Doctor Shortages? Cut Tax Rates.

April 5, 2016
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The Association of American Medical Colleges (AAMC) has released projections showing that we may have doctor shortages in coming years. The demand for doctor services is rising in our aging society, but various factors in the health care industry are hampering supply.

But policymakers should remember that high income tax rates inhibit the supply of top earners across all industries. America’s tax system is the most “progressive” or graduated among OECD nations, and that has consequences. If the government penalizes the most productive people, they will work fewer hours, retire earlier, and make other decisions to reduce their labor efforts.

Some politicians on the campaign trail want to raise tax rates on high earners, and they seem to consider them little more than economic leeches. The truth is that most high earners are very industrious people who add crucial skills to the economy. The nation’s 708,000 doctors and surgeons are a case in point.

The Bureau of Labor Statistics (BLS) reports that “physicians practicing primary care received total median annual compensation of $241,273 and physicians practicing in medical specialties received total median annual compensation of $411,852” in 2014.

That high pay makes sense because doctors are highly skilled, face substantial stress, and often work long hours. The BLS notes, “physicians complete at least 4 years of undergraduate school, 4 years of medical school, and, depending on their specialty, 3 to 7 years in internship and residency.”And after all that training, they often “work long, irregular, and overnight hours.”

So how does Congress reward that hard work? It imposes punitive marginal income tax rates on them of up to 40 percent, with state income taxes on top of that. Even lower-earning doctors can be pushed into the highest income tax brackets if their spouses work.

Doctors are exactly the type of workers who have large negative responses to high tax rates because they have substantial flexibility in managing their careers. With high tax rates, fewer people will want to go into this difficult profession, stay in it, and work the long hours—and that ends up hurting all of us who use the nation’s health care system.

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