Now, they're fighting over Joe the Plumber.
Would he or wouldn't he be devastated by Obama's proposed 3% tax bump for those making over $250,000?
Let's assume for the sake of argument that he was ready to buy the plumbing business from his retiring boss. This means that he would have his own plumber's license, because he could no longer operate under his boss's shingle.
The next questions are:
- What's the purchase price?
- Is he buying assets or stock?
- How is he going to finance the purchase? Is his boss going to take back paper or will he go to a bank?
- If he goes to a bank:
a. Will he qualify for a loan? (His back taxes might hurt his creditworthiness.)
b. If he can get over the credit hurdle with the bank, will the business assets be sufficient to secure the loan? Does Joe have any other assets to give as security?
Next, assuming Joe has found a way to finance the buy, if he has any sense he'll form a business entity to own the business and protect him from personal liability. That entity is likely to be an "S" corporation or a limited liability company.
Why is this significant? Both entity types are "pass-through" entities; this means that all income and expenses, and all gains and losses, of the business are passed through to Joe. In other words, Joe can personally write off all of the business expenses, including the salary and bonuses he pays himself and the costs of his health insurance.
If his accountant does his or her job properly, the net-net is that for tax purposes, Joe would "make" fairly close to nothing. If for tax purposes he reported $250,000, chances are that in reality, he's pulled down twice that.
So if Joe is actually making $500,000 but pays taxes on $250,000, the tax bump is more like 1.5% maximum--$3,750, $312 a month, about $10 per day. Instead of $40 per hour, Joe might have to raise his rates to $41 per hour.
The fundamental question, then, is whether this price is too steep for Joe—who can now drive around in his company-owned Hummer—to bear?
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