Tech start-ups compare notes with Joe the Plumber

Will Joe the Plumber's tax message resonate in Silicon Valley?

Joe Wurzelbacher, an Ohio plumber considering whether to buy a business, turned into an unlikely media star this week after he confronted Sen. Barack Obama over the Democratic presidential nominee's tax proposal.

(Credit: CNET News)

Obama maintains that his plan would reduce personal income taxes on 95 percent of the wage earners in the United States. But after an Obama appearance at Holland, Ohio, Wurzelbacher told Obama that his tax plan would take money out of his pocket.

That was the beginning of Wurzelbacher's 15 minutes of fame. His name came up 26 times during Wednesday night's presidential debate between Obama and Sen. John McCain, who argued that a tax hike would slow any economic recovery and hurt job growth. McCain also said the tax plan would unfairly redistribute money earned by small businesses, essentially penalizing them for being successful.

Given their libertarian, government-get-out-of-my-way predilections, technology entrepreneurs would seem to have much in common with being penalized for their success. But the surface similarities only go so far.

For one, if you're making $250,000 a year in Ohio, you're living large. If you're earning that much in Silicon Valley (or other high-priced tech hotbeds like New York and Los Angeles), you're just middle class. And then you've got to worry about paying down that crazy mortgage. It's not as if start-ups are pleading to pay more in taxes. Instead, they have more pressing items on their agendas.

"At this stage in our business, we need to put our money into growth and innovation. We would benefit from the hiring credit we have heard about in Obama's plans. Access to health insurance is also much more important to us than a small change in that tax rate," said Mary Mangan, president of OpenHelix.

"I started going to a lot of entrepreneur events before I went out on my own. At every one of those events people asked me what I was going to do about health insurance. Not a single one of them ever asked me about taxes. In starting up a business you are just not making that much in the early days."

(Credit: Obama for President Web site)

Most technology start-ups--particularly, those that receive funding--are going to be structured as corporations, which changes the tax structure. Someone in the position of "Joe the Plumber" would likely establish a Limited Liability Company or similar structure which would treat earnings as personal income.

I heard variations on that theme from many start-ups that confessed to being more anxious about how long it's taking to fix the nation's economic woes. What start-ups want to see is an economic policy that helps the economy recover rapidly.

"A quicker economic recovery will more than make up for a several hundred dollar increase in taxes my company will pay under Obama's plan," said Brett Klasko, the founder and CEO of Phinaz Media & Marketing. "As you can imagine, we have to fight a lot harder for each marketing dollar during rough economic times. A recovery will increase our revenue far beyond any potential increase in taxes."

Like most tech start-ups, Phinaz Media & Marketing doesn't provide health insurance to employees. Klasko believes that if Obama or McCain can lower health care premiums and provide a tax cut to small businesses that offer health care to their employees, he may be able to justify the cost of giving employees access to a company health plan.

"This would certainly increase morale and could, in turn, increase productivity," he said.

With the presidential campaign winding down, the speculation is getting ahead of the reality. First, Obama's not guaranteed victory on November 4. And in the event of an Obama presidency, we'd only know whether his tax policy was a success or failure months later.

But if the political scenario does indeed work out in Obama's favor, his team will encounter a different start-up landscape from the one the Democrats remember from the Clinton administration. The lean and nimble Web 2.0 companies that dot the tech constellation can easily move their operations to more tax-friendly venues if they deem the new team in Washington to be antibusiness.

"There other options for companies to set up businesses elsewhere," said Anthony Franco, president of EffectiveUI. "If the plan is to raise taxes on small businesses, there are options to go offshore...As an entrepreneur, it's something you'd take a look at it."

With globalization and broadband proliferation, start-ups are forging international linkages--whether in sales or software development. And as Franco noted, that presents opportunities should push come to shove.

"This is not about patriotism or whether I love this country," Franco said. "It's what makes sense for this business as an entity. It would take a significant amount for us to consider doing anything outside of the U.S. But what is also true is that if it costs you $1 million year in taxes to stay in the U.S. and you can operate (the business outside of the country) for $200,000, there are companies that would consider that."

[groyal]

The problem with "Joe the plumbers" statement is that he mistook gross receipts with assessable income. A plumber that invoices $250K for his business probably only has somewhere between $50 - $70K in assessable income. Like ALL small businesses you are not taxed on your gross receipts but on your net of expenses, so this whole discussion is bogus as it relates to Obama's tax plan for assessable income above $250K (which is about 5% of them/us).

[samcla]

I think Joe is confusing revenue, profit and taxable income. Joe''s revenue is 278K--not his profit. He has salaries, benefits, costs for running business (including paying loans) to deduct.

This is NOT the working capital of his business. It is his profit taking after whatever he invests in his business.

If Joe's profit really is 278K, he will only be taxed more on 28K and only $870/year or 2 dollars and 30 cents a day. That's a missing latte, so Starbucks may whine ;-). By comparison--Joe will have about 200K after tax to spend in any case. That is almost 17K net a month or over 7,000 lattes a month. I think he can share a few.

Or he can invest the money and make more money and only pay 15% in capital gains tax. If he saves 10K of those a month and has a net gain of 7% a year, he can retire when he is 45. With a wealth of 2 million in the bank, or wait until 65 and have 12 million. I call that the American Dream!

I wish I was in the Plumbing-Owning-Business!

The $2.30/day will be part of what Joe''s customer's get and can use to hire him, but most of their extra spending dollars will come from the CEO''s of Big Oil. They have a much higher net income than Joe will ever have, and will have to give up a few more lattes.

Joe's business (and Joe) will fare better under Obama's proposed tax system than they do now, especially if we can get a good and fair health care system. Many entrepreneurs are also parents, and being able to provide health care at a low cost will free these people to create the jobs this economy needs.

Also -- the kind of money Joe says is his profit, is rare -- http://www.abcnews.go.com/print?id=6051995

[mikestatic1]

I think you are confusing capitalism (earning your own money) with socialism (earning money for the government to give to people who don't earn money). There is no need for you, Mr. Democrat, to take my money and distribute it to those in 'need'. That is what charities are for. But you must know where my money can be spent better than I, right Mr. Democrat?

Anyone who thinks their taxes will be cut by Obama is likely in the 50% who don't earn enough to pay taxes (except on their welfare checks).

[pjhenry1216]

@mikestatic1: You seem to think we live in a capitalistic society. We don't. True capitalism is unsustainable as all the money will continue to collect to a select few. Therefore, we need to mix socialistic (technically, socialism implies government OWNS the production, not that you have to pay them) and capitalistic ideas. Capitalism encourages monopolies, however, as we all know, we don't want monopolies. Capitalism encourages price gouging, and as we all know, we don't like that. Capitalism does NOT care about customer protection. In any case, capitalism is not in equilibrium. It continually has money pouring into a small percentage of the population but does not encourage that money ever to be redistributed. Therefore, it will slowly fail. Thats why you need to force redistribution of wealth. Its mathematics. Unless of course you WANT the economy to collapse. Personally, I don't, but I guess you think otherwise.

[swenk22]

A lot of verbiage when the answer is in the one line " If you're earning that much in Silicon Valley (or other high-priced tech hotbeds like New York and Los Angeles), you're just middle class" -and you will be taxed more! And those taxes on Silicon valley will be passed on to the rest of the consumers in due time...
The point is that increased taxes given to the government to redistribute is essentially socialist. Which is the opposite of capitalism. If we want socialist - which by inherent definition and by past example is inefficient - then so be it. But lets not be fooled that the masses will be better off being run by government which has shown itself not to be able to manage SS, or fannie mae, freddi mac, and the list goes on and on!

[dascha1]

You really should have (had) a certified public accountant (btw, using "a" before a vowel-starting word is now being taught in U.S. Public Schools) in tax contribute to this article. Tax code as it stands is already complicated enough.

[Ebeale]

Distribution of wealth = Socialism
The wealthy create jobs. Taxed too high and they will take their business to another county. National Health Care is a bad thing. Just look at the mess Medicaid is in.

[cmsmith1]

The news is not "Joe the Plumber." It is Obama statement of "Spreading the Wealth is good for everyone"
I really do not care if Joe is making $250,000 or a $25,000. History has showed us that type of thinking does not work.

As a small buiness owner, it really does not matter if it is healthcare or tax they are both expenses. If you lower healthcare but raise taxes it is not helping. At least healthcare now you choose to have health care for employees or not. Taxes you can not change as needed. Neither canidate has a plan to lower the total cost per employee. Lower healthcare cost would be great. Thinking the Government can lower the cost on anything is also an old idea that has been proving wrong.

[J. Blow]

The Federal Gov't has rarely, if ever, managed anything efficiently or correctly. By the very nature of an organization which has no competition, it is impossible.

It is therefore impossible to see how a Federal national health care plan will work. In fact, we already have one in MediCare! I guess two will be better.

No doubt with plenty of liberal room for trial attorneys and claiments. Yea!

[mikestatic1]

Spreading the wealth = SOCIALISM.

Don't we already have a perpetual welfare class? Do we really need to make it more attractive to be lazy and pop out kids for bigger checks?

[pjhenry1216]

You still miss the point that its not spreading the wealth. What part of the article did you miss where the companies pointed out that they'd rather the rest of the population have more money than for themselves to have less taxes? Why did they say that? Oh yea, cause it makes them more money. I don't like when people assume that the economy is so easy to understand that they think paying more automatically equals losing more. The phrase "it costs money to make money" isn't around for nothing. The only people this will "hurt" are employees who make that much money but don't own a business. I use quotes because it most likely won't really have that much of an affect because either the increase won't be that noticeable OR they make so damn much that it only slows their speed of savings, therefore doesn't really affect quality of living. Most of the time, these people don't realize how taxes actually have such a significant impact on the other 95%. The impact on the 95% of people as opposed to the other 5% is significantly bigger. This will have a direct affect on how they eat, where they live, even their health. All people like you care about is how many zeros are in your savings account.

[sbwinn]

I think the principle here is what right does the government have to take money from someone who earned it and give it to someone else? Government is Coercive and the more government you have the less freedom you enjoy. The Constitution specifically LIMITS the powers of the federal government by spelling out what it can do. If it isn't specifically "enumerated" in the document, in theory, they can't do it. No Bailouts, no Bridge to Nowhere, no No Child Left Behind, They haven't got the Constitutional authority to pass the majority of legislation they vote on or sign into law.

When a man builds a pond, fills it with water, stocks it with fish, and catches those fish he is fined for fishing without a license. When someone fills in a man-made, mosquito-infested, drainage ditch in his backyard he is in trouble for destroying wetlands. Just how much government would you like to have? Wait till we get "Universal" healthcare. Have a lump on your neck that is growing? Wait four months for a biopsy. Then another three to see a specialist.

By the way, 48% of Obama's 95% of Americans don't pay any personal income taxes now anyway. BUT they pay corporate taxes - we all do. One of the governments slickest tricks is hiding how much you really pay in taxes. What was your gas tax bill for the year? How much of that gas price went to pay Exxon's business taxes? Buying a house? How much of that home price went to the government in business taxes (building company, contractor, sub-contractors, materials manufacturers, truckers, mills, loggers, timber yield taxes)? We love to stick it to those greedy businesses. We'll show them. They need to pay their "fair share". Then in order to stay in business, they pass that "fair share" on to us.

[pjhenry1216]

People need to understand we don't live in a truly capitalistic society. Ask yourself if monopolies are allowed? Wait, what? They're not? But thats the true goal of an entity following capitalistic rules. Capitalism isn't an equilibratory system. More money goes to the small percentage of the population than goes to the rest of the population. If we followed truly, 100% capitalistic economic system, it would ultimately fail. Therefore, you're forced to redistribute part of that. It only makes sense as well, since its no longer the hard work of that small population that makes them the money, its the workers who make them the money. The workers do so much more for the company than the owner does, yet who makes the money? It only makes sense. Capitalism has some good points, but left to itself ultimately fails. People like to ignore that portion and just focus on the part that gives them money.

[Nchantim]

sbwinn, you're saying that 45% of American wage earners don't pay any income tax?
It's closer to 33% http://www.taxfoundation.org/publications/show/23631.html

I think we should eliminate all traces of Socialism. We don't need welfare, social security, medicare, medicare, unemployment, child tax credits, or public education. The government shouldn't have to bail out your kids. If they want to learn, and you can't afford it, they can work in a factory till they can pay their tution. It does mean lots of kindergarteners and pre-teens in factories, etc, taking jobs away from adults, but hey, that's capitalism.

[pjhenry1216]

Monopolies are capitalism too. Anti-trust is anti-capitalism. Regulations are anti-capitalism. You seem to have a skewed perception of capitalism. We don't live in a true capitalistic society. We may try to follow its principles, but its definitely not capitalism.

[sdencar]

Seriously? You don't get out much, do you? By "welfare" do you mean cash-like benefits like TANF (Temporary Assistance To Needy Families) or do you mean rent and/or utility assistance? Your ridiculously vague and grossly overstated comments begs for clarification. All states now have time limits on TANF (60 months or shorter, some states as low as 24 or even 18 months. I'd be willing to bet you have no idea what it is in your state), and although people can apply for longer time limits in very limited cases, the VAST majority get turned down. Now, for the bonus part of your comment about popping out kids for bigger checks. This one slays me. In my state, which has regs much like most other states, each child adds around $42.00 to a TANF monthly amount. Not even the dumbest dumb dumb-head "pops" out a kid for $42.00/month. I've dealt with the stupidest of the stupid and even they realize that it takes more than $42.00/month to raise the extra child. In general, people have children because they want them or don't know how to prevent them, regardless of how much money they will "make" on that child.

[sdencar]

my comment was directed to mikestatic1, not to the story.

[Pete Bardo]

Capitalism or socialism? The question has little to do with taxes. We have, and always have had, a variable rate for taxes--the more you make, the higher percentage you pay. Congress has been reducing the amount of increase in rates for higher income levels while not doing much for those of us in lower income brackets. It's unfortunate Obama chose to use the words, "redistribution of wealth". That sure sounds like socialism. McCain's plan also redistributes the wealth, but to those in higher tax brackets in the form of tax reductions and credits for Republican friends like oil companies and the 'military-industrial complex'. That doesn't sound like capitalism.

We're somewhere in the middle. Not everyone is capable of taking care of themselves. We, as a nation, have decided to have compassion for those people and show it in the way of providing government sponsored assistance. Some people take advantage of that. But we just provided AIG with several billion dollars in financial support, which they used for trips to the Bahamas and Las Vegas.

It's a matter of who you believe will fix the economic mess we're in. Personally, I don't believe either one of the major party candidates will. Nor do I believe any minor party candidates will be able to do that. Nobody is going to fix this through government actions alone. That's who I'll be voting for, Nobody.

[Net Doc]

As an online services developer for more than 20 years I have seen the 'threats' which were little more than discussion of taxing online service providers each time quelled by the very real possibility of our moving services offshore. The threat now of increasing income taxes AND/OR Capital Gains on a sum as small as $250K WILL make me consider placing two new start-up projects expecting to employ approx 1,000 people offshore. Grand Caymans, Belize, Costa Rica...? I can find plenty of qualified people willing to relocate to any of those countries for a generous salary and a piece of an IPO which will happen within the next Pres' first term.

Someone needs to explain to Obama that the people he's 'threatening' to tax have the means to LEGALLY minimize their obligation and that there is already an estimated $12-15 TRILLION dollars of U.S. Citizen's money invested offshore for that exact (and legal) purpose.

His sharing the wealth = penalizing a few and driving job creation (investor risk taking) out of the country.

God bless America... but don't let her tax me because I'm successful.

[Steve Lingis]

During my 33-year I.T. career (OK, 'Data Processing' until about 15 years ago), I have worked for many folks. But I have always worked for the 'rich', SINCE NEVER ONCE has a poor person given me a job. So, I think it is time, (Mr. Obama) to stop penalizing the rich, or else skilled, hard-working folks like Charlie Cooper and me will end up working for Joe the Plumber.