Can Joe the Plumber actually get to a $250,000 annual income? Here, I make a ton of educated guesses, based on running a service business of my own. Let's look at the likely costs:
- Ad in the local Yellow Pages - about $80/mo.
- Phone service costs about $80/mo.
- Payments on a $15,000 van - about $250/mo.
- $600 to have it painted with his name & phone #, maybe a logo.
- About $5,000 on parts and tools per year at a plumbing supply house.
- Bi-annual license renewal costs $125, or $62.50 per year.
- He uses a tenth of his house as his office, and deducts the mortgage interest expense accordingly, say $1500/yr.
- Office supplies cost $500/yr.
- Computer, bought for $2k and straight-line depreciated over 5 years means a cost of $400.
- And he has an accountant do his taxes. Say a good friend handles it for $500.
As Thornton Melon would say, "Whoa, you left out a bunch of stuff," but let's go with this for now. Joe's Total Overhead Costs = about $13,500k/yr. More below:
Now let's look at what he charges his customers per hour. Anybody ever hired a plumber? About $85 per hour sounds about right. It's about the same as what a mechanic charges per hour to replace your muffler.
This means Joe can work 50 hours a week to make $4250. But hold the phone! He doesn't work the full 50 hours on billable time. He spends at least a fifth of it doing administrative stuff. So on 15 jobs per week, at 40 hours (2.667hrs per job) he takes in more like $3400 per week.
Not bad, but don't forget the $25 in supplies he runs through on the average job. Yes, he will charge for a new toilet, but the teflon tape, pipe dope, rags, wear-and-tear on tools, etc, mean he has a variable cost on every job. Now he takes in more like $3,000.
That's more than $150,000 per year, but remember he doesn't get paid when he goes on vacation, in the summer and around the holidays. Take away four weeks. Then remember there will be dead weeks when he needs to take small jobs and has no major subdivision contracts going. Take away another four weeks.
Now take away the fixed costs discussed above, and health insurance costs for his family. Joe is down to around $105,500. Cushy, but he works for it, and with a family of four he is only in the 25% bracket.
Now he wants to buy a business with two plumbers. He will need more vans, and will need to stock them well. There is nothing like running out of pipe dope or a 3" chrome nipple when you're on the home stretch.
- Assume 3 plumbers, including Joe, each billable at $85/hr. They can each do 40hr weeks. With vacations & sick time, the business can haul in nearly $500,000/yr.
- Joe pays each of them (including himself) $50/hr (notice he takes a cut but is no longer a schedule C where he takes all expenses). Total variable payroll is $288,000.
- Plus Joe needs a part-time secretary to answer the phone in the mornings. No revenue, but the cost at $15/hr for 20 hr/wk (48 wks) = $14,400/yr.
- Health insurance costs Joe about $6k for each full-time employee, or $18k/yr.
- Assume 3 $15,000 vans, because he's got a friend with a dealership. He spends $15,000 per year keeping them stocked. Total cost = $24k/yr.
- Office space/warehouse/garage in the back of an industrial park, at $12/sq. ft for 4000 sq ft = $2600/mo, or $32k/yr.
- Payments on the business purchase. Whoever sold it wanted to retire, and Joe found a bank to give the guy $1M. Joe pays $5000 monthly for the loan, or $60k/yr.
- Assume supplies/other overhead, much like the costs above, at $10k/yr.
So:
Total Revenues = $500,000
Total Expenses = $446,400
Total Profit = $53,600
Total Taxes = $18,760 (35%)
But wait! Joe makes the other plumbers "partners" because they helped him raise the funding, and they split the profit as dividends, paid quarterly. They each pay 15% for the portion of their personal income. They never get anywhere near Obama's hike for the top marginal rate.
To get near that, Joe's business would have to expand five-fold, while he makes himself chairman, and no longer a working plumber, and he'd be able to do more bass fishing while the other guys do the work. Instead of getting a paycheck at 35%, he gets a dividend at 20% (per Obama's plan).
So I fail to see what Joe is complaining about. After all, he has an accountant.