I was not going to tackle the issue of the new tax law changes at this time. However, Ben A. wrote an excellent response to my “Henry” blog last week. Ben pointed out accurately that the top 10% of the income earners in the United States pays over 70% of the tax on personal income. After reading this, I went back and looked at the data that I had gathered from the IRS. From this I estimate that in 2009 42% of the total federal income taxes in America will be paid by the top 1% of the income earners even though this group generated less than 25% of the total personal income. About 62% of the total tax bill will be paid by the top 5% of income earners. This 5% group accounted for only about 38% of the total personal income.
Ben’s figures and my own are also in sync in terms of those in the bottom 50% of income earners in America. My estimate for 2009 is that the top 50% pays 98% of the federal income taxes. In other words, about one-half of the folks in America pay very little or no tax whatsoever.
Now politicians are telling us that the so-called “wealthy” should pay more income tax. The problem is that it is not necessarily the wealthy who will have to digest this additional burden. It is much more about high income producers than about people who are wealthy. In fact, I just crunched the numbers about those occupations which will be given the priviledge of paying for what is being positioned in marketing jargon as a “tax on the wealthy.” Listed below in rank order are the top 15 occupations [in total number not in concentration] that will contribute an enormous amount of this new tax. These are the top 15 out of more than 500 occupations. Those in the upper income strata [$200K/$250K and more] in each of these 15 account for only about 1.3% of all income producers but will account for 40.5% of all those who will be burdened by the “tax on the wealthy.” Even before this new tax burden, this group was paying about 50% of all the federal taxes on personal income.
Top 15 Occupations Contributing to the Tax on the Wealthy
1. Senior Corporate Executives/Officers
2. Physicians and Surgeons
4. Senior Sales/Marketing Executives and Managers
5. Managers of Retail Stores
6. Management Consultants
8. Operations Managers
9. Investment Managers
10. Sales Professionals: Industrial Products/Services
11. Investment Consultants
12. Managers of Industrial Sales Professionals
13. Real Estate Brokers
15. Professors – tied with Personal Financial Advisors
Copyrighted by Wealthworks, Inc., 2010.
4 thoughts on “New Tax Law Targets America’s Most Productive Workers”
In all fairness, not all of these occupations are “productive” simply because they are able to capture huge incomes. Attorneys, for example, are largely a secondary cost of government, in effect another form of taxation. Every time Congress passes some new comprehensive reform bill, the big firms are able to bill more and more hours “helping” their clients comply with all the complex statutory and regulatory clients. And the plaintiffs’ firms get more and more causes of action that they can bring against those same clients, generating more fees for themselves and for the billable-hour defense lawyers.
Accountants, to some degree, similarly benefit from the increasing complexity of the law and the increasing powers of the government. The sprawling tax code and laws like SarbOx are a great boon to the profession.
Physicians, meanwhile, seem to benefit greatly from a health care system that has been dominated by the government since the creation of Medicare. Their services are valuable, no doubt, but it is hard to understand the staggering incomes so many physicians receive. My sense is that they are able to capture so much income because of the inefficiencies of our heavily regulated and subsidized third-party payment system. I suspect that in a truly free health care market physician pay would be much, much less, though still well above that of ordinary mortals.
So I’m not too moved that these occupations are paying more in taxes, since they owe much of their wealth to the government. It would be preferable, however, to see them capturing less wealth from more productive sectors. Supply-siders need to make the case that government subsidies and legal complexity themselves impose significant costs on productivity. At present, tax reformers should be more concerned about corporate income taxes, which truly punish productive enterprise, and with taxes on capital gains and dividends, which discourage investment.
I love reading Mr. Stanley’s blog. I’ve read his books. I greatly appreciate how he tries to hammer home the point that we should live below our means.
As a physician, I thought I would give some numbers to your readers to ‘justify’ my salary. I went to to higher education school for 8 years- 4 of undergrad, then 4 of med school. I lucked out by going to state school for undergrad,so, did not have much to pay back. However, med school was a different story. By the time I graduated, I had 140,000$ to pay off. So, note that while I was in med school I could not work because of the intense study required.
Okay, so that 140,000 was at 8% interest. Now, I go into residency training which for me was 4 more years.. The typical salary for a physician in training then was around 40,000. Please note that our work weeks were not 9-5. They were, and are still, more like 70 hours/week.
So, let’s see, I have now spent at least 16 years of my life for the privilege of becoming a licensed practicing physician. By the way, I also wanted to get married, have kids, maybe afford a small house, AS WELL AS, pay off my loans every month. We physicians joke about our med school loans as our “2nd mortgage”.
Most physicians are not paid astronomical sums. A lot of physicians gravitate towards the high-paying specialties because otherwise we would be paying off our loans into our golden years. What Charlie sees is what Mr. Stanley talks about that they are a lot of the status-seekers who pay through the nose for frivolous things.
However, in deference to Charlie’s response, I would be happy to be paid much less if a few things were to change such as government subsidies for med school (this is actually done in other countries) so that a person would not feel pressured to enter a high-paying field just to pay off their loans.
As far as the free market economy vs. Medicare for health coverage, that is a huge topic. I would venture to guess that if Medicare were abolished tomorrow, there would be a lot of angry older people calling their Congresspeople.
This is an interesting blog entry…interesting because it proves illustrates two things ; how one can use real numbers to bolster one’s pre-supposition/bias and how Dr. Stanley can write fabulous books on how to become wealthy by living below one’s means and then blog about how taxes are the real problem. Please allow me to address both.
First, your pre-supposition that the highest earners are the most productive is erroneous. That is visible today as the economic crisis continues and it is in full view in your books. Wall Street and real estate professionals ( as well as day traders a few years ago ) were some of the highest earners in society. Yet they were creating nothing of value. To be productive, one must build something of value…not just move things around and make money on transactions. The same happened with Enron. Enron caused rolling black outs in CA and drove the price of electricity through the roof thus making vast sums of money….without producing any value what so ever. You will have to do more than provide IRS numbers as proof of your assumption. The numbers do not reflect PRODUCTIVITY, they reflect INCOME. Dr. Stanley and many others take it upon themselves to make the connection so that their view seems more plausible. It is not called the Productivity Tax.
One last example : I have a friend who is the President of a very large biotech company. Even he admits that if his janitorial team did not show up to clean the toilets and the conference rooms, it would be impossible to do business. I would say that is pretty darn productive.
Regarding the Henry’s of the world : Dr. Stanley has made the point over and over that the reason Henry isn’t rich is because HE spends all his money. The tax rate for high earners is historically the lowest it has ever been, yet that did not preclude earlier generations from wealth. In fact, the savings rates were higher and net worth was greater. In fact, Dr. Stanley profiles people with investments particularly BECAUSE they only pay 15 % on capital gains, thereby lowering their effective tax rate.
I liked it better when Dr. Stanley stuck to objectively documenting ways to reach financial independence instead of furthering a personal, political preference. I am deeply disappointed.
One final comment : I once heard that personal finance is 80% individual behavior. After reading all of Dr. Stanley’s books, I would have to fully agree – it is not the behavior of the government but what we do with what we have. ( By the way, I am not pro-high taxes and I do believe that they can be crippling, I just think that your extrapolations here are incorrect, with all due respect. )