Time to blow up archaic doctors’ deal
Doctors deserve to be well paid.
They work hard and study hard. Long years of medical training delay their earnings and advance their debt load.
And as doctors keep reminding us, those hefty gross incomes are weighed down by steep overhead. To be fair, you have to deduct the cost of equipment and expenses to figure out their true earnings. But that’s still not the full story. No matter how often it’s mentioned in columns, people forget that most doctors also enjoy a special tax benefit unavailable to other workers. They get to incorporate themselves, treated like a small business that pays a much lower tax rate than regular rich folks get.
Even better, they can share the wealth by “sprinkling” it among spouses and adult children — family members who aren’t necessarily part of the family business, but are typically taxed at a much lower rate.
It’s a sweet deal for doctors, but unsavoury for the rest of us. There’s nothing illegal about it, but nothing right about tax dodges that exploit tax loopholes with surgical precision to shelter earnings.
Now, the federal Liberals — who won an electoral mandate, fair and square, on a platform of tax fairness — say they want to recover the lost tax revenue. Doctors are crying foul, tying themselves into knots over loopholes.
They are not alone — dentists, accountants and lawyers are also frothing. True, no one is crying for the Canadian Bar Association, which claims its lawyers really, really deserve the tax break too.
But doctors occupy a special place in the public space, and they are apoplectic. Physicians were playing the victim card again this week as Prime Minister Justin Trudeau met the premiers to discuss his planned tax reforms.
The Ontario Medical Association head, Dr. Shawn Whatley, warns of a brain drain if doctors flee “an unde- sirable place to practice.” Dr. Nadia Alam, the OMA’s president-elect, says the government has declared “open season on doctors.”
About 70 per cent of Ontario’s 29,000 practicing physicians have incorporated, most in the last 15 years after the province made a relatively obscure concession in fee negotiations allowing them to incorporate — and to let their spouses be shareholders. It was a convenient way to enrich doctors without depleting the provincial treasury, by quietly siphoning money away from federal tax revenues (though that ultimately affects Ontario’s tax take, too).
The change mostly benefits higher-income specialists who would otherwise pay the highest marginal tax rate of more than 50 per cent on their hefty six-figure incomes — compared to the mom-and-pop small business tax rate of about 15 per cent. It allows doctors to redirect money from their private companies to their spouses or children as dividends, at a lower personal tax rate.
The result is higher after-tax incomes, which doctors never mention when pointing out the discrepancy between gross and net pay. Doctors counter that they need the tax break to help save for their retirement, because they don’t get pensions like the rest of us (bearing in mind that 60 per cent of Canadians still don’t have a workplace pension).
In fact, physicians (like lawyers) can access tens of thousands of dollars in RRSP tax shelters beyond the reach of most workers. The lack of physician pensions is a choice they made collectively a half-century ago, when they adamantly refused to be deemed government employees despite earning virtually all their income from public funds in a now archaic fee-for-service model.
That income anachronism is debilitating for all sides — patients, doctors and the government. After years of brinkmanship, physicians are still without a provincial contract — doctors rejected the last deal negotiated by their official bargaining agent (the OMA), because the government sought to keep a lid on the overall growth of their pay envelope.
Now, with a provincial election looming, Premier Kathleen Wynne is keen to negotiate a deal anew. Both sides have agreed on arbitra- tion, but Ottawa’s proposed reforms have added a messy new wrinkle.
Given that the province threw in that dubious tax dodge as a sweetener several years ago, an arbitrator might conclude that Queen’s Park is on the hook if Ottawa makes it dissolve.
No matter that it was never a wise tax policy, or that many doctors are defending the indefensible with a straight face (until red in the face) — it was undoubtedly an inducement, and the OMA will demand to be compensated.
But closing that loophole could open another door. If the federal proposals force doctors to revisit the historic contradictions in their tangled system of taxation and compensation, then why not reexamine the fee-for-service model that is a half-century out of date?
Long overdue reforms to remuneration and taxation would not only be fair, but far more efficient for everyone in a health care system still stuck on piecework for patients. Doctors — and the people they serve — deserve at least as much. Martin Regg Cohn’s political column appears Tuesday, Thursday and Saturday. mcohn@thestar.ca, Twitter: @reggcohn