IN TONIGHT'S DEBATE, John McCain seized upon a single American as a lens to bring his tax policy into focus—Joe the Plumber.
It occurs to me that there are two points worth making about the Joe scenario, one that's trivial but amusing, and a second which is crucial and has so far been overlooked.
- First, the trivial:
I have no information about the real Joe, and, given McCain's general lack of interest in the truth, it hardly matters.
But just taking McCain's word for everything Joe—if McCain is right about how Obama's economic plan will affect the guy—it's obvious that poor Joe has an income of over a quarter million a year.
Congratulations Joe. You're rich.
No. Really. That's not sarcasm. You are rich.
The fact that McCain thinks that it's presumptuous of Obama to think you're rich just shows how out of touch McCain is.
And no offense, Joe, but that makes you a very poor example for how either side's tax plan is going to effect the average American. - Now, the crucial point that's been overlooked:
The more subtle point that McCain was attempting to make is a version of the trickle-down theory—what George Bush's father called "voodoo economics".
His idea would be that if rich Joe and his business are taxed less they will have more money, and if they have more money they will use it to hire more people, give their employees higher wages, and provide better benefits.
Unfortunately, this is not true.
Joe is going to hire employees, or provide wages and benefits for only one reason: to increase his profits. How much money he already has will not affect these decisions. If the going wage for plumbers is ten dollars, he isn't likely to start paying twenty just because he has it.
On the other hand, if his taxes are higher it changes the equation.
Just for example, assume that you are a plumber, working for Joe. You want him to add health care to your benefits.
Rich Joe figures that adding health care will make his employees happier and possibly a bit more efficient. On the other hand, it will cost him $1000.
Now, let's assume, for the sake of simplicity, that that Joe's tax rate is 50%.
The situation is suddenly a little different.
Now, if he keeps the $1000 dollars, he pays half of it in taxes, and ends up with $500.
If he spends it on health care, it's deductible. That means that he can give you $1000 worth of health care, and get all the gratitude and happy employees that will buy him.
But it only costs him $500, because that's all he would have been able to keep after taxes, anyway. Basically, he gets to make the government pay for half your health care, and he gets all the credit to himself.
So, when do you think Joe is more likely to ante up for your health care? When taxes are low, and it costs him $1000, or when taxes are high, and it costs him $500?0% Taxes 50% Taxes $1000 for tax plan $1000 for tax plan $0 Tax Savings $500 Tax Savings $1000 actual cost to Joe $500 actual cost to Joe It turns out that rich Joe's incentive to trickle a little down to his employees is greater when his taxes are higher, not lower.
