Friday, October 17, 2008

Joe the Plumber and tax advice

Much was made over the situation of Joe, a plumber in Ohio mentioned repeatedly in the last US Presidential debate. Joe claimed to want to buy a plumbing business that was making over $250,000 a year. He wondered if Sen. Obama's plans would raise his taxes.

Economix, the economics blog for the NY Times, explains some aspects of accounting and tax code that relate to Joe. If his business is indeed making over $250,000 in profit (not revenue), his taxes would go up under Obama. Under McCain, they would fall. However, small businesses making profits over $250,000 annually are quite rare. The Tax Policy Center believes that only about 2% of small businesses would be taxed at a higher rate.

Additionally, taxation in the US (and most countries) is done by bracket. For US income tax, one pays 10% on the first $8,000 or so of personal income, 15% on the next $8 or 9 thousand, and so on. In Joe's case, only profits that come above whatever the cutoff is would be taxed at the higher rates Obama is proposing for the top two corporate or personal tax brackets.

Readers further interested in the horrendously complicated US tax code can dig into the article for the difference between S- and C- corporations.

In any case, the US Bureau of Labor Statistics reports that the mean annual wage for a plumber is just over $47,000. Joe's operation is reported to be a two person shop in other news articles. Obama is indeed proposing to cut personal income taxes on the majority of the US population and corporate taxes on most small businesses.

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