Thursday, October 16, 2008

Joe the Plumber can't afford $600 in tax - Part 2

Last night I posted about the silly notion that Joe can't afford to buy a $250K business because of a $600 tax increase.

Now I've found an interview Joe did with Fox News. In this interview, he states that he's middle class too...that the houses in his neighborhood range in price from $90K to $140K. Joe says that after he buys the business, he'll be staying put in his house because he can't afford to buy more.

What the hell is Joe talking about? If you can't afford more than a $140K house on a $270K income, then things are way more wrong than I thought yesterday. Let just use some outrageously conservative estimates to look at this, to see just how ridiculous this is.

Joe earns $270K. Let assume that his total overall taxation is 50% of his income. That means his take home will be $135K. Now, lets assume that Joe sets aside a very healthy $30K each year for retirement. He's now got $105K. That $105K has to cover both his mortgage and his living expenses.

So let's think about this. Lets assume that Joe was irresponsible and cashed out his home, and owes the full $140K on his mortgage. Heck, no...let's go further and assume his house WAS valued at almost twice that value pre-housing-crash (lets say $240K) and that he irresponsibly cashed out every penny of equity. Lets also assume his credit wasn't too hot, and that he was only able to score an 8% mortgage.

With those figures, Joe can have his house paid off in only 5 years by paying $4866.34. That's less than $60K per year. If we take that off of his $105K available, that means after paying taxes, after saving a huge amount for retirement, and after paying enough to eliminate his mortgage in 5 years, Joe STILL has over $45K available to live off of. That's almost what most middle class people make BEFORE taxes, retirement, and mortgage.

Again, remember how conservative I'm being here. His combined taxes will be less than 50%, without doubt. His mortgage is most likely less than 8%, and he most likely doesn't owe $240K on his house. He will most likely not contribute $30K to retirement, and he will most likely keep his mortgage a lot longer than 5 years. Most likely Joe will have something like $100K left over after taxes, mortgage, and retirement.

So now, I can only come to one conclusion. If you can't do much better with that amount of money left over to live off of, and if that $600 additional tax is going to make it impossible for you to buy that business....wow! That's all I can say, just wow! You have to be absolutely TERRIBLE at financial management to not be able to live quite comfortably off of that.

The only other explanation is that this guy has been seriously mistaken or misled about just how much he's gonna be hurting under Obama's plan.

2 comments:

bsdjf said...

Joe the plumber is confused about Revenue, Profit and Income. If he can seriously afford the company in middle class wages, let's assume he really can since he said he wanted to buy it, the company probably doesn't make $270,000 in net profit and thus he won't be subject to tax increases.

If it is a company that makes that kind of profits, then it's probably a very expensive one for one man to make and if he's making that kind of money just working 12 hour shifts, well, I wouldn't mind being in his "middle class."

bsdjf said...

*"one man to buy"