In all the attention Joe the plumber is getting, one fact is lost in the commotion. Joe would probably get a tax CUT under the Obama plan. Yes...a tax cut. You see, taxes are paid on profits, not revenues. And, best I can tell, there's not many small business plumbers out there with 250k in profits subject to taxes.
Follow below the fold for details:
Joe is a plumber. He wants to buy a business. I assume it's just a few guys. Let's just say he has 4 guys working for him (plus himself. Let's say they all bill out 2000 hours a year (50 weeks x 40 hours per week) at $60 an hour. He probably doesn't have 4 people working for him, they probably don't bill 100% of their time, and they probably bill something less than 60 an hour, but let's use these just for fun.
So here's the math:
5 guys x 2000 hours x $60= 600,000 in revenue
So Joe has to pay the guys just a little bit. Let's say the guys get $45k a year to work for Joe. Let's throw on another 5k (about 10%) in employment taxes, and related payroll expenses (Joe doesn't offer health care, so that's not here) for an even 50k per guy.
4 guys * 50,000 = (200,000) (4 because he doesn't pay himself)
Joe talked about a truck for each guy...so there's some expense there. Figure 2000 per truck per month for gas, insurance, repairs, etc.
5 trucks*12 months * 2k: (120k)
Joe probably has some other business expenses like phones, office expense, any kind of sales and marketing, tools, materials, liability insurance, maybe someone in the office helping to schedule jobs, etc. Let's call it another 2500 a month for these "other" expenses.
2500/month * 12 months: (30k)
So, the net is:
600k-200k-120k-30k=250k
So, there you have it. If Joe has 4 guys working for him and they bill 100% of their time (e.g. no time spent doing estimates), and everything else goes just right, Joe nets 250k. Guess what, his taxes stay exactly where they are.
But, let's be realistic. These numbers are optimistic for any business. Joe probably nets in profit far less than $250k from the business. And, after that, Joe is like any other person...he gets to take a personal deduction for his kid, any interest on his mortgage, charitable donations, etc. to further reduce his adjusted gross income. And pretty soon Joe is making far less than 250k a year and is now benefitting from an Obama tax cut.
And just in case you want them. Some sources:
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Average pay rates for plumbers
-Plumbers talk about hourly rates
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Discussion in pluming career book from 2000