Presidential Debate: Why Joe the Plumber Matters

As of last night, the tax burden on small businesses has become one of the central (if not THE central) issues of the 2008 presidential campaign.

In a year when wars both foreign (Iraq and Afghanistan) and cultural (latte-sipping media elites versus hockey moms) dominated the headlines, how did this happen?

Strangely enough, we can thank one man: Joe Wurzelbacher of Ohio, or as he is better known, "Joe the Plumber." His feelings about Obama's tax plan were basically the centerpiece of last night's debate.

Wurzelbacher's complaint is that if he bought the small business he works for, he would pay higher taxes in a world with President Obama because the business's income is over $200,000.

Obama has tried to show that he is not the big-government socialist that Wurzelbacher makes him out to be by admirably saying he would cut capital gains taxes on small businesses (although it's not clear what he means by "small business").

There are at least two reasons why that position, however, does not perfectly defend Obama from the criticisms of "Joe the Plumber."

First, not all small businesses pay capital gains taxes. All of them, however, pay income taxes.

Second, while it might be true, as Obama argued in the debate, that 98 percent of small businesses make less than $250,000, the few that do are the most productive and the ones that contribute the most to economic growth. Also, we can't pretend that that 2 percent are the only ones that will be affected. We don't know how many small businesses with less income will fail to grow because Obama's higher taxes will act as a disincentive. That's the challenge that Wurzelbacher is presenting to Obama: "Why do you want to make it harder for me to grow?"

Fortunately, there's an alternative that Obama (or McCain) could support. As I've discussed with Mark Cuban, let's have an across-the-board tax cut on small businesses and start-ups, based on either the size or the age of the firm.

Although initial polls show that most people think Obama won the debate, I don't think that should dissuade Obama from thinking that he needs to fight back and support more aggressively pro-small-business policies. He shouldn't wait and see just how much damage the "Joe the Plumber" story does to his support from independent voters.