I found this over at Christian Science Monitor (update: Google tells me that it originally came from Charlie Quimby at Minnesota Post), and I thought it was worth sharing in case you, like me, have had to argue the case of Joe the plumber with your own families.
# Kim -Charlotte, NC Says: October 22nd, 2008 at 8:25 am EDT Subtract karma -4 Flag this post as inappropriate
Dear Joe the Plumber:
It seems like your heart is in the right place, and you’ve worked hard at an honorable job. Now you have some hope of buying the other half of your two-man shop. Ownership and its rewards are a big part of your personal American Dream.
Good for you.
Now, thanks to the latest presidential debate, you’ve become a temporary national figure. The exposure could be worth more than a full-page ad in the Yellow Pages and a top-level Google ad, so I guess you could say you have tax cutters to thank for boosting your company’s growth.
Or at least you would have if you’d remembered to mention the name of the business during all the media attention.
If I were your boss, first thing in the morning, I’d change the company’s name to Joe the Plumber, get a new phone listing and throw up a web page.
The interest in your political thinking will be good for less than a week, but people will always have clogged drains and faulty water heaters. And the real issues you face as a future business owner aren’t about national policy, including any plan to tax high earners.
In fact, I’m concerned that your thinking about owning a business may be clouded by all the political rhetoric. Here’s what I, as a former small business owner, think you should be concerned about.
Know what you’re buying. According to reports, you want to buy the two-man plumbing shop you work for and plan to pay for it over a number of years. What, exactly are you buying? A name and a phone number, two used trucks, tools and inventory, and maybe some relationships with customers or contractors that you’ve had a role in building. And the opportunity to pay for it over time, out of the cash flow from the business.
This may be a good plan, depending on how much you’re paying for good will — which shouldn’t be very much for this small business. Otherwise, this decision will cost you far more than any income tax plans being proposed.
Don’t feel bad. Most Americans don’t know what they’ve been buying.
Separate your American Dream from Small Business Reality. Sorry, but considering that your ambitions call for only one or two employees, the chances of you generating enough sales to pay off your purchase and still earn $250,000 a year are very remote. That makes me wonder whether you quite grasp the financial side of running a business.
Instead of worrying about paying higher taxes some day, look at the realities facing you now. That is, most small businesses fail or fail to grow, and almost all of them earn less than $250,000 in taxable income for their owners.
The reasons have nothing to do with their income taxes — unless they fail to pay them.
I applaud your hard work and desire to control your own destiny. That’s where you should focus. If you do, you’ll discover that paying a slightly higher marginal tax rate some day is probably the smallest problem you’ve had to overcome.
Decide how much you need and invest the rest. If you do surpass the $250,000 threshold, you’d only pay 3 percent more on the dollars you earn above that amount. If you pay yourself $300,000, that means $1,500 in additional taxes.
I’m guessing right now, if I offered you $50,000 but said you’d have to pay $1,500 more in taxes, you’d take it in a heartbeat. Well, that $50,000 is an even better deal when you’re wealthier, because it wouldn’t be subject to the FICA you pay on all your earnings today. And it would come on top of having your basic needs in life pretty well covered.
If you don’t like that deal, you’d have another choice. You could put up those extra dollars into health care for your employees, send them to training, buy a new truck, beef up your advertising, get some help to do the paperwork or even hire another plumber who could produce more revenue.
And then write your income back down to $249,999.
Your business will grow and your life will probably get better because you can spend more time doing what you like — whether it’s thawing pipes, selling, or just helping people in a jam.
The anti-tax zealots want you to believe the scary stories that your future business prospects will be hamstrung by taxes you haven’t even started to pay, yet. That’s not really how it works, and if you don’t understand that, stop listening to the small government advocates and start talking to a real small-business advocate.