those losing the most were borrowing against their current assets — including their homes, which has always been discouraged — and/or chasing higher-risk yields.
Overall, more Americans are feeling poor and there is an underlying feeling of resentment to those with showy possessions such as luxury homes, cars and boats. Physicians have long been viewed by their patients and the general public as being wealthy. They have often had high incomes for the neighborhoods where they bought their first home and tended to show signs of their success with material things. I still have patients who stereotype me and think I belong to the country club and golf every Wednesday, even though I never have.
Physicians have had high incomes by general standards; however, many are not even candidates for some “wealth management” programs. For example, some Merrill Lynch offices requires a minimum of $1 million or more available to invest in some of their plans. These seem like large amounts to be considered wealthy and it is very difficult for a physician earning $250,000 per year — the new definition of wealth — to enter some of these programs.
Defining “wealthy”
The term wealthy has gone from a semantic concept to a concrete dividing line by our new taxation system. To be wealthy, per President Obama and his administration, you must earn $250,000 or more per year if you are married. Certainly, what one earns and actually takes home can be used to arbitrarily define who is wealthy. However, it is usually the total assets and the revenue that they generate to produce the feeling of being independent and financially secure.
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While I am not proposing sympathy for surgeons and their current incomes, I want to address the definition of wealth based solely on earned income. This means a surgeon with a 50% practice overhead, some of you have higher, would have to collect $500,000 or more to net $250,000.
At the $250,000 level there will be increased federal taxation, higher payroll deductions and higher local and state taxes. As somewhat of a generalization, many of us will be subject to a 50% or higher taxation rate on our income.
Some of the latest proposals for funding the president and Democratic leader’s health care reforms are looking to impose surtax on the incomes of “wealthy” Americans. Chairman of the House Ways and Means Committee Rep. Charles B. Rangel (D-N.Y.) recently proposed just that, with House Speaker Nancy Pelosi defending it by saying, “It will be at the high end, and not touch the middle class.”
Recently details about the Obama plan have been scrutinized and it was determined that the higher tax rates would not be limited to $250,000 earners and above, but would apply to married couples with taxable incomes of about $235,000. The new figure was achieved by factoring in standard deductions and personal exemptions.
In addition to increased taxation on our efforts, we will see increasing overhead and more required documentation and regulation, combined with decreasing reimbursement. The hours needed to generate collectibles of $500,000 or more gross receipts — so we can pay higher taxes on $250,000 — are not going to be worth it to some surgeons. Widening margins between wealthy and the general voting population will result in the top 1% of earners paying 25% of taxes this year and the top 5% paying 40%.
Wants vs. needs
A benefit of a steady income is that it allows one to invest more aggressively and possibly be more resistant to downturns in the various markets, known as staying power. While I cannot predict the future, it appears that it will be difficult for physicians to become wealthy without having investments outside of medicine.
Even though many of us were caught by this latest downturn, we should be grateful that our steady income stream allows us to meet our needs, albeit more difficult to achieve our wants. There is little sympathy among the public for someone earning more than $250,000; it is even less when it is a physician during these troubling times in health care. Fortunately we can receive great personal satisfaction in our profession unrelated to our income levels. Partly because of our calling to help and care for patients, it is often taboo to discuss income levels, wealth and how it feels to be perceived as wealthy, even among a group of good friends.
Many patients are not aware of what a surgeon actually earns. In repeated surveys, those questioned replied that $100,000 to $200,000 is a reasonable level of compensation. Most of our patients earn less than that and have to pay mortgages, taxes and living expenses while trying to save for vacations and their children’s education. Although many surgeons may fit into the new definition of wealthy, many will now work well past the age of retirement that is enjoyed by the general public.
The revenue that physicians will earn in medicine and will take home will decrease during this administration and may never return to the levels once achieved. The ability to maintain the previous levels of income will be limited by decreased reimbursement and diminished incentives to work the long hours necessary to reach them.
One thing this recession has caused me to do is to make a list of the necessities and non-essentials in my life. I have eliminated many of the non-essentials and have found I do not miss them as much as I thought I would. Giving up many nonessentials has caused me to appreciate my ultimate essentials — my family, my patients and my free time — even more. In addition, the greatest satisfaction of caring for patients cannot be taxed nor diminished by decreasing reimbursements. Physicians will make good incomes in the future, but fewer and fewer will feel monetarily wealthy.
Douglas W. Jackson, MD
Chief Medical
Editor