Physicians  as  HENRYs (High Earners Not Rich Yet) and Tax Cliff Hangers

HENRY (High Earners Not Rich Yet)– A buzzword coined in 2003 Fortune Magazine article to refer to a segment of families earning between $250,000 and $500,000 but not having much left after taxes, schooling, housing, and family costs.

Definition of HENRY in Investopedia

July 18, 2012 -  Let’s face it.   Many physicians can be classified ad HENRYs (High Earners Not Rich Yet).  Physicians make between $250,000 and $500,000, pay at the highest marginal tax rate,  spend between $500,000 and $1 million to become doctors due to 12 to 15 years of deferred income and educational expenses,  carry an average educational debt of $150,000 to $200,000, live in upscale homes, and spend a lot of money on their families and their children’s education. 

Furthermore, physicians can be thought of as small businesspersons.  In Texas, on average, each physician office supports  5.8 jobs, including his or her own.  Above and beyond the clinical and administrative personnel who work in physician practices, 91 additional jobs are  supported for each $1 million of revenue a physician practice supported (Texas Medical Association data from the Lewin Group). 

Like most small businessmen, these physicians are highly uncertain about the health expenses they will  bear under Obamacare, which will require they cover employees under expensive comprehensive government approved plans, or pay a penalty for each uncovered employee.

Then there’s the impending “tax cliff,” over which we plummet come January 1, 2013 (“The Tax Cliff Is a Growth Killer,” WSJ, July 15, 2012.  When we leapover the cliff  into the abyss, the top federal rate will increase from 36.0% from 39.6% with an additional 0.9% increase tax for Medicare; the federal rate on dividends will go to 43.4% from 15.0%; capital gains will increase from 15.0% to 23.6% along with a 3.8% on investment incomes and an increase in the estate tax rate from 35% to 55%.    The top rate for physicians is likely to be close to 45%, even if one excludes increase in taxes on dividends, capital gains, estate taxes, and provider-related products, such a medical devices.

In all, federal tax increases will total $500 billion, not counting the $1 trillion, 10-year increase in excess spending over tax receipts from the Affordable Care Act. 

The authors of the WSJ piece, Arthur B Laffler and Ford M. Scudder of Laffler Associates conclude :“America is going to get socked by a triple whammy on output, employment, and income.  No matter what happens from now on, 2013 will be a very tough year.”

All of this is in the name of a “fair share” for the wealthy, who do not feel so wealthy.  This is a classic ideological clash between champions of free enterprise and individual  liberties and proponents of collectivism (“We are all in this together”) and economic security with dependency through government-guided  wealth redistribution.   The top 10% already pay more  taxes than the bottom 90%,  which include 47% who pay nothing at all, making a travesty of  the populist "fair share" argument.

There is something to be said for both sides of the ideological divide, and voters will decide which side they are on in November.

Tweet:  Physicians making between $250,000 and $500,000 are prime targets of Obama-inspired tax hikes taking effect on January 1, 2013.