How Much Would Joe the Plumber Pay Under Obama's Tax Plan?

October 16, 2008

So how much would Joe the Plumber pay under Obama's tax plan? It's a difficult question to answer given that the tax code is so complicated and that you have to know so many details about a person to arrive at an answer (there will probably be a tax law passed that makes your dog's name affect your tax liability at some point). But we have made simple assumptions about Joe the Plumber to show how he would be impacted by Sen. Obama's tax increases in tax year 2009. Assumptions are explained below.

Tax Item

Obama

McCain/Current Law

Adjusted Gross Income (after S.E. tax adjustment)

$269,318

$269,318

Itemized Deductions less phase-out

$49,420

$48,975

Personal Exemptions less phase-out

$6,132

$6,911

Taxable Income

$213,766

$213,433

Final Tax Bill

$48,511

$48,254

Net Difference: Under these assumptions, Joe the Plumber would pay $257 more in taxes under Obama in 2009 than under McCain or current law. This is different from a previous quick estimate we did that merely took $280,000 as AGI and not as self-employment income. Using $280,000 as self-employment income as opposed to AGI gives Joe a lower tax bill because his taxable income is lower due to the half self-employment tax deduction. This puts less of his income at the fifth tax bracket (the 33/36 percent bracket) and thereby less of a tax hike under Obama.

Note that running the numbers for tax year 2011 under similar assumptions as below for 2009 (after adjusting various parameters for inflation assuming a rather significant 5 percent income growth for Joe and a 5 percent inflation rate), the tax liabilities under the various candidates' plans are as follows: Under McCain, Joe the Plumber would pay $56,731 in 2011. Under Obama, Joe the Plumber would pay $58,371 in 2011. That means his tax liability would be about $1,640 lower under McCain compared to Obama in 2011. (Income is assumed to be $309,000 in 2011 and tax parameters are adjusted accordingly.)

Note: These figures have been updated slightly to reflect the 2009 tax parameter for the itemized deduction phase-out threshold of $166,800 as opposed to the previous assumption of $165,100.

Assumptions

(1) Tax Year 2009
(2) AMT patch for 2009 (exemption for MFJ is $75,000)
(3) $20,000 in state and local taxes
(4) $30,000 in other itemized deductions
(5) $280,000 in small business income (no other income sources) -- note that this is net income, not revenue. If Joe made $280,000 in revenue and say $180,000 in net income, he wouldn't face an average tax hike at all under Obama.
(6) Married Filing Jointly – no kids
(7) No payroll tax change from either candidate
(8) Does not account for Obama’s special capital gains provisions for small business or McCain’s expensing provision
(9) Ignores health care provisions of the two candidates (we don’t know enough about Joe and his wife to make any judgments on this issue)
(10) No credits
(11) Assumes Obama sets PEP/Pease threshold for 2009 at $250,000 for joint returns
(12) Assumes McCain leaves PEP/Pease alone for 2009
(13) Assumes Obama raises 33 percent marginal tax rate to 36 percent in 2009, while McCain leaves it alone.

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