The Plastic Surgeon and the Small Business
Dr. Kenneth Hughes, Harvard-trained, board-certified plastic surgeon in Los Angeles, treats a large number of plastic surgery patients each year. Plastic surgery is a service industry, and plastic surgery is a business. Many plastic surgeons represent small businesses that do not employ a huge number of employees. In addition, many of these offices are not making a large income each year. With the pandemic and the limitations on surgery, some of these businesses are finding it difficult to survive. Although many have no sympathy for the plight of plastic surgeons or doctors of any kind as they are viewed as rich, these rich people are not as rich as you think. Yet, they are paying a huge amount in taxes.
A recent article by financial samurai, aptly titles Are The Top 1% Getting Screwed The Most? encompassed some points that are worth reiterating. The article is quoted in large part below. The debate rages on whether the top income earners who pay most of the federal taxes or the bottom 47% who pay little-to-none of the federal taxes, should pay more taxes and help our country.
Clearly, the answer is that everybody should pay some federal taxes, since everybody is benefiting from the federal government.
Have you ever stopped to think who is really being screwed here? If you are paying little-to-no federal taxes, is the government, rich people, and corporations really screwing you? If you are in this situation, are you hoping to pay more taxes so you can get screwed more? You can’t have it both ways now.
Perhaps the people really being screwed are the “HENRYS”, the Higher Earners Not Rich Yet folks who are in the top income tax brackets (33%/35%), and who don’t make the majority of their income from dividends and long term capital gains which are taxed at 15%?
This is something to really think about here, because for some reason, people equate the Top 1% with the Top 0.1% who are indeed like Warren Buffet paying a lower tax bracket than many of us middle class citizens.
If you want someone to blame for your high effective rate of taxation (which isn’t really that high internationally) it is less “welfare queens” and more a system in which actually working for a living is disincentivized. You’re right about the bite of taxes if you’re a high wage worker (say lawyer, doctor, CFO at a small company). You’re easy to track so you’ll probably be paying close to 30% in income tax, 6% in payroll tax, 8% in state tax, 1-2% in unemployment fund taxes plus sales tax, fees and all the rest. Heaven help you if you’re a small business owner earning a few hundred k and eat self employment taxes too. It’s not hard to go above 50% of earned income if you’re a hard working small business owner in the 130k+ range.
On the other hand you have rich people who are not high wage workers. Who didn’t spend decades of blood, sweat and tears getting either themselves or their small business into a position to have the enviable problem of a 400k paycheck. They are the “investor class” who pay 15% on most of their income since they’re buying and selling stocks is somehow privileged over letting everyone else do the real work that makes that stock rise.
Not only is there a much lower income tax on long term capital gains, but of course payroll taxes, unemployment taxes and all the rest fall away too. This isn’t even getting into tax dodges like “like kind” exchanges which can let you buy and sell investments with literally 0 tax liability year to year or carrying forward losses to offset taxes on gains.
Warren Buffet and Bill Gates mentioned that with their investments and portfolios they could literally defer any and all taxes until after they’re dead. One of the world’s richest man can literally pay nothing in taxes for a decade or more in our current system while a Manhattan lawyer who grinded it out for 20 years of school and 10 years of 80 hour weeks eats a 50% effective rate.
That’s where HENRY (high earnings not rich yet) comes from, the teeming masses of strivers who do actually pay a lot of taxes. The almost rich who subsidize the super rich investor class. Honestly none should be out more forcefully against the wall street plutocracy then the high income worker since nobody gets screwed over more in favor of Wall Street types than them.