Thursday, October 16, 2008

Poor, poor Joe the Plumber!

You've heard it all over the mainstream media and in the blogospohere: Barack Obama wants to impose ruinous new taxes on poor Joe the plumber, taxes so onerous that they would make it very difficult for the guy to make ends meet.

But how close to the truth are these claims? Let's examine the facts for a minute, as realayed by this BBC news article:

Joe Wurzelbacher is an Ohio man thinking of buying a plumbing business who has briefly come to prominence in the US presidential debate.

Last week, when Democratic candidate Barack Obama came to his hometown of Holland, Ohio, Mr Wurzelbacher told the presidential hopeful that the Democrat's tax plans would prevent him from buying the business where he has worked for years.

Mr Wurzelbacher said the company earned $250,000-$280,000 (£144,800-£162,250) a year, and he challenged Mr Obama: "Your new tax plan is going to tax me more, isn't it?"

Mr Obama said that under his proposals, taxes on any revenue below $250,000 would remain the same, but that earnings above that level would be subject to a 39% tax, instead of the current 36% rate.

So, according to the facts as spelled out above, were Joe the plumber to buy the business in question (keep in mind that he doesn't even own this business yet, so at this point the argument is purely speculative) he would fall into that roughly 2% of small businesses that would pay additional taxes under the Obama plan. OK, but how much more would Joe end up paying? Well, do the math:

1) All income below $250,000 remains taxed at the current rate.

2) according to Joe's own estimates, that leaves between $0 to $30,000 that would be taxed under the new rate.

3) Let's assume a "worst" case scenario and use $30,000 as our baseline.

4) Obama's plan represents an increase of 3% over the current tax rate (39% vs. 36%)

5) Doing the math, we get $900

So under the Obama plan, Joe, whose business brings in $280,000 profit every year, would pay an additional, back breaking $900

And that's going to keep him from buying the business? Not exactly Joe the pauper, is it? Something just doesn't add up.


Anonymous said...

You forgot Obama's additional payroll taxes. Assume Joe earns $150,000 a year in salary from the plumbing business. Current Social Security cap is at $102,000. Obama wants to eliminate the cap. So now you have an additional $48,000 exposed to a rate of .124. That's $5,952 in new Obama taxes. Plus $900. A $6,852 annual increase in taxes is significant in any small business owner's book!

Anonymous said...

of course in 2006 Joe only earned $40k, so that's one heck of a raise...

Honor MacDonald said...

And the classic McCain argument is that these "extra" taxes are going to prevent Joe (and businesses like his) from being able to "create more jobs".

So... Even if we include your estimate of additional payroll taxes, anyone want to line up for the <$7000 a year job Joe would theoretically create if he didn't have to pay these taxes?

Anonymous said...

When your boss says that he doesn't have as much money to give you a raise, remember the comments above.

Mike Schinkel said...

All these comments arguments against Obama's plan assume the fallacy of a economy in steady-state. If the middle class doesn't become more secure, and nothing I've heard McCain propose addresses that, Joe the plumber may buy the $280k business but find that it makes $180k next year and $80k the year after simply because most people can no longer afford to hire him. Obama's stated plan has a lot better chance to shore of the middle class than McCain. Frankly I'd rather pay 40% tax on $280k than 30% tax on $180k (DO THE MATH).

Also, arguments constantly confuse (I think on purpose) corporate taxes vs. individual taxes. I'd argue to eliminate corporate income taxes and increase individual taxes but with tax rates increasing for earnings. Doing so has given Ireland a thriving economy.

Randall said...

I think the problem most people have, especially people like me, is that the federal government doesn't spend the money they get right now in an appropriate manner. I rather pay 40% of $280 than 30% or $180k, but the current state of politics in the USA means either total is going to be spend frivolously. Until the government gets it's spending under control, I'm not happy giving ANY amount.

In addition, the current level of taxes have no correlation to the amount the government needs to run the programs it has in place. The federal government says it requires X% from an individual or company, but they're going to spend more than they get, so what good is "contributing" MORE to taxes than under the current system?

Simple economics show that the more capital a company has, the easier it will be to expand (or in the current economic environment, merely stay in business and be able to hire employees). 36% for $X or 39% for $Y has no relation to any NEED the government has for levied taxes.

Don't get me started on the unconstitutionality of the hundreds of federal government programs that these taxes pay for...