"Joe the Plumber", whether real or not, is about how tax law effects our economy.
I am going to try to explain this, and I hope my writing is cler.
Most start up or small businesses are “S corporations” (think of "S" for small). The IRS limits the number and type of people who can be owners. S corporations are all around you, that chain of small movie theaters, that fast food franchiser, that agricultural company that used to be a family farm, that ice cream company. My rule of thumb is that if you see a ‘family business’ it is most likely an S corporation (though some are LLCs, which also follow similar tax rules I am about to explain).
The lure of an S corporation is the business and the owner together only pay tax on the "net income" ONE TIME. The "net income" is sales less expenses/deductions. The "net income" is paid by the owner(s) on their personal 1040 income tax return. The owner pays the tax at his/her personal income tax rate. This avoids "double taxation" of income that happens with corporations that are owned by alot of people (aka Wall Street type companies).
The highest personal income tax rate is currently 35%. Under Obama it would rise to as high as 54.9% (news report), though his website says 39.6%. When Carter ended, his highest individual income tax rate was 70%.
The catch of an S corporation is that the owner pays the tax on the net take of the business regardless of whether the owner takes the cash out of the business. (The owner aalways has to pay himself a reasonable salary, paying all those payroll taxes). If the IRS increases the "individual income tax rate" to, say, 50%, it means that there is 50% less income inside the business to grow. Unless the owner has another income source, the owner will have to take money out of the business to pay Uncle Sam. The owner can not keep as much money inside the business bank accounts for a rainy day, for future expansion, etc.
In short, high tax rates of S corporations keep S corporations small. At $250,000, it will thwart the S corporation’s growth. The American Dream may end at $250,000.
Yes, I've seen a few, brilliant S corporations grow into large, publicly traded corporations employing tens of thousands of people. But, at the $250,000 tax threshold, we will be putting a dark cloud over the plant just as it gets its first flower. Obama's tax plan is great for big businesses, as it will keep the "up & coming" small businesses, small.
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A note about investing in those Wall Street Companies. To initially buy your share, you worked at a job for your money. You paid income taxes, payroll taxes, gas taxes to get to work, state income taxes, property taxes....until all you had was a few dollars to buy that "treasured" share of Wall Street paper. In Wall Street companies, the company pays "corporate income taxes" on their "net income" at corporate tax rates. Then, when you the shareholders gets a dividend from that taxed "net income", you pay a dividend tax, currently 15%.
Democrats typically want to raise the 15% dividends (capital gains) tax, to the regular personal income tax level (Obama wants to raise it to 20%). But that same dividend was already taxed by the corporate income tax, which Obama is likely to increase but does not have the new amount on his website that I could find. Lower capital gains taxes encourages investment in Wall Street. Wall Street is an excellent way for companies to raise cash - selling shares. Cut the money going into Wall Street, and we cut the money pool for good businesses to grow.
McCain wants to lower the corporate income tax rate, currently 35% to 25%. The companies that pay "corporate income taxes" are the larger companies that are usually publicly traded with international operations. These are the big employers, hiring thousands of accountants, secretaries, engineers, etc. These companies can locate anywhere in the world, especially given today's technology. The US is currently the second highest in the world at 35%. The UK lowered their top income tax rate from 30% to 28% on April 1, 2008. Ireland is 12.5%, and had a business influx. If we raise corporate income taxes, you will see a flight of "headquarter" type companies. We've lost manufacturing because we could not compete with China's cheap labor. Can we afford to now lose the biggest players like IBM, Apple, etc. that are the magnets for thousands of feeder, small companies that supply them?
Joe the Plumber
by BurnTheShips 108 Replies latest social current
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skeeter1
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SixofNine
Well a flat tax is another concept altogether (btw, Obama discussed that briefly with "joe").
Republicans are not really any more serious than democrats about a flat tax, so if you're thinking that "well, at least lowering taxes on the wealthy is a step in the right direction..." you couldn't be more misguided, imo. Instead, it's subjecting our economy to the worst of both worlds - a tax system that refuses to invest in the society (and children and grandchildren) it is supposedly benefiting.
The health of a society is more accurately measured at it's base than at it's apex. A successful society is not so different than a successful business, the fundamentals have to be sound, and there has to be constant investment in said fundamentals.
I don't think there has ever been a flat tax proposed (by serious policy people like Dick Armey) that wasn't progressive too. So while it *might* simplify things... in the end, really what's the point?
Why would 95% of the people vote for a crushing burden on themselves, when the wealthy have it so good? Fair? Schmair. If 95% of the people decided to eat you and take your stuff, I don't think a lecture to the pitchfork wielding mob about what your daddy taught you about fairness is going to save your skin. It may just be that your final thought would be an epiphany about what "fairness" really is :-D
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Marvin Shilmer
Sixofnine,
Is a healthy society constructed by creating jobs or giving handouts via government taxation and redistribution?
If businesses become the charity mule who will pay for the added overhead/cost? The consumer. How does a consumer acquire capital to spend? If it is by government taxation on business then the capital is offset by increased overhead/cost passed along to the consumer. If it is by earning from a job the captial is not offset by increased overhead/cost, which means the capital is actual gain.
I'm done here, except to thank Skeeter for kindly inserting learned and experienced input. Thanks.
Marvin Shilmer
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skeeter1
Dawg,
IRS Circular 230 (went into effect a few years back) is the tax professionals biggest circumcision hatchet ever invented. It's penalties for any accountant or lawyer to suggest questionable tax schemes strike disabling fear into the pencil pusher's brain making the green cap quiver and hand quake.
Before IRS 230, the tax firms were going wild. I remember one gimmick that someone tried to sell me. Move headquarters to Bermuda and hire all US employees through an "employment leasing company" to completely evade US taxes. Don't hear that idea much any more.
The whole tax climate has changed, and I do not see the crazy ideas. IRS 230 is the reason.
I know that there is a perception that big businesses get out of taxes. That is not the case. The largest corporations have a team of IRS auditors assigned to them "large case audits". These auditors work all year, and every year at the company. At one large company, the IRS auditors had their own offices (but no windows) in the accounting department. This is common. The largest corporations can't sneeze without the IRS knowing. Then, the financial accountants that sign off on the SEC financial statements also review the tax returns. Enron & IRS 230 are the reasons for the SEC's close scrutiny.
Smaller companies get less oversight, but the IRS is learning more & more how to selectively catch small businesses for audit. For the past few years, the IRS has selected smaller companies to audit "down to the bone" in order to build their statistical audit sampling techniques. These audits are hell for the small business owner as the IRS does not reimburse the small business for its accountants time trying to explain every entry and transaction in both the small business and the owner(s) personal accounts. -
frozen one
Its interesting that people are focusing on this Joe person and not discussing Obama's answer. If I remember correctly, Obama said "I'm not punishing your success but I want to ensure that those behind you can succeed also." What I take away from this part of the answer is that once a producing earner nets $250k/year they are now standing in the way of others to succeed. If you cross that magic threshold of a quarter of a million, in Obama's view you are a barrier that the Federal Government must hold down.
The second part of the clip I saw had Obama saying, "I think wealth should be spread around." First off, I don't believe $250,000 net/year is "wealth." It's pretty good, but I know people, most of them couples, who make that a year and I wouldn't call them wealthy. But, suppose Obama's plan goes through and you make the $250k and you end up paying 39% vs 36%. Not having a tax schedule handy but understanding the tax code is graduated, you would not pay an extra $7,500 per year. For arguments sake I'll guess you will pay an extra $5,000 per year. If I had the $5,000 per year I might do something like hire a carpenter to replace a few windows in my house. Or I might take my gal on a nice vacation. Or I might trade my bike for a new one. Maybe I'd spend a little on lot of different things like dinners out, weekend trips, furniture, or to pay the kid down the street to mow my lawn. I might even go to the local strip joint and throw wads of cash at those struggling single moms who want to buy diapers and shoes for their kids. If I were really smart I might put that $5,000 into the stock market because there are some real bargains to be had right now. My point is if I had the $5,000 it would end up finding its way back into the economy or to put it another way the "wealth would be spread around." The only way the wealth can't be spread around is if I put it in a coffee can and bury it in the backyard. I'm guessing that what Obama meant when he said he likes to "spread the wealth" is that he, Obama, doesn't trust the earner's judgement in determining how that wealth is spread. Only Obama is wise enough to determine who or what is and isn't worthy of getting a taste.
One other thing I don't understand is why some people are so gleeful about anyone's taxes being raised. Google "who pays taxes." I've seen charts that show that the top 50% of earners pay 97% of Federal tax with the top 1% paying 40%. I can see why people in the bottom 50% who are paying 3% of the taxes (Obama's base) feel that they are overburdened.
The problem is not a lack of revenue. The Feds collected $2.4 trillion and change in revenue last year while spending $3 trillion. If the Fed collected $3 trillion the Fed would spend $3.5 trillion. If the Fed collected $3.5 trillion, the Fed would spend $4 trillion. The problem is one of no fiscal restraint and Congress, Obama or McCain cannot be counted on to reverse the trend. That is the problem people should be talking about.
Dean Barkley for US Senate!
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skeeter1
Is a true flat tax fair?
The gasoline excise tax is a flat tax. Every gallon has a flat tax.
Guess what? The gas tax is the most unfair to the poor and most fair to the rich.
Every "fair tax" has "adjustments" for the poor. Then, we end up with an income tax.
I have a sister and a brother. My sister spends everything, no matter how much she makes. She makes a very good salary. She usually has her next paycheck already earmarked. Her motto is, "Can't take it with me." It's her religion.
My brother is a hoarder. He makes less than my sister, but has always had a nest egg. It kills him to dip into savings. He remarks that it "took me 5 years to save that money." His religion is "save, save, save."
Why should the government change either my sister's or my brother's "money religion"? Neither has asked for welfare or claimed bankruptcy.
Liberals want the government out of their bedrooms and find any such intrusion to be an invasion of privacy.
Conservatives want the government out of their wallets, and find any such intrusion to be an invasion of privacy. -
skeeter1
One other thing I don't understand is why some people are so gleeful about anyone's taxes being raised. Google "who pays taxes." I've seen charts that show that the top 50% of earners pay 97% of Federal tax with the top 1% paying 40%. I can see why people in the bottom 50% who are paying 3% of the taxes (Obama's base) feel that they are overburdened.
The problem is not a lack of revenue. The Feds collected $2.4 trillion and change in revenue last year while spending $3 trillion. If the Fed collected $3 trillion the Fed would spend $3.5 trillion. If the Fed collected $3.5 trillion, the Fed would spend $4 trillion. The problem is one of no fiscal restraint and Congress, Obama or McCain cannot be counted on to reverse the trend. That is the problem people should be talking about.
Also, I add, I don't trust Obama to hold at 39%. I think he'll be forced to go much higher; especially given the financial bailout, healthcare, etc. -
144001
The discussion on this thread so far overlooks a rather obvious issue. Age.
It's obvious that being president is an incredibly demanding job. Look at Clinton before and after he left office. Look at Bush in 2000 and again in the present. You are on duty 24/7; when planes smash into buildings, you are expected to lead, not sleep.
There's a reason why many companies have mandatory retirement ages and many folks retire upon reaching the age of 68 or sooner. Energy. Most folks run out of it at a certain point. John McCain looks really tired to me. I bet he takes midday naps. Is this the man we're going to elect to the presidency at a time when our country is facing some of the most serious challenges it has ever faced?
Next, Palin. I can't believe that many folks out there would like to see this dimwit as president. Would the election of McCain result in a substantial probability that Palin could become president? You betcha! What would she do when Putin rears his head in Alaskan airspace? I'll get back to you on that one!
John McCain is too old for the job and his replacement is a frightening dimwit. I really wish we had more choices but it's McCain or Obama. McCain has been in the senate for far too long and is part of the reason we're in the mess we're in. Change? You can't teach an old dog new tricks. Obama has a scant record of public service but is impressive in many other ways. I'll take my chances with what I don't know about Obama over what I do know about McCain.
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beksbks
Wow.
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Warlock
If you think this idiot is "everyman", then you're off your rocker.. he sounds like an uneducated fool, and when this interview was going on, I was laughing and thinking how our founding fathers only wanted land owners to vote at first. I can understand their point of view.
"Joe the Plumber" don't know his ass from a hole in the ground when it comes to politics! I don't want "Joe the plumber" speaking for me, I want someone with an education.
"Joe the plumber" may know how to fix a broken water pipe, but he's an idiot when it comes to politics.Dawg, you are just an ex-j.w. who knows nothing, and will never know anything, about the ways of the world. I grew up in the world, not in the truth, and most of you are completely out of your league. Warlock