My Son the Electrician “Who makes more, a doctor or a electrician?” Larry asked his family over dinner.“The doctor,” they all chimed.“OK, who has the higher living standard?”Silence, interrupted quickly by Dayle, Larry’s wife.“The electrician, duh! The doctor has to take on a mountain of debt to attend college and med school and needs to repay it. Plus, the electrician Can start work right after high school, and there’s no malpractice insurance. It obvious. “Maybe to you. but it sure wasn’t obvious to me, “ Larry.“After all general practitioners in Ohio—the docs I’, considering—average $146K a year once they finish their residency. Ohio electricians also have to train for five years to get to be the top electrician at which point they can make $55K. There’s a big distance between $146K and $55K.”“Right,” said Dayle, “But let’s talk tuition. What are you figuring for tuition?” About $33K for each year of college and $41K for each of four years in med school. These are Boston University rates; I figured they should get the best training. I am also assuming a three-year residency paying $44K a year, after which the doctor’s regular salary kicks in. “OK, and how high did you se the borrowing rate?”“Good question, I assumed 9 percent after checking several Web sitesand calling Chase’s student lending department. This seems high , but it’s actually fairly low relative to what typical lenders are charging students who take on tons of debt.”“Gee,” offered Alex, Larry’s sixteen year old , “maybe I should be a electrician?”“Good choice,” said Larry. “The doctor’s living standard is actually 15 percent below the electrician’s.” “I don’t believe it. “said Alex.“Don’t move, Alex,” said Larry. “I’ll explain why it’s true. After you factor in the costs of medical malpractice insurance, the doctor earns only 2.4 times more than the plumber. But that’s just look at their gross incomes. If you subtract all the interest payments the doctor has to make, the doctor’s net income is only two time the electricians, or lower, for most of their working years.”“Next you are going to tell me about taxes, right?” asked Alex, who had gotten up and begun edging toward the door.“Exactly,” said Larry, brimming with pride. “The doctors pays disproportionately more taxes for two reasons. First, the federal income tax and Ohio state income tax are progressive. Second, the feds and Ohio tax the doctor’s gross income, not his net income—his income net of the interest payments he’s forced to make in paying of his debts,” You can deduct up to $2,500 of interest paid on student loans, but that’s a small portion of the total interest payments the doctor makes in most of his working years.“Once you factor in taxes, malpractice insurance premiums, and interest payments, the doctor’s and the plumber’s net incomes are very similar in any of the prime working years. For example, at age forty the doctors nets $41,992 while the electrician nets $40,817 or more.“But don’t forget, the plumber’s net income is much higher than the doctor’s for eleven years, between the ages nineteen and twenty-nine.The doctor’s in school for eight years and then does his internship school, he earns nothing and has to borrow not only to pay tuition but also to sustain his living standard. And when he’s an intern and resident, he earns less than the electrician on a gross basis and dramatically less on a net basis.”“J,” said Alex, “electrical work is looking pretty good. Guess I can skip my homework.” “And I didn’t mention Social Security benefits. They’re provided on a progressive basis. So the doctor gets more, but not that much more. Throughout retirement, the doctor’s Social Security income is only 50.2 percent higher than the electricians even though his gross earnings are 180 percent higher. Moreover, a larger share of the doctor’s benefits get hit by federal and state income tax because threshold’s beyond which benefits are taxed aren’t indexed for inflation!”
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
No comments yet.
Leave a comment