Why “Joe The Plumber” Really Matters
By Justin Gardner | Related entries in 2008 Election, Barack, McCain, Taxes
Because, once again, we see a voter that’s apparently voting against their interests.
- Fact: fewer than 2% of all small businesses would see a tax hike under Obama’s tax plan.
- Fact: Since Joe apparently makes under $100,000, he would actually see a much bigger tax cut under Obama’s tax plan.
- Fact: Since Joe apparently didn’t pay some taxes, he now has a lien on him. And he might have actually been able to pay them under the Obama tax plan…which would give him more money.
Listen, I respect small business people because I’m one myself. Donklephant is a business. And I hope that I can make $250,000 off of it some day (VERY unlikely).
But what we’re talking here is that all the income below $250,000 will be taxed exactly the same, and all the income above $250,000 will see a very modest 3% raise. That’s it. And I honestly don’t think people understand that this is how it works. I think many think that once you go over a certain mark, ALL of it gets taxed at the higher rate.
Why do I believe this? Because the argument is usually, “Well, what’s the incentive for me to make $15,000 more and push me into a higher tax bracket?” My answer has always been, “To do just that. Make more. If that $15,000 is taxed at a higher rate (let’s just say 39%), you’ll still be making $9,150 of income you wouldn’t have had otherwise.”
Now, some of you may still not think that’s raising taxes on those who make more is fair, but there are a few reasons why the deck is currently stacked MUCH more in the top 5%’s favor. Since payroll taxes don’t even extend above roughly $110,000, and many people in that top 5% earn much larger portions of their income from investments, they end up paying fewer taxes. In fact, long term capital gains taxes are about 15% right now, and you only have to hold onto an investment for one year for it to be considered long term.
In short, it creates a defacto, government sanctioned regressive taxation system.
So while some people say, “Why is it fair to tax success?” I ask “Why is it fair to tax investment income less than regular earned income? Why is it fair to have a cap on payroll taxes?”
The argument then is “Well, that’s income that’s taxed twice. Once when it was earned, and then another when an investment was cashed out.”
Sure, but only if you’re a crappy investor who continues to lose money and put more of your earned income in. And if that’s the case, you should probably stay out of the market.
Warren Buffett is famously known for starting his investment career with a pot of $100,000 and turning it into billions. In today’s structure, he would have had to pay taxes on that $100,000 once…and then the rest of the time the income that he makes would probably be taxed at 15% since he’s a value investor and holds onto his investments for a while. This type of long term behavior represents the majority of investors out there, with day traders being the obvious exception.
So, in the end, those 9 to 5ers like Joe are ultimately put on the hook for a larger % of their income than the top 5%. That’s why Obama’s plan actually restores more fairness into the tax code.
Too bad Joe doesn’t agree. He could actually benefit and potentially get to that $250,000 mark quicker.
This entry was posted on Thursday, October 16th, 2008 and is filed under 2008 Election, Barack, McCain, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
October 16th, 2008 at 2:55 pm
And all those millionaire Obama supporters are voting against their own interests too. It happens.
Listening to Joe speak on ABC, he said he doesn’t support even people making $5 million a year paying higher taxes. He sees the graduated tax bracket system as fundamentally unfair. It’s not that he doesn’t understand how it works.
I think it’s a very acceptable argument to say tax brackets are unfair. I don’t particularly like them either, but they’re the system we got and until someone is ready to completely revamp the tax code, I can live with it. And, yeah, a 3% increase on income over $250,000 is hardly onerous. But I do understand Joe’s point and I don’t think it’s wrong for him to vote his principles rather than voting his self interest.
October 16th, 2008 at 3:02 pm
Justin, why is it that it’s wrong for working class and middle class voters to “vote against their interests” and yet upper middle class voters repeatedly do the same? I find that kind of demeaning- downscale voters must vote their interests (read: Democrat) and the upper class can vote what ever the hell way they want.
You and I might disagree, but Joe and others have principles that they believe in. If he believes in something like a flat tax even though he might do better under a progressive system, then that’s his choice. He might believe that government shouldn’t take so much and that’s his choice, even if it doesn’t make sense to you or me.
October 16th, 2008 at 3:42 pm
Because when you make 40K per year every dollar counts, if you 280K the extra 900 bucks doesn’t really make a difference. You can choose to ’spend’ that $900 on having (in your mind) a more competent leader.
Besides, I live in a very well off neighborhood in Ohio, and there are zero Obama signs and many McCain signs. So I am not sure that many rich people do vote against their interests.
October 16th, 2008 at 3:58 pm
@ Dennis
Joe the Plumber may not get to vote in Ohio anyway due to the Republican voter registration lawsuit. His name is misspelled on his registration and the Republicans want to crack down on voters with such discrepancies.
But, hey if he wants to vote Republican, that’s his choice… Oh, wait… it might not be anymore.
October 16th, 2008 at 4:19 pm
Justin, I can’t find much information on which candidate would help me out more, given my circumstances. Do you think that you could provide some insight?
Currently, I clean toilets for a living and have several outstanding debts.
However, in a fictional time and place, I am a wealthy playboy who travels the world in my yacht, seeking adventure and rooting out injustice. Which candidate’s tax plan benefits me most?
Thanks in advance.
October 16th, 2008 at 4:32 pm
This is what I find odd. Why does anyone believe that Obama will stick to the $250K threshold as President? He has established a clear pattern of behavior where he makes specific promises to supporters and then reneges on those promises the second they are no longer politically convenient.
Obama made explicit commitments to fight Telecom immunity and take Public financing of his campaign when he needed to stay left of Dodd and Clinton in the early primaries. Both were dropped as soon as he secured the nomination.
We already know for absolute fact that there is no budget for the litany of wildly expensive promises Obama is making in his acceptance speech and during the campaign. The canard that he can save enough from getting out of Iraq is nonsense. GWB is leaving the military in shambles and it will have to be rebuilt. We will not be out in a meaningful way before 2011 regardless of who is president. So where is this money going to come from?
Obama’s choice as President is to either renege on the spending promises and do nothing or renege on the $250K limit to pay for them. What do you think he will do? I think Joe the Plumber is voting in his interest. I think Justin the Blogger is incredibly naive if he thinks the $250K limit is anything but an empty promise that will dropped like a hot potato by February. I think Joe the Plumber is smarter and more realistic than Justin the Blogger.
It is time for everyone to share the wealth.
It is Obama time.
October 16th, 2008 at 6:01 pm
In response to the people offended that somebody who’s not loaded would be expected to vote in their own interest, that’s not the point here. Its not like Joe said, “Hey, you know. Your tax system will help me, but I think its unfair.” He said, “Hey, when I make over $250,000, as a plumber, won’t your tax system hurt me?” Paraphrasing? Yeah, but I don’t care enough to look it up. That is pretty much his question, though. Right? He was asking from a point of view of self interest, and McCain is arguing from a similar perspective. If McCain said, “Look, middle class. You’re all struggling, but if you made a lot of money, it wouldn’t be fair that we took more of it, so say ‘Kudos’ to those that make a lot more than you and write me a check”. Again, he tries to frame it in a way that makes it seem like its in everybody’s self interest. Obviously, its not.
I am rapidly approaching the point where my self interest would lie on the GOP side of the fence, but I personally can’t stomach the rest of the ticket (Evangelical Christianity, Faith-based anything, Abstinence only, anti-gay, Xenophbia, etc), so I feel compelled to stay to the left. I had a real dilemma in the 2000 election, but that tapered off quite a bit over the last 8 years.
October 16th, 2008 at 6:26 pm
Justin:
I’m willing to guess you don’t have an expert knowledge of taxes on small businesses work, the different variations, or numbers in general given your above post (it is sort of okay, most people don’t, but then again, most people don’t write blogs pretending they do).
You have my email address. If dollar $250,001 is only taxes at only 3% more than current under Obama, I will send you $100 in the mail. If it is more than 3%, then you send me $1.
Deal?
p.s. One thing I have to point out is please please look up why the payroll tax is capped where. There is a good reason for it. It’s not welfare chief.
p.p.s. Please look how small businesses pay payroll tax also, ugh.
October 16th, 2008 at 7:06 pm
MW,
Once again you’re spouting out neocon campaign talking points that, no matter how many times this Republican ideology bites you in the ass, you keep poppin up and squirt out some more painful nonsence. BTW, it’s nice to hear from you again, you’ve been sincerely missed, despite your B.S.
First, the telecom immunity bill you refer to was explained by Obama thoroughly as choosing the lesser of two evils. He elected to let the phone co’s off the hook to stop a greater evil, as I would have.
The public financing issue was also well thought out and – good for him – a Democrat finally decides to play hardball and do what it takes to structure a winning team. Obama’s campaign has outplanned and outperformed McCain’s and it’s what good leadership is all about. What a difference that will make in getting this country out from economic crisis.
As far as trusting Obama’s proposed budget spending promises, I empathize with your cinicism, considering the previous eight years from your last presidential choice, I can see how you don’t trust your Government officials. Why not give this obviously different scenario a chance? How certainly couldn’t do any worse!
October 16th, 2008 at 7:37 pm
I question your sincerity, but thanks anyway. I was on a family fishing trip for two weeks, and then spent a week staring in paralyzed horror at the TV watching CNBC and the trainwreck of what we have wrought in the financial markets.
I agree. Obama and Axelrod are very very good and extremely eloquent at thinking out and explaining why they have to lie, break promises, and renege on commitments. They are as good as it gets. I an sure they will be equally good at thinking through and eloquently explaining why they have to break their promise not to increase taxes on anyone making less than $250K.
BTW – I voted straight Dem in 2006, Kerry for President in 2004 and Al Gore in 2000, all to keep divided government. I am supporting John McCain now for the same reason.
October 16th, 2008 at 8:56 pm
@Dennis – Hey, if Joe wants to vote his principles, that’s fine. But principles aren’t going to pay that tax lien.
@boiler1117 – If you think I’m wrong, then correct me. Don’t just tell me I’m wrong…show it.
Also, I’m obviously talking about the progressive taxation that comes with the earned income tax. We all know we have to pay other taxes beyond income tax, like the payroll tax. And yes, it sucks that the self employed have to pay the entire 12.4%, but that’s only on the first $110,000. After that, there are no payroll taxes.
So, again, I don’t think that Joe wouldn’t have to pay anything beyond the additional 3% on the first dollar he made over $250,000.
Am I wrong here?
By the way people, after talking with a handful of my coworkers who are VERY smart people, they didn’t realize how the progressive taxation system works. I’m not saying this extends to everybody, but I bet you that there are a good number of people out there who think that once you fall into a certain tax bracket, ALL of your income gets taxed at that rate.
October 16th, 2008 at 8:56 pm
Work has value, and even though progressive tax increases are marginal, it still means less income for the same value of work. You increase production by a factor of 2, you will not increase your income 2 times, becaue you are taxed as you go up in the tax bracket. It is assymptotic. It limits expansion of your business, and therefore slows growth.
Why does Obama want to delay his tax increases on the wealthy if our economy is in recession? Since people earning less than “Joe Plumber,” or as Joe Biden calls them, “the real Joe Plumbers,” are suffering worse than rich people, shouldn’t Obama tax rich people and give it to the less fortunate now more than ever? It seems Obama knows that his populist rhetoric is just rhetoric, and that economic growth is the only way to a healthy economy, rather than “spreading the wealth around”
By the way, Justin, what do you think about tax rebate checks for people with no tax liability? A cash payment for not being successful. Would you call it a handout?
October 16th, 2008 at 10:07 pm
Is it any wonder people seemingly vote against their interests given their sources of information? I would bet a nickel that Joe the Plumber is a die-hard Rush Limbaugh fan. Either this or some other fountain of Republican PR. If I’m right, then Joe is indoctrinated for 2-3 hours per day of why only Republicans represent the interests of small businesses and Democrats are socialists.
Karl Rove, Lee Atwater and the like have this formula for right-wing success down to a science. Elections are about emotions, not logic. Pin a nasty label on your opponent, make it stick and you can talk about reason and self interest till you are blue in the face and it will not sway the converted.
October 16th, 2008 at 10:50 pm
Good points, Justin, even though I disagree with Obama’s premise. Very few people look at the math behind the taxes (a WSJ Op-ed piece had an interesting breakdown of the Obama plan this week).
I think that as a small business owner, people like this plummer person (sorry, couldn’t help but do the intentional misspell) are potentially facing a large number of tax-related increases that are outside the current discussion of “income taxes.” What about required healthcare for the plummer workers? Associated penalties if he doesn’t provide them? Tax penalties if his business isn’t green enough? If he drives gas-guzzling trucks to the job site? Just doesn’t seem like it’s going to create an environment that is going to re-invigorate the economy. It doesn’t matter if I pay a few dollars less in taxes as a middle class guy when I don’t have a job because my employer’s profit margins have shrunk to the point where they need to reduce staff.
October 17th, 2008 at 5:31 am
I tried to post this twice yesterday but the system ate it. Trying again…
From Obama’s tax plan:
“Ordinary Income: The top two income tax brackets would return to their 1990’s levels of 36% and 39.6%. All other tax brackets would remain as they are today. Obama would also restore the 1990’s levels for the personal exemption and itemized deduction phaseouts (known as PEP and Pease). Obama would work with the Treasury Department to adjust the thresholds of these rates slightly to ensure that no married couple making less than $250,000 (or single making less than $200,000) was affected by these changes.”
Now, I know he told Joe the Plummer that all of his income under $250,000 would not be taxed more, but does it say that anywhere in his official plan? I admit I haven’t read all of it, but at least this part does not make that clear. It says people making less won’t be affected (I assume he means negatively) but as you point out Justin, that’s not the same thing, and if tax brackets stay the way they are, that means some income under $250,000 is actually taxed more.
In addition, Obama has consistently framed his tax plan as “families under $250,000 will not pay more taxes” which also is not the same as you are saying Justin. So can you blame people for being confused?
I have more to say regarding self-interest, but I’ll see if this comment works first…
October 17th, 2008 at 5:32 am
I seem to be having some trouble posting. This is a test to see if it’s me or my comment.
October 17th, 2008 at 5:56 am
Exile-
Obama said small business would be exempt. The End. Do you have any any backing on the green initiative business? I believe that it would be a tax credit incentive program, if anything. So if you buy greener vehicles you are rewarded. I would hardly consider that a penalty. Don’t just spout off things that can’t be verified.
Also, Joe the Plumber shouldn’t even be working as a plumber, as he is not licensed as a plumber in Ohio. I would also assume this means he is non-union. Ohio is a big union state, so I would imagine Joe should get his priorities straight if he wants to get to that $200,000 mark and own his own business. And he should pay his taxes as well.
October 17th, 2008 at 6:02 am
Well, my other point was lost in moderation land, but I wanted to respond to Jimmy…
He makes a good point. If Obama’s tax plan is good for the economy, why did he say he would delay implementing it until the economy recovers, which I know he’s said on at least one occasion (fox news interview with O’Reilly when he pressed him on the issue)?
With that in mind, it’s hard to argue that Obama’s motivation for this tax plan is to stimulate the economy.
October 17th, 2008 at 6:17 am
To be clear and fair, Obama said he would delay the tax increase on the wealthy, but not the tax cut to the non-wealthy.
October 17th, 2008 at 7:33 am
Guys; This has been a great thread and i wish I had more time to go into it further. CBS morning show did a eye-opening comparison of a few wage earners spanning the entire tax bracket range and you got to see the differences in Obama’s plan compared to McC’s plan in actual dollar amounts. It was very revealing.
MW; once again, like Alan Stewart Carl, your viewpoints tricked me into assuming something that wasn’t true, so I apologize. You’d think someday I’d learn better. I still can’t imagine why anyone would put trust into the Repubs before giving the Dems the benefit of the doubt considering the recent past. The economic meltdown is the best example I can use to make this point. Cheers, and have a great day.
October 17th, 2008 at 10:50 am
@ John,
If I, as a small business owner, choose not to provide healthcare to my employees, under Obama’s healthcare proposal what would the result for me be? Check it out and get back to me.
October 17th, 2008 at 11:13 am
So Obama has left open the option to delay his tax increases? Something stinks here! He isn’t indoctrinated in his view points beyond reason, and this is severely disappointing.
Taxes, especially at lower levels (which, by the way, the US has _relatively_ low taxes) do not distort as much as Lafferites and supply-siders would have us think. This whole business about Obama wanting to raise taxes solely to redistribute wealth is non-sense, he and his advisers are smarter than to think that will have a positive effect on this country.
Secondly, there is a great argument for raising taxes on the wealthy to reduce the federal deficit which is itself a drag on the economy. The wealthy are the ones who directly benefit from a reduction in the federal deficit as they are the ones typically engaging in investments through loanable funds. I’ve talked about crowding out before, I don’t think anyone wants to hear it again (if they even read it the first time).
Also, no one votes against their own interest unless they lack information. There is a broad spectrum of reasons that people vote, I for one am glad to see it is not solely based on tax plans.
October 17th, 2008 at 11:34 am
Exile -
It would most definitely depend on how small a business. But based on what he said in the debate, “0″ in penalties, as a small business you would be exempt. But Businesses like Walgreens, WalMart, Target, and the like, yes, they would be penalized.
Now, it’s clear that you are a McCain man in this race, most likely a libertarian to some degree. This said, I’m guessing you don’t put much credentials in what Obama says, and that is fine. But if he says it, I have to trust that he means it, you however, do not have to abide by that. But you can’t go out spreading misleading information.