One Man's Opinion

The arguments and accusations fly back and forth. It’s one of the most talked about, and most misunderstood topics in this election. And Joe the Plumber just made things worse.

I have to tell you...by the way so many say Obama is going to raise income tax, I am amazed at how many people I know that must be in the top 5% income level. I had no idea so many of my friends and acquaintances are so well off. I knew some were, a lot of my customers are doctors, bankers and business owners or executives. But so many others in professions like security officers and sales counter guys. I really need to change jobs.

Now we know by looking at the actual plans, that if you make under $250,000 you will fare better under Obama’s tax plan. But lets look at what making $250k means. This is your taxable income, which on the IRS Form 1040 is after you take your deductions. So if you own a business, whether it’s a sole-proprietorship, S-Corp or LLC, your taxable income is your net profit, after you deduct rent, office supplies, cost of products or materials, payroll, etc. Of course you add your own pay, if you pay yourself from payroll.

For instance, a business that sells $1,000,000 a year, doesn’t profit that much. The owner probably makes around $100,000, but it may only be $50k or it may be $150k depending on the type of business. While Joe could make close to the top end $250k if he was an experienced Journeyman in Los Angeles, Chicago, or New York; in Toledo with his experience it’s more like $40k to $70k. A Master Plumber could make $100k or so, according to the Bureau of Labor Statistics. But enough about Joe and businesses.

Now here’s the next big confusion. You don’t pay 36% on the entire $250k. You pay it on the first and every dollar over $250k. When you cross the $250k threshold, your entire income isn’t subject to the higher tax rate, only the amount over the threshold. And I’m not going to get into what you have to make, in order to get to that amount after deductions, but you know, it’s higher.

So if you make $260k taxable, you’re only paying the 36% on $10k, or $3600 in tax. Now here’s another thing most people forget. Under the current rates, you would be paying 33% anyway. So you’re actually only paying 3% more than the current amount, so on that $10k you are paying an additional $300 over current rates. If it were $50k ($300k taxable income) it would be an additional $1500 under Obama than the current rates.

I will guarantee you that no business owner is laying off anyone, closing his doors or selling out. Remember they’re already making $250k.

In my next installment, I’m going to explain why raising the top two tax rates, and giving the middle class a cut, actually has some justification.

One Man’s Opinion