Joe The Dumber Plumber

I realize that Joe The Plumber is not named “Joe”, he’s not a plumber and he lied about planning to buy a plumbing business. That aside, it’s amazing how his ignorance about business and taxes has been bandied about by McCain as a legitimate issue. Here’s a portion of “the transcript between him and Obama”:

bq. Joe: I’m getting ready to buy a company that makes about $250,000 … $270-$280,000 a year.

bq. Obama: All right.

bq. Joe: Your new tax plan’s gonna tax me more, isn’t it?

bq. Obama: Well, here’s what’s gonna happen. If you’re a small business which you would qualify as, first of all, you’d get a 50 percent tax credit, so you get a cut on taxes for your health care costs. So you would actually get a tax cut on that front. If your revenue is above $250,000, then from $250,000 down, your taxes are gonna stay the same. It is true that for…say, from $250,000 up, from $250,000 to $300,000 or so…

Obama makes a good point that I think is lost on a lot of people. Most people hear that the top tax bracket is 35% and they conclude that they are paying 35% in tax. We have a progressive tax system, you only pay the tax in each bracket for the dollars you make within that bracket, not on all of your dollars. I learned this when I filed my first tax return when I was 15, why do most people still not understand this?

bq. Joe: Well, the reason why I ask you about the American Dream I mean, I work hard. I’m a plumber, I work 10-12 hours a day…

bq. Obama: Absolutely.

bq. Joe: …and I’m, you know, buying this company and I’m gonna continue to work that way. Now, if I buy another truck and adding something else to it and, you know, build the company, you know, I’m getting taxed more and more while fulfilling the American Dream.

Joe, if you buy another truck or anything else for your business, that’s a business expense. You don’t pay taxes on business expenses, you pay taxes on the profit your business earns.

I don’t think this hypothetical plumbing business makes $250K/year in profit. If that were true, I’m in the wrong industry! But let’s assume it’s true. If the plumbing business that you want to buy is generating $250-$280K/year in profit, you’ll be a wealthy man once you buy it, so you’ve accomplished the American Dream. Congratulations! Even if you pay a higher tax rate, so what? You’re rich. You’ll still be rich after you pay taxes.

If you’d prefer to no longer be wealthy and have to pay higher taxes, you have a great option that all wealthy people have: give money away until you’re not wealthy and you’ll pay lower taxes. That is, if you have no understanding of simple math, you should do that.

But the reality is that this hypothetical plumbing business makes $250-280K/year in _revenue_. You aren’t taxed on revenue, you’re taxed on profit. The profit is likely quite a bit less than $250K, so you’d have no tax increase at all.

It amazes me how the Republican Party has convinced non-wealthy people that they should feel sorry for wealthy people and their higher tax bill. Our schools really need a better math program.

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