Joe the magic Plumber, your average Joe or a campaign surrogate?

Remove all ads!

Can you explain that? Really, I'm always interested in how something like that would work. My experience in business is mostly from the sales of side of how a business functions.

 

Snook, I thought you were supposed to be an accountant. Since when did taxpayers in the 36% bracket pay 36% on all their earnings? What's more, we don't know if this business is incorporated. If it isn't, the business owner also gets to make personal deductions for himself, his family, any charitable contributions he's made, his mortgage, medical insurance, etc, which could lower his tax bracket. If he's incorporated his business (as just about anyone making 250K+ would be wise to do), his business gets to subtract his salary from its profit, thus lowering its taxes. Assuming he hasn't incorporated his business and pretending, for the sake of argument, that this business is actually making 250K per year, that 3% increase would only apply to the last 100K or so, for a net increase of $3,000.

All that behind us, Snook, what business isn't trying to maximize its profits each and every year? The idea that he would cut his employees' income because of a small tax increase also isn't reflected in history. Household income continued to go up during the Clinton years. Not only was middle class income continuing to go up but the income of the 250K+ crowd went up even faster, which kind of flies right in the face of the idea that raising taxes on the wealthy causes the poor and the middle class to earn less.

 

Very simple. Nobody likes to have their standard of living reduced. However, most people only have one option when times are tough and that is to cut back on expenses. Businesses, however also have the option to raise prices. A business owner who has established a lifestyle that requires 100K of cash per year will do what is necessary to maintain that 100K. The typical response from small business (which is my speciality) is to reduce costs and increase sales. The reducing of costs typically include layoffs and/or small or no raises for employees. Increasing sales is the preferred method, but it can be tricky as it depends on what you do. Retail is the hardest hit when owners are trying to maintain their cash flow level. That is because they face the toughest competition for dollars and when times are tough the typical person just stops buying things they don't need. Since Joe the plumber is famous, lets look at the service industry. When someone needs a plumber they tend to need one badly, and therefore there isn't the price sensitivity to the work. It is far easier for the plumber to just raise his prices to make up for the additional tax. Now since the largest group of people who use a plumber are the middle class, it just become a psuedo-tax on the middle class as inflation will eat up whatever gains they have made.

You are getting caught up in the details and ignoring the basic concept. That is why in my example I used net income before taxes. You can use whatever tax rates you want, the concept still holds.

As to maximizing profits, you would be surprised. Most of the business of the country if not the world is small business. Small business doesn't work like the publicly traded global corporations. The guy who owns the local pizzaria isn't always concerned with maximizing profits. He is trying to maintain his lifestyle and probably has other work/life/community/charitble issues that are more important then trying to squeeze every last dollar out of the public. A classic example would be the plumber that I used in answering CtR. When your toilet is overflowing and ruining the carpet out in the hallway, how much would you be willing to pay? Are you going to look for quotes? The answer is no, you will pretty much pay whatever they ask of you and you are relying on their sense of decency to not rob you.

 

I'm not sure that I'm understanding this right. The 250K that Obama is speaking of is not on small business but private individuals:

I don't know if it's the same for business. I suppose that if a person owns a business and actually made 250K off his business as income, then that person may not want to absorb the 2 percent hit on his income, even though he may see greater profits as a result of the middle-class tax cut. In other words, if the tax cut works in increasing middle-class spending, the owner should see increased business.
http://www.barackobama.com/taxes/

A business owner should still expect to comp sales, to at least achieve same-store sales. They probably operate on a assigned budget. If your expenses are expected to be higher for the year over previous year period, then that increase should be assigned to the sales team within their monthly budgets. I don't know why it works, but costs go up every year, the economy usually expands, and sales are usually 3-5 percent over the year before (I guess because of economic growth). I've never seen it fail. There are always expenses in business, (like shrink, for example). And you just can't run your business with the notion that you just pass every single increase onto your customers. You can rely on your sales team (if they are any good) to sell an extra 2 percent, (which should be more than easy in a strong economy) and to protect margins.

 

Snook, net income before taxes or not, you still overstated by more than double what that 3% increase would actually do, since - as I'm sure you know, being an accountant and all - we have a graduated income tax system. Since you're an accountant, I shouldn't have to be telling you this.

Regarding your argument that raising taxes on people making 250K+ will drive down middle class income, history doesn't bear your argument out. If your argument were true, the Clinton era tax increases would have driven middle class income down. Instead, middle class income continued to increase*, which does quite a bit to weaken your argument.

* Which is hardly a surprise. Most business owners aren't stupid enough to believe that they will continue to receive the same high quality work from their employees after cutting their pay or canceling their raise in order to save a measly 3,000 bucks. Pay cuts don't engender good will. An employer who treats his labor in such a manner will either lose his labor (and be forced to replace them with less qualified workers) or see a decline in productivity. More likely, such short-sighted business owners will get both.

 

It's not the tax breaks for hte middle class, it's the tax increase on the rich that will reduce the jobs. Fewer jobs means a smaller middle class...

I've heard conflicting reports on that. But this is politics. Both sides will make contradicting claims in hopes that nobody will know what the hell is going on. The point becomes getting the questions out in the open then.

And if Obama cuts military spending, what does that do to defence spending? And Drug companies only account for so many jobs. Not enough jobs...

Buffett makes his money off the stock market. His cash buys more stocks when the market goes downhill. The Economy goes to hell, Buffet makes more money. Jobs makes his money off apple, Gates off the software that comes with PC's. Computers are a necessity. Those two have nothing to lose. Not a good endorsement...

And with the uncertainty of the banks, fewer companies can focus on growth, and thus will be in this defensive position. That's going to hurt their customer bases. If you think that Obama is going to wave his magic wand and make it all better, you're delusional.

And for some companies, managing expenses includes outsourcing jobs, thus shrinking the middle class.

Then how come the higher priced employees in the manufacturing sector are the ones losing their jobs?

And what good will that do when the customer loses that purchasing power?

What the hell have you been smoking? That happens all the time, and we, the consumer just put up with it. It's called inflation.

So lowering taxes is a promise of the party that is trying to unseat the incumbent. That makes more sense...

Actually, I don't have any credit. I had to declare bankrupcy a couple years ago when my first back problems impaired my ability to work. But with fewer jobs, and the credit crisis, I see fewer and fewer people getting that financing these days.

That makes more sense, but that still is not the be all or end all. People making that kind of money will still find loopholes to reduce their taxes...

If you don't, your bottom line shrinks. Sure you sell more product, but with a lower profit margin, thus reducing your profits. Maybe you can avoid a small increase, but you can't do that all the time.

So you raise the price a penny or two on each unit sold. Enough companies do that, and inflation could outweigh the tax break.

 

No you can't, but we are only speaking of a 2 percent increase in THIS instance. Margins are controlled by WHAT you sell (smart companies and good sales guys know that).

 

True, but...

I'm not George W. Bush

and then there's this:

I campaigned for Bush

Exactly - that 3% increase is only on income in excess of $250K. A person (or business owner) making exactly $250K per year pays exactly the same amout of taxes he did before the increase. A person/business owner who makes $300K per year would only see his taxes increase by 3% on the last $50K he earned - for a grand total of $1,500 in this example.

 

If you throw a frog in a pot of boiling water*, he'll just hop right out, but if you toss him in a pot of water and gradually increase the temperature you'll cook him. The same goes with the point I made. If you don't raise the price to match the increase in your expenses, then with every new increase your profit margin shrinks to the point where you no longer make enough money to cover your costs. But likewise, if you pass this on to the consumer, even a miniscule increase if the volume is high enough, your profits stay roughly the same. If you normally make $1 in profit margin on an item you sell, adding a penny or two to the price wouldn't create backlash from the consumers, and would cover the tax increase nicely. But when every item in the Grocery store jumps a penny or two, that grocery cart costs a few bucks more to fill up. Repeat the process when you need to buy clothes, or other supplies in the home, and the tax break goes bye-bye real fast.

 

What kind of companies are you speaking of? As a matter course, a lot of retail stores raise some of their prices occassionally anyway just to make a few extra dollars; then they lower them back down. Do you do the grocery shopping in your houshold? If you do, then you notice that grocery stores do it all the time. Profit margin is direction. Because you've never really worked in a business, your thinking is very static. In fact, most stores nudge you in the direction they want you to buy. They want you to buy the products that have the most margin, and they price and market accordingly. Your view of the economy is quite static as well. You never take into account the expanding economy. As a sales guy, it would be light work to make an extra two percent for a store. Good sales guys do it all the time.

It works like this: Say the market is down in the stores on the East Coast, but the stores on the Gulf Coasst are doing great business. Let's use HD this time. Because of Hurricane Ike, the HD stores along the upper Texas coast are probably already over their budgets for the year, (I bet a lot of folks in those stores are getting "max" bounses as well). HD headquaters will ask those stores to get them an extra 2 percent to make up for the downturn on the East Coast. A lot of people are replacing fences, outdoor products, like sheds and lighting. On the inside, customers are replacing products that were damaged by water. How do you get an extra 2 percent? You don't sell low margin fence wood, you sell a better grade of wood fencing - maybe just one grade up. There is always a way, if you know how to use your business tools.

 

BTW, were there any particular price changes when the Bush tax cuts were enacted? AFAIK there is little difference between Clinton's tax scheme and Obama's.

 

Too funny. Stephen remarks on Mac and "Joe."


http://www.colbertnation.com/the-co...october-22-2008/mccain-loves-the-middle-class

 

Um... no. The tax cuts were income tax cuts. You got to keep more of the money you earned, it didn't cause products to change price. Or maybe I'm not understanding your question?

The Bush tax cuts were pretty simple - 2% across the board. Because it was done as a percentage, obviously the people who made the most got the biggest tax break.

 

That's exactly right. Of course, it depends on the size of the tax increase; if they can't make it up somewhere else, or absorb it, they will pass it on. But it's really the market that drives prices. No one wants to be overpriced in the marketplace. The two things customers shop the most: price and selection. They talk about customer service and a neat store, but they will still shop at Wal-Mart, which just goes to prove....

 

Well, I guess prices matter everywhere Yes, I was basically asking, since it is said that Obama's tax plan may increase prices, if there was any evidence of Bush's tax scheme (which afaik decreased taxes compared to Clinton's, at least for more affluent people) decreasing them.

 

Shaman, the goods price increases that are talked about are usually supposed to be a result of increased corporate gains taxes, which Obama has proposed and usually do increase prices while also decreasing federal income from corporate gains. Obviously that only works within a limited range (0% is really low, but will get the gov't squat).

 

I have not seen what Obama plans to do on the business side of taxes. His website states that the tax rate that we have been discussing, is for individuals and families. If you are a small business owner, and you actually had an income of more than 250K, then you will have a tax icrease on that portion of income that is over 250K. But the tax is not on the business itself.

The real "socialist" is John MacCain. He wants to buy up all the bed mortages and have me and you pay someone else's house note - talk about "redistribution of wealth". His plan allows all the companies that made the bad loans to get their money back, and it pays down the price of the homeowner's house to reflect current market price at the expense of people like me and others, who make their house notes in a timely manner, and bought only as much house as they can afford. Hell, that's not socialism, that's communism. Mac the "Red."

 

No, Chandos, that's the opposite of Socialism. It's the rich keeping their money at teh expense of the working people. It's exactly what Marx *****ed about in the Communist Manifesto if I remember porrectly. It's been years since I read it...

 

Gnraff - What? No, I don't believe you remember correctly. Try again....