Friday, October 17, 2008

Why Joe "The Plumber" is Mad

Under Barack Obama's tax plan, the difference between making $249,999 and $250,000 is amazing.

First, any "Joe the Plumber" (or "Josephine the Plumber", for that matter) that makes $249,999 will pay $12,750 in FICA taxes (also known as the payroll tax or the Social Security tax). If Joe happens to be unfortunate enough to make just a dollar more and fit into Obama's "rich" category by making $250,000, that FICA tax, the tax that is taken out of your pay before you even see your paycheck, will jump from a deduction of $12,750 to the new burden of $31,250. If Joe is a self-employed plumber making $250,000, you can add an additional 2.9 percent to that tax bill in the form of a self-employment tax for FICA and Medicare. Therefore, for that mere extra dollar in pay, Joe will immediately see a jump in their FICA taxes by $18,500; or, $22,792 if self-employed or a small business owner. And, for every additional dollar income, thereafter, you will be hit with an additional 12-1/2 percent in FICA taxation and another 2.9 percent in self-employed Medicare taxation (if applicable). That big "jump" in taxes is because Mr. Obama has intentionally, and very politically, left a "donut hole" in his proposed FICA tax tables so he can continue to make the claim that 95 percent of the people making under $250,000 will get a tax cut under his plan.

Currently, there is a tax ceiling of $102,000 on FICA. All incomes after that level pay no additional taxes for that purpose. Logic says that if you need to shore up the Social Security system, you should raise that ceiling; a practice that has been in effect for many years. However, if you are running for President and you want to have a slogan that says you will reduce taxes for anyone making under $250,000 (or 95 percent of tax payers), you can't raise that ceiling. To do that would only raise taxes on people who are currently making over $102,000 but, below $250,000. So, what do you do? Well, you play a game. You leave the tax in place for incomes up to $102,000. Then, you start the tax up again for any income levels above $250,000. This leaves a taxation hole or "donut hole" on the FICA tax from $102,000 to $250,000; and, it keeps your campaign slogan in tact. This is just one of the many "shady" games that Obama has been playing in order to get elected. He never does anything without thoroughly thinking through the political consequence of doing it. Being fair or truly logical never really enters into his equation.

So much for FICA. Now, lets focus on the effect of the new tax tables under Obama and how that would effect Joe if he makes $249,999 or just a dollar more at $250,000. If Joe is single, there would hardly be any difference in the tax at $249,999 or at $250,000. However, if married, Joe would see a jump in taxes. At $249,999, the married filing-jointly taxpayer would be hit with a 33 percent tax rate. For a dollar more, the tax rate jumps to 36 percent. Now married...Joe would have a tax bill of $82,500 for his salary of $249,999. If he makes a dollar more, his bill will jump to $90,000 for an increase of $7,500.

In addition, if Joe happens to invest his income in the stock market for his retirement years, Mr. Obama's plan will go after him with even more taxes. That's because Obama will raise the capital gains tax from 15 percent to 20 percent for all taxpayers making above $200,000 or, $250,000 for those married and filing jointly. Certainly, the application of this tax would be outside of any tax-free investment fund like an I.R.A. account that our "plumber" could be involved with. But, have no fear, when Joe starts pulling his money out of his previously tax-free IRA Account, the Tax Man, Obama, will be there waiting for him.

To recap, assuming our "plumber" is married and self-employed, the increased tax penalty of making $250,000 versus $249,999 under Obama is about $30,292. Quite the penalty for simply making a buck more than $249,999. Quite the penalty for being successful. A penalty that could easily put off expanding his business by hiring additional people at some later date. And that's the crux of raising taxes on a business like Joe's (or Josephine's).

Not included in this number (because I don't know what percs his business currently offers) is Obama's plans for healthcare. If our plumber's business doesn't currently provide any health insurance, it will certainly have to provide it under an Obama Administration. Depending on how many employees he has, it could easily cost our plumber more than $2500 a year per employee; assuming a 50 percent tax credit for any "employer provided healthcare" costs under Obama's plan.

Barack and his team would argue that "Joe" would get all kinds of small business tax breaks under his plan. Sure, if he hired another plumber at, say, $42,000 a year (the average minimum journeyman plumber's salary in America), the Obama plan would give him a small incentive deduction on his income tax. But, that credit would hardly offset his original increased taxes of $30,292 and the cost of his new employee with health insurance. If he still did it, he would be down over $70,000 from the current Bush system of taxation.

Obama's tax plan gives billions to those who don't pay tax. I really believe Joe the Plumber (who's full name is Samuel Joseph Wurzelbacher) is madder about that. Under an Obama administration, he will remove 15 million more low-income people from the tax rolls. This is above the 20 million more low-income people that the Bush's tax-cuts-for-the-rich system saved from paying taxes. And, that was over the Clinton Administration's 30 million who were dropped from paying taxes. When it's all said and done, it is expected that more than 55 million working Americans won't pay taxes. but, Obama's plan doesn't just stop at that. He will take the EITC (Earned Income Tax Credit) to new heights.

Currently, under the guise of the EITC, low-income tax filers who wind up paying no tax will actually receive a check from the IRS/U.S. Treasury if they have children. For having one child, a low income worker can expect to receive a rebate check of $2853 in tax year 2007. Two children will earn a check in the amount of $4716. Also, if you are a low-income tax payer and do owe some tax, your tax burden can also be reduced to zero by the amount of these rebates. If your tax burden is below the amount, you will get a check for the difference. For example, if you have one child and you owe $1000 in taxes, the applied EITC will set your tax to zero and you will receive a check in the amount of $1853.

The Obama plan adds a bunch of new EITC's to the tax laws. First, he adds a basic $500 EITC deduction for singles ($1000 for married) in something that he calls "Make Work Pay". (It should probably be called "Make Joe Pay" or as Obama originally told Joe: "We need to spread the wealth around.") This deduction will be available to anyone making less than $75,000 ($150,000 married), so Joe will never have a shot at getting his money back since he's upward of $250,000.

If you've got a kid going to college, expect a $4,000 annual EITC check from Barack. 10 percent of your mortgage can be rebateable. If you're low income and manage to save a buck or two, Barack will give you a check for 50% of you savings up to $1000 (I really don't know how the IRS is supposed to keep track of this; but, it's in Barack's plan anyway). If you have kids and only get to see them on weekends, Barack will give you an $1,110 check if you pay child support. No kids? Don't worry, he'll give you another $555....Now back to having kids... Barack will give you 50% on your child care expenses; not to exceed a rebate of $3,000. Finally, if you are single and make less than $75,000 ($150,000 married) and want to buy an Obama-certified "clean" car, you can get a check for up to $7,000 (My guess is that not too many low income families will turn in their old heaps to buy a new car so Barack can save the planet) .

(Please note: Obama is able to claim these rebate checks as tax deductions because he's calculating them as an offset to the FICA taxes that every worker pays. This way, he can claim a tax reduction for 95 percent of working Americans. This is a sham because FICA and income taxes are two separate things. But, the average low-income worker won't care. They will see that Obama either reduced or eliminated the overall amount of their income that they gave to the government. Slick (or slimy) isn't it!)

The thing I like about Obama's plan is that even a non-taxed drug dealer can get paid by our government. All he or she has to do is come up with a few hours of legitimate pay and have some taxes withheld. Then, they can file a 1040 "Obama" and take advantage of all that social gravy. If he or she (the drug dealer) has two kids and buys a new "clean car" and takes out a mortgage on a 5,000 square foot crib, they could expect Uncle Sam to give them $4716 for having the kids; plus $1000 for just being married and not paying taxes due to their illegal activities; plus $3000 in child care credit while they were out "selling"; plus $7,000 for their new car; $1,000 for putting a lot of their drug money in the bank; and, another $6000 dollars for their 5,000 square foot crib (assuming 10% of their $5000/month mortgage payments). For not really working, the government could cough up a total of $22,716 to our fictitious drug dealing family. Of course, many on the left would say that this couldn't really happen. Like people don't already defraud our government! To some degree, many enterprising people will figure out how to work this system of Obama-give-aways. Just as they have figured out how to cheat every other form of welfare and social programs that our government comes up with. Medicare and Social Security are just riddled with fraud and this tax system won't be any different. Just mark my words.

Besides the cheating, you can expect that Mr. Obama's tax plan will just keep a lot of tax attorneys and tax accountants busy finding ways to dodge his new taxes. With over 27,000 pages of tax code, there is an endless supply of loop-holes. In Joe's case, above, the whole amount of increased taxes ($30,292) could be eliminated by simply buying a dollar's worth of stuff for his plumbing business to reduce his income. That could be a box of pencils. It could even be a dollar more of charitable giving. And, believe me, the tax accountants will find the ways to keep businesses, like Joe's, from paying any more in taxes than they should.

Mr. Obama's tax plan will just make taxes more complicated than it already is. He's using it for the votes and he will implement it for his re-election and for the future election of any Democrat. However, once you start giving money away, as in this tax plan, you can never take that benefit away. If, as an affluent society, we can afford to do this kind of thing then, so be it. But if the economy turns sour (as it may next year), the number of tax paying Americans will be reduced by slower business activity and unemployment. This kind of program then becomes an ever increasing burden because the tax receipts will just keep going down, and the number of low-incomed families, eligible for an Obama tax rebate, will keep increasing.

In my view, this is a ridiculous plan that will only expand our deficit. Something that Obama claims he is committed to reduce. I'll believe that when I see it. The reality of Obama's tax plan is that it is a new form of welfare. It is a "Robin Hood Like" rejiggering of society. It is socialism; plain and simple. It is a redistribution of wealth on a grand scale. It penalizes those who work hard, and, in many cases, it rewards those who didn't commit themselves to either getting an education or working hard. In some cases, it may actually pay people for not working; as was the case of the welfare system that had to be eliminated over 12 years ago. That's why Joe "The Plumber" is really mad about Barack Obama's tax plan.

No comments: