Bush Tax Cut Expiration: What It Means for Physicians
Bush Tax Cut Expiration: What It Means for Physicians
With President Barack Obama's re-election, there is now no doubt that the Bush Tax Cuts will expire as of January 1, 2013.
Why is there a sunset clause in President Bush’s tax cuts?
In 2001 and 2003, Congress passed, and President George W. Bush signed into law, significant tax reductions for nearly all taxpayers. These cuts included marginal rate reductions, the introduction of a new 10 percent tax bracket, an expansion of the child tax credit, and a variety of other provisions. Both bills were passed using a Senate procedure known as "reconciliation" — a tactic that lowers the threshold for cloture to a simple majority of Senators (as opposed to a 60-vote supermajority.)
This procedure, under the Congressional Budget Act, is not allowed for any bill which affects budget deficits beyond a 10-year window, so these tax cuts included a "sunset" provision which caused them to automatically expire at the end of 2010, in order to bypass that requirement.
The sunset of the Bush tax cuts were extended by President Obama twice to the end of 2012, largely because the economy was in the tank and could not take another tax hit.
What does this mean for physicians?
The majority of physicians are married, high-income earners with investment assets. They will be hit particularly hard by this expiration. In particular:
• The 28 percent rate will go up to 31 percent.
• The 33 percent rate will go up to 36 percent.
• The 35 percent rate will go up to 39.5 percent.
• The tax rate for long-term capital gains will go back up to 20 percent.
• There will no longer be a “qualified dividend” category; the tax rate on all dividend incomes will be back up to the filer’s marginal tax rate.
Does President Obama have any alternative proposal?
Yes he does. To keep a long story short, his budget proposal is to keep the tax cuts for those earning less than $250,000 and let the tax cuts expire for those making $250,000 and more. Many doctors are making more than $250,000, so there will be no relief from the president's plan.
What can doctors do to limit the tax hit?
1. Explore the option of using a defined benefit plan to create a substantially larger tax deduction.
2. Explore the option of low-cost, non-commission variable annuities to shelter capital gains and investment incomes from taxation.
3. Use tax-efficient investment vehicles like low-turn over index funds to minimize capital gain realization.
I agree! A selected few, contrary to popular belief!
This is true but the media loves to make appear that we are the rich. Now that we will be taxed even higher. I don't want to make more than 250,000. I work hard and end up sending my money to folks that don't want to work. I think I will volunteer more and not pay any (hopefully) taxes on my volunteer work. I am sure the government will find a way to tax that at some point.
The only other option is to move out of the country.....
True!
Recommend that physicians take longer and more frequent vacations, if possible. After office overhead expenses, I don't believe that I made more than $250,000. That money goes a longer way than it would in New York.
Jeff R
$ 250,000 is not much for the living expenses in California. The bright side is more frequent vacations! The sad side is this is the new message to the people of America- your hard work is not appreciated any more, so if you want to, this is not the place anymore.
There's a lot of double doc households these days and they are making more than $250,00. And even if they aren't both docs, if one is and the spouse is working in a professional field they are likely to total over $250,000. More vacations does sound good . . .
Under Obama's plan tax rates will remain the same for the first $250,000 of everyone's income, including those who earn more than $250,000 per year. This articles draws a false conclusion based on shoddy research!
Joe it doesnt mater if the first 250,000 stays the same. This is a dog and pony show for Democrats. They know these increases will only pay for 9 days of Federal spending and most really rich people can hire a tax lawyer to find shelters. Most doctors do not have that luxury. You have fallen prey to No Research and Dem Talking Points.
Most doctors in 2 income households make between $ 200-$300 housedhold income. You are correct--the 1st 250,000 will remain at the low rates.
Poor Joe. A victim . . .
Facts is, all tax PAYERS will have rates going up, as well as millions of the "middle class" (lots of Docs) will be hit with Alternate Minimum TAX. The federal RATE may stay the same on the first 250,000 - but the surcharges, medical equipment tax, small business penalties, etc will hurt us all. Research Joe, research.
Tim and William,
If you look at my point again, you will see that I was responding to a factual error in the article. In remains to be seen what other revenue and spending changes will take place, including tax cuts and increases. I do not feel like a victim. I feel incredibly grateful for my privilege and my earned rewards. Regardless of how you cut it, most of us on this group are in the top 1% or 2% of earners in the world- a little perspective helps me. Tax rate increases may be driven by earned benefit costs, but as discretionary spending, "defense" is the largest driver of spending. I voted and marched against the wars and the warmongers. Think about that the next time you vote.
Joe, c'mon man! "Defense" is not the highest driver of spending! Medicare, Social Security and governmental employee pay and benefits are the highest drivers of spending. Entitlement reform is a must! We have a spending problem! NOT a revenue problem. Like Tim and William stated, the new revenues proposed by Obama, will only fund the government for a few days. He's raising the tax issue to create a class warfare mentality. As physicians, we are perceived as part the "privileged" class. Right or wrong. But because of Obama's characterizations, it creates a divide between our profession and the patients we care for. He's the problem. Period. Yes, as physicians we do earn a good wage and are some of the top earners. Yes, I can pay higher taxes. But that won't fix the problem. The problem is that a bunch of nut cases think if the rich just paid their fair share, we'd be out of this predicament. Just not true. And the reality is, if businesses of whatever kind pay higher taxes, those costs we just be passed on to the consumer. So the very people Obama is "looking out for" are being hurt the most. Think about it for a bit . . . before you vote for a socialist next time. The peoples socialist republic of Russia failed. Europe, a democratic socialist society, is failing. It's been tried and fails every time! Pay attention to history. Margaret Thatcher said it best, "You always run out of other peoples' money".
It this 250k on net or gross?
So explain to me again why the AMA supported the current administration...
AMA should step in and stop this madness in medicine. Medicare rate reduction keeps haunting all the physicians every year. It's bad enough with Cardiology got picked on by huge reimbursement reductions. With all those reductions in reimbursement will definitely keeps the doc income less than 250K. It's a sad state of affair.
Whenever my heart even thinks about being a liberal, my conservative brain wakes up.
This always happens when I stop by to get groceries and stand behind some obese family, piling food on a conveyer belt and paying for their food with food stamps!
Meanwhile I have to pay for my food with money I earned doing pelvic exams.
When did it become okay to turn people into dependent zoo animals.
Is it not better to go out and forage?
Sink or swim?
Are we helping anyone by giving them stuff instead of making them earn their money?
You know, teach a man to fish, feed him for a lifetime. Give a man a fish, feed him for a day!
I am totally ok with a 39% tax rate as long as everyone in this country works and pays 39% tax.
Eliminate welfare, food stamps, WIC.
These programs only encourage laziness and fraud.
Yvonne,
You are obviously frustrated and, to my eyes, your message is expressing a need for some care yourself. With the attitudes you are expressing about our patients, you may not be a safe provider. I wish you the best and I hope you can do the same for poor and sick people, regardless of your frustrations. I recognize that there is waste and corruption in our system. I am not convinced in the least that the majority of the "47%" are benefitting legitimately from the programs, especially the children and disabled.
Yvonne,
Your comments speak to two very saliant points. 1. You're absolutely right. Our entitlement programs don't teach our neighbors in need to better themselves. The programs teach them to be takers. It's a shame. And 2. your comment about paying 39% if everyone did, speaks to the fairest tax program of all; one flat tax, whatever that percentage is . . . 10% of million is the same proportion as 10% of $10,000. We'd all pay our fair share. We'd all take equal accountability and responsibility for our collective society. And the rich would pay "their fair share" as Obama whines about. And if you look at studies on tax policy, it proves to generate higher revenues and less people on the public doles.
Finally, I am not going to make judgement as to the need for you to seek care or the safety of your care . . . That'd be a little flippant of one. Much like the current administration in D.C., passing judgement without personal knowledge. Best,
Most docs do not make over $250,000