Obama’s Budget, Taxes, and Doctors

February 13, 2012

President Obama is releasing his FY2013 budget today, and it’s more of the same—trillion-dollar deficits, huge spending, and tax hikes on high-earners. The president wants to raise taxes substantially on households earning more than $250,000. It’s all about fairness he claims, even though effective tax rates on high-earners are already double the rates on middle-earners.

More importantly, supporters of President Obama’s soak-the-rich tax strategy don’t seem to be concerned about the negative consequences for the economy. They seem to have convinced themselves that the Top 1 Percent is dominated by shady Wall Street speculators and other supposed economic leeches.

The reality is that the Top 1 Percent is mainly populated by highly productive people who are crucial to America’s economy. Let’s look at one of the largest subgroups within the Top 1 Percent—doctors and surgeons. Bureau of Labor Statistics data show that there are about 700,000 doctors and surgeons in the United States. The Washington Post on Sunday provides median 2011 doctor salaries from a medical organization survey. Salaries range from $208,658 for family doctors to $501,808 for orthopedic surgeons.

The marketplace has rewarded doctors generously, but everyone knows that makes sense because doctors have extensive education and often work long hours in stressful environments. In its occupational overview of physicians and surgeons, the Bureau of Labor Statistics notes that these professionals need “4 years of undergraduate school, 4 years of medical school, and 3 to 8 years of internship and residency,” which are requirements “among the most demanding of any occupation.”

The BLS also notes that “many physicians and surgeons work long, irregular hours. In 2008, 43 percent of all physicians and surgeons worked 50 or more hours a week.” Doctors often need to make emergency visits to hospitals and nursing homes, and they need to spend many additional hours reading to keep up with medical advances.

So doctors study hard, work hard, and serve a crucial role in society. And what does President Obama want to do to them? He wants to punish them with higher taxes.

If doctor salaries are in the $200,000 to $500,000 range, then most of them will be hit by Obama’s plan to raise top income tax rates. Even doctors with salaries in the lower $200,000 range would be hit if they have spouses that work or if they have investment income that pushes their overall income into the president’s punishment range.

Raising taxes on doctors would damage the economy because doctors will work less and they will have less money to reinvest in their practices. Doctors are exactly the type of workers who have large behavioral responses to tax increases. Facing higher marginal tax rates, a substantial number of doctors will reduce their hours worked or they will retire earlier. In the long run, fewer people will want to go into this difficult profession if the government reduces the after-tax rewards.

The Washington Post story focused on the expected shortages of doctors in coming years. Raising taxes on doctors will make such shortages worse. Just at a time when the nation needs more doctors because of the aging of the population, liberal punish-the-productive policies threaten to exacerbate doctor shortages in our health care system.


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