Comments on: Business 101 For Joe The Plumber

By: Jay

Jay — Fri, 13 Mar 2009 22:39:39 +0000

If I had a business showing over $250,000 in PROFIT and the excess was taxed heavier, I would be more inclined to reduce my tax liability by investing in the business by hiring more employees, upgrading equipment, increasing benefits, etc.

By: Louise

Louise — Wed, 22 Oct 2008 20:56:21 +0000

Jason,
First let me say that I defer to your knowledge of economics, which is far beyond mine. And thanks for reading my article and taking the time to comment. I was trying to limit my article to just the effects of the Obama and McCain plans on small business owners, since that was the position Joe the plumber was taking in his questioning. I didn’t get into the effects on individual citizens or employees – only on those who own businesses that profit in excess of $250,000/year.

But I am curious about your statement that “For businesses, health insurance still counts as a labor costs and would reduce their net profit and thus tax liability.” If health insurance premiums would no longer be tax deductible for businesses under McCain’s proposal, how is this possible? A business can spend whatever it likes, but when it comes to paying taxes and calculating profits, only bona fide tax deductible expenses can be subtracted from net income. For example, a business owner can spend $20,000 on Armani suits to wear to the office, but this isn’t an allowable tax deduction. So even though it may be money that the business spends, it can’t be deducted for income tax purposes. My interpretation of the McCain proposal is that health insurance premiums would no longer be a deductible expense for business owners. Can you expand on this for me?

By: Jason Shafrin

Jason Shafrin — Wed, 22 Oct 2008 17:50:18 +0000

I do not believe that your math is correct concerning the change in the non-tax deductibility of health insurance benefits. Currently, no taxes are paid on health insurance. If health insurance businesses were taxed, INDIVIDUALS would pay the tax. For businesses, health insurance still counts as a labor costs and would reduce their net profit and thus tax liability. If individuals would receive a $12,000 health insurance package from work, currently they do not owe any taxes on this benefit. If individuals were taxed on this benefit, then an individual in a 25% tax bracket would owe $3000 in additional taxes. If you are in the 40% tax bracket, you will owe $4800. This means on net, the McCain plan would decrease your taxes by $2000 for the 25% tax bracket and $200 in the 40% tax bracket.

Also, even if the employer paid for health insurance for a group, each individual would be taxed according to the average cost of the health insurance plan per worker (likely weighted by whether it was a family or single plan).

By: UnaffiliatedIndie

UnaffiliatedIndie — Sun, 19 Oct 2008 00:52:14 +0000

Forget the character attacks, however deserved or not. Let’s deal with the actual issue that was raised. Here’s a relevant excerpt from the conservative Wall Street Journal’s article of OCTOBER 17, 2008, ‘As Joe the Plumber Grows Famous, the Politics Get Murkier’:

“To reach a level that would be affected by Sen. Obama’s proposed tax increase, Mr. Smither said, a mom-and-pop plumbing company like Newell would have to clear $5 million in annual sales. [Joe’s company actually reports only $100,000 in sales.]

Even if Mr. Wurzelbacher reaped taxable income from his business of $280,000 a
year, he’d pay only about $900 more a year in taxes under Sen. Obama’s plan, which
would raise the tax rate on the income between $250,000 and $280,000 to 36%
from 33%.

[...]

If Mr. Wurzelbacher earns the wages of a typical Ohio plumber, $40,600, and holds a $90,000 mortgage, he would see a TAX CUT (emphasis added) under Sen. Obama’s plan of more than $1,000, compared with no tax reduction under Sen. McCain’s.

If he succeeds in buying the plumbing business where he works, he could see even more tax benefits, including Sen. Obama’s proposed elimination of capital-gains taxes for small-business investment, a 50% tax credit to purchase health insurance for employees and a $3,000 tax credit for every new hire over the next two years.”

Other issues and ‘things we wish were true’ aside, better to acknowledge facts and deal with them objectively, at least from our end. And let’s not be distracted by whether Joe ‘padded his resume’ in order to get the answer to a question in which he was interested … what matters in the TOPIC, not whether Joe isn’t entirely on the up-and-up.

By: Joe Paduda

Joe Paduda — Fri, 17 Oct 2008 11:25:54 +0000

Louise/Jay – great post. couple other observations. Joe looks to be fit, he’s young, and single. He would likely qualify under the McCain plan for a decent plan at a low price. but, and it’s a big but, if he has any pre-ex or other medical issues, he’s not going to be able to find coverage. And, under the McCain proposal, there’s very little to prevent an insurer from canceling coverage if Joe gets sick.

I wonder if Joe has coverage now, or if he’s relying on the rest of us to pay for his health care? Now THAT sounds like socialism!

By: Shawn P

Shawn P — Fri, 17 Oct 2008 03:33:41 +0000

This looked like it had a chance to be a discussion about serious issues if he was a sincere “average joe”. But the guy was BSing with Obama in the youtube video and you can tell by the way he is talking. Now he is apparently spouting off on the news about how he hates to be paying taxes for social security, and he hates hearing people not support our country and the war in Iraq.

Come to find out he has a lein on his house for not paying his taxes. Come on Joe! Freedom isn’t free buddy. There is all something the govt does that we are pissed our taxes are paying for, but you can’t just not pay.

By: Krista

Krista — Fri, 17 Oct 2008 02:53:44 +0000

I always thoroughly enjoy reading your posts. Your discussions of our health care system and the various issues in the industry are refreshing and actually enjoyable to read. Most of the healthcare blogs out there are quite dull! Great post – all we’ve been hearing about is “Joe” and who can do what for him better… but nobody has really given us the facts or the details. And unfortunately, most people don’t take the time to sit down and figure out the facts for themselves.

By: TaxProf

TaxProf — Thu, 16 Oct 2008 23:19:35 +0000

If Joe’s business has a $100,000 profit annually, the McCain plan would give the business a 1.4% decrease and the Obama plan would decrease his taxes by 1.8%.

By: Damien Ryder

Damien Ryder — Thu, 16 Oct 2008 20:54:18 +0000

This is what Obama gets for going around talking to “average Joe’s” like this. The McCain campaign has made sure he only talks with people who agree with him and ask him questions like “when are you going to take the gloves off” and “I don’t trust Obama, he’s an arab”