More Than WE Know

If you watched the final Presidential debate this week then you heard the story of Joe the Plumber.  Joe is a real person in Holland, Ohio who spoke to Barack Obama a week or so ago about his plans for changing the tax structure if he is elected.  He was concerned that under Obama’s plan he would not be able to afford to buy and expand his business.

I’m writing this post in case you too, as an entrepreneur,  are worried about what an Obama presidency would do to your taxes.

So bascially, Joe told Obama that he was planning to buy his business which made $250,000 to $278,000 per year - but since Obama wanted to raise his taxes, he would not be able to afford to buy it and continue to build it.

However, the proposed tax increase applies to people with an adjusted gross income over $250,000 -  which means after all deductions have been applied.  Since Joe is a single parent, and presumably a home owner, and has other deductible expenses his taxable income may not even be over $250,000.

But even assuming that his taxable income is $278,000, his tax would not change on the first $250,000 of his earnings.  No change.  No difference. No increase. Potentially even a decrease.

On the remaning $28,000 he would see an increase of approximately 3% in taxes.   Or $840.

So - what Joe the Plumber is saying is that he can’t afford to buy his business because he will have to pay an additional $840 per year in taxes.

My advice would be that if Joe’s profit margin is so slight that $840/year or  $70 per month is the deciding factor - then maybe he couldn’t afford to buy the business in the first place.

Now if Joe is really thinking of buying the business - his profit margin is probably better than that.   More than likely, Joe is thinking he will have to pay an additional 3% on all of his earnings before deductions, or an additional $8340. 

In all likelihood, Obama’s proposed tax plan won’t adversely affect Joe the Plumber. Less than 2 out of 100 small businesses make more than $250,000 in taxable income. So 98 out of 100 small businesses will see no increase in their taxes under the proposed plan - and may even see a decrease due to reductions in capital gains, reductions in lower income tax brackets and small business tax credits.  

Tell me what you think - are you worried about proposed tax changes to your small business? 

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