Obama's Plan Better for Joe-the-Plumber and Jobs: Just Run the Numbers!

The airwaves and netroots have been full of wild criticisms and claims about the impact of Barack Obama's tax proposals on small businesses like Joe-the-Plumber ("JtP"). Stupidly, too much vitriol has been directed at Joe himself, questioning whether he really is going to buy a business, and focusing on whether or not he is licensed.

C'mon. Give the guy a break. In fact, giving Joe a break is exactly what Barack Obama's tax proposals do.

Our prized "pundits" prefer heat to light. It's what keeps them in business. But is it too much to ask that someone, someplace, sometime, actually runs a few simple numbers to see what the implications really are?

If JtP's business earns less than $250,000 after all deductions and expenses, then there is no point in this analysis. Obama's tax plan provides tax relief for net incomes under $250,000.

Let us assume, therefore, that the business does earn more than #250,000, in fact, it does so well that it hires another worker (in the US, that is).

JtP will pay that worker a salary, plus benefits. Let us assume that the two together are $65,000.

Each employee generates some additional costs -- space, desks, paper, ink, gasoline for the truck, equipment to do the jobs. Let us be conservative, and assume that is only another $5000.

So, the total cost of hiring the worker is $70,000. JtP would not hire that worker unless doing so would at least pay for itself -- i.e., the JtP business would grow by at least $70,000 in revenues.

What about taxes? Well, that $70,000 of additional income is offset by the $70,000 in expenses for hiring and employing the worker. So, no matter what the tax rate, there is no increase in taxes, because there is no increase in net profits. Are you with me so far?

But, Obama gives JtP a $3000 credit on its taxes for hiring the employee. Thus JtP saves taxes by hiring an employee who adds nothing to profits but whose work pays for his own salary. Not a bad deal for JtP.

How much additional profit, over and above his salary, does the additional employee have to generate before the 4% higher tax rate Obama proposes on incomes above $250,000 actually increases JtP's taxes compared to the current Bush/McCain tax rates?

The answer is more than $75,000 over an above the $70,000 in salary, benefits and consumables the employee generates. (4% of $75,000 = $3000 of increased taxes, offset by the $3000 credit.)

That is, a total of an addition $145,000 to the business. Up to $145,000 of additional revenues, with the $3000 credit, JtP has hired a worker, expanded the business, and not paid one penny additional tax under the Obama plan.

How many workers add $145,000 to the total revenues of a company? If he worked 40 hours per week, all 52 weeks per year, without a holiday, and charged $70 per hour, and was fully-deployed for all 40 hours every week, he would bring in another $145,000. That assumes no unscheduled time, and no administrative time, each unrealistic assumptions.

At $145,000 additional revenues to the business, JtP would have done as well under the Obama plan as under current tax policy.

And, at anything less than adding $145,000 to total revenues, JtP pays lower taxes under the Obama plan because of the $3000 tax credit.

Which plan makes it more likely for JtP to add another employee?

Which plan, then, is more likely to increase employment?

Of course, if Joe's PR strategy works, if his book deal goes through, if he cuts a record... well, then he's a celebrity, and, like other celebrities, he will not even notice the additional 4% on income over $250,000 -- no one did during the Clinton years, and we were all wealthier then.

But, if he ever returns to plumbing, Joe's business will do much better under Obama's plan. And, if he decides to sell his business and live the good life -- and let us say he gets 2X revenues with that additional employee, he would receive nearly $800,000 for the business--under Obama's elimination of capital gains taxes it would save him $120,000 for his retirement.

Joe, are you here?

Comments

[AprilAngel]

Thanks for this article that clarifies what Joe's missing with Obama's plan, if he indeed Joe is REALLY a plumber. Does he have a plumber's license? Is it true that he really is thinking of starting his own plumbing business? Or, is he just another of McCain's lies? With Joe now having a publicist, a lawyer, and wanting a record deal, what's happened to his so-called plumbing business? Anyone have answers?

[robbie44]

How many "Joe the Plumbers" does it take for McCain to win?........The answer my friend , is blowing in the wind......The answer is blowing in the wind.

[Alan4s]

Hey! That's not fair bringing number and facts and stuff into this. You're violating JtP's first ammendment rights, or something. Also.

[Travis2008]

I ran these numbers when I first saw the tax plan from Senator Obama. It's not that complicated to do.

A friend of mine owns a small business and was worried about what she had heard in the media about Obama's plans to raise taxes. I told her to go to the website and check it out for herself. She did and came back very excited by what she discovered.

It's just not that difficult to find out for yourself.

[RApplewhite]

Thank you for "running the numbers" in such a way that even a dummy like myself could follow. Please continue to continue to inform readers. Perhaps, in their desire to always do an expose on "imagined " conflicts, the pundits shy away from research, to be first in "Breaking The News".... After all, their forte is opinion, and, not necessarily information that the electorate can use to make an intelligent decision... Heck, if you listen to them, "Joe The Plumber" sharpens McCain's message", will suffice, instead of a comparison of the candidates' tax code policies and how they affect "JtP". No wonder why it seems that one half the country lives in an alternate reality.

[amcg50]

Not that I have anything against all of the working stiffs; but, Joe the (unliscenced) Plumber is a joke. Now he thinks that he is a forign policy expert. Even a fox News anchor called him down

[LeftRight]

Not to mention the fact that in order for JtP to be paying more in taxes he's now taking in an extra $75,000 in increased INCOME, above and beyond what it costs him to HIRE that employee!! That MORE than offsets the additional $3,000 in taxes!

[robbie44]

I can't wait to read JP's new book..... "Joe the God".

[obamagirl1968]

That is TAXABLE income. If the business uses alternative fuels, provides certain benefits to the employee or even gives to charity/pro-bono, they will have LOWER taxable income. So a business wih INCOME of $250K/year will have LOWER TAXABLE income and still benefit from Obama's plan....duh!

[jick]

Hey Paul, does anybody else realize that JtP is the real-life incarnation of Chance Gardiner (Being There)?