Joe the Plumber: Official Thread

['BusNative]

Originally Posted by Jake

And so did the article.

Having made a living doing taxes for a few years I can tell you it completely omits the owners of Subchapter S corporations, or "S Corps" for short. These are often used be small businesses and sole proprietors to afford them some corporate protections while being taxed at personal rates. The income from the "S Corp" is passed down to the individuals via Schedule K, which is entirely different than Schedule C.

The "bottom line" is that increasing personal income taxes on "the rich" will impact these filers as well. And each S Corp can have several Schedule K recipients, each taxed at the personal level. These filers must be added to the Schedule C filers in the article to find the true total of taxpayers potentially impacted by Obama's tax plan.

Are S-Corp owners not taxed at the coporation's net income? How does your point here (which I'm not disputing) meaningfully move the needle relative to the article and/or McCain's (seemingly incorrect) claim that 50% of small business owners would see their personal income taxes increase?

[AKAKBUCK]

Originally Posted by 'BusNative

Are S-Corp owners not taxed at the coporation's net income? How does your point here (which I'm not disputing) meaningfully move the needle relative to the article and/or McCain's (seemingly incorrect) claim that 50% of small business owners would see their personal income taxes increase?

I think the most obvious thing is that it doesn't appear that schedule K is accounted for in the article.

And, yes, it would be a net amount. And there are a lot of these... they may not be small business owners that we're talking about here, in some cases... in others, most certainly they would....

['BusNative]

Originally Posted by AKAKBUCK

I think the most obvious thing is that it doesn't appear that schedule K is accounted for in the article.

And, yes, it would be a net amount. And there are a lot of these... they may not be small business owners that we're talking about here, in some cases... in others, most certainly they would....

I guess, more specifically, hypothetically how does the schedule K effect a small business owner whose company nets under $250k? Or just over? What corporate protections does an S-Corp filing (and schedule K) offer that would make an owner more susceptible to a tax increase vis-a-vis the $250k line?

[TJnTN]

YouTube - Joe the Plumber on social security, Iraq

Notice the OSU flag hanging from his house!! GO JOE!!!!

[OSUsushichic]

Damn gotcha journalism.

[FCollinsBuckeye]

Nice sweatshirt, Joe.

[#17buckeyefan]

Wow! I can't believe all the coverage he's getting. I think part of the reason why is becuase when they showed it on the news they cut that part off when he asked Obama the question.

[billmac91]

Who pays?

Second, even using the broad definition of small business that McCain likes, very few owners would see their own taxes rise.

That's because the lion's share of taxable income comes from a small number of wealthy businesses. Out of 34.7 million filers with business income on Schedules C, E or F, 479,000 filers fall into the top two brackets, according to an analysis of projected 2009 filings by the nonpartisan Tax Policy Center.

The other 34.3 million - or 98.6% - would be unaffected by Obama's proposed rate hike.

According to an article Muck posted yesterday, the top 2% employ 48% of the American workforce. The other 98% employ 52% of the workforce and falls under the $250,000 limit.

Maybe I'm confused, but it appears Obama wants to raise taxes on the top 2% which means 48% of the workforce could be impacted by job-cuts. When you raise taxes on multi-billion dollar companies, the slighest tax raise can be millions of dollars.

It's already a horrible economy, with lots of layoffs happening everyday, and people want to raise the taxes on the businesses that supply America with 48% of its jobs?

Maybe I'm confused...I know you've been trying to hammer it home Bus' but I'm not seeing why Obama's plan is good for America.

['BusNative]

Originally Posted by billmac91

According to an article Muck posted yesterday, the top 2% employ 48% of the American workforce. The other 98% employ 52% of the workforce and falls under the $250,000 limit.

Maybe I'm confused, but it appears Obama wants to raise taxes on the top 2% which means 48% of the workforce could be impacted by job-cuts. When you raise taxes on multi-billion dollar companies, the slighest tax raise can be millions of dollars.

It's already a horrible economy, with lots of layoffs happening everyday, and people want to raise the taxes on the businesses that supply America with 48% of its jobs?

Maybe I'm confused...I know you've been trying to hammer it home Bus' but I'm not seeing why Obama's plan is good for America.

I'm still confused how a personal income tax increase materially affects small business owners in that top 2% to the point where they would have to cut jobs.

If you have a small business with 20 employees and you make $800k/year based on the (net income) profitability of your business, are you really going to cut a job because your personal income tax is raised? What would that solve? How does that even correlate?

I DO understand the questions for those who are hovering around that $250k line, and are weighing growth versus income tax, etc. But, as far as income tax brackets go, some people are going to be near the line, whatever that may be. Anyway, if you are a small business owner, and you have a model developed for the next 2, 3 or 5 years, would you sacrifice annual growth of, say, 10% that might grow your personal income to $400k in 5 years to avoid an increase in taxes, especially if you will still gain on a net basis? Why would you do that?

[Tresselbeliever]

I got to think that there are actually a lot of small business that net more than 250k. There are a lot of those that provide services, such as accounting, taxes, consulting, and IT that really don't have a huge fixed capital cost, so their margins are actually quite high. For those kinds of firms out there, all it takes is to have 2.5 mil in annual revenue and they would be netting more than 250k.

We can just do a quick little math here and make some simple assumptions. Let's assume, for example, that the employees of an IT firm makes an average of 40k. Let's also assume that wages and related benefits account for 1/3 of the gross revenue. Furthermore, let's assume that the net profit margin is somewhere around 15%. Just pulling these numbers out of my [censored], and if anyone has better estimates, we can use those to do another calculation, but under these assumptions, each employee is creating 120k of revenue for the firm on average. Under Obama's plan, this firm would have higher taxes if they gross 1,667k (250k divided by 15% margin), which means that if the firm has more than 13 employees (1667 / 120), they would see higher taxes.

14 employees is not a lot of people for an IT company, especially in the growth phase. But I might not be understanding Obama's plan...

[AKAKBUCK]

Originally Posted by 'BusNative

I guess, more specifically, hypothetically how does the schedule K effect a small business owner whose company nets under $250k? Or just over? What corporate protections does an S-Corp filing (and schedule K) offer that would make an owner more susceptible to a tax increase vis-a-vis the $250k line?

In S-corps... the company nets nothing...

The members of the S-corp do...

So, lets say you and I have this idea for a business, lets say we want to open a store where people can come and make their own signature wine, for example ... and we want to throw in 2X amount of money and run the thing.

Now... our x amount is only half... so, we get Gator and Dayton to kick in the other 2X.

So, now we have 4 investors/owners running the business.

Now, you and I are gonna run the thing... so... we agree to pay us a salary to do that. Let's say that's 50K Base a year each with incentives for sales, where you make another 150K from the incentives and I make another 50K (Assume a 1099 situation, just for easy math)

In addition... Gator and Dayton kind of like hanging out, there... I mean they own 25%, right? So, we pay them hourly for the time they spend there helping out... that we report as a salary too... but, let's say they rack up 20K a year each in that respect.

Now.

What if we net 400K in a year in this business.

Now... we have 100K each for our 4x membership shares.

Now, here are the scenarios...

I made 100K in salary and another 100K from the distribution of the profits that I have to pay taxes on... for 200K total...

You made 300K that you have to pay taxes on... now, you have to pay that last 50K (I'm assuming the 250K cutoff) at a higher rate, even though you performed better than I did.

Gator on the other hand... is an attorney and only doing this for fun... so, he makes 230K a year in his real job plus his 20K a year salary... so, has to pay higher taxes rates on all the income distributed to him by our S-corp.

Dayton is a slacker... doesn't do anything but drink and only makes his 20K at this business plus his 100K of income from the S-corp, but since he's the slacker that he is... Obama's plan won't impact him.

Point is, that all of these people are "Small business owners" and they are all impacted differently. They've all put in the same amount of investment to get their distributions. All taken a serious risk that 'busnative isn't gonna steal out of the drawer and all that stuff. I believe this is the most common corporate entity, So I imagine that needs to be taken into consideration when saying what percentage of people will be impacted.

The other kicker is... and this speaks directly to the "fairness/reinvestment" issue... but... if we had made 400K in "profit" and wanted to so something else other than distribute it to the members, we'd all still have to pay taxes on it... so its not always about "being able to afford it"

Also, by raising taxes on this income, you've effectively made the business less profitable (and by definition less valuable), so, kind of a double hit on the successful enterprising owner. (Keep in mind also, that all the schedules mentioned so far might be filed multiple times by a single person... I'm a member in 2 LLC's, for example - One of my wine customers last year got 6 Schedule K's)

['BusNative]

Originally Posted by AKAKBUCK

...explanation...

Thank you for the explanation - I guess I did understand this correctly. My question is, how would this be any different if the cutoff was $500k and your numbers were essentially doubled?

['BusNative]

Originally Posted by Tresselbeliever

...

The $250k is a personal income tax bracket.

[AKAKBUCK]

Originally Posted by 'BusNative

Thank you for the explanation - I guess I did understand this correctly. My question is, how would this be any different if the cutoff was $500k and your numbers were essentially doubled?

Well, I think the answer is, "I'm not sure" and that's the troublesome thing.

There are some 3 million S-Corps (according to wiki) so, there are obviously a [censored] ton of people out there who own some of them... I would call some of them small business owners, others... just investors... but... point is, a certain number fo them would be impacted by a tax hike... and they are not apparently reflected in the article...

The other point I was making more passively was that its not JUST Joe the Plumbers sole proprietorship boss that makes the world go 'round. So the question isn't, "HOw many businesses make X dollars" its how many business owners.

[Tresselbeliever]

Originally Posted by 'BusNative

The $250k is a personal income tax bracket.

Thanks for clearing that up for me.