Facts about plumbing and taxes

And so the election brings us to Joe the plumber. Given the talk about his potential to be amongst the nation’s highest earners, let’s check the probabilities using public data. I’ve downloaded the most recent market reports for plumbing companies from Dunn and Bradstreet and done some quick analysis.

Joe is one of about 950K plumbing workers in the United States, working at one of about 140K firms, with an average revenue per employee of about $110K each. Plumbers sell their time and some materials in return for doing some work, like fitting pipes or valves in a building. Smaller firms have smaller per/employee revenues, because they don’t share expenses like marketing and administration. The average sole proprietor plumber sells $87K in work, and might report $44K in earnings on his taxes before deductions. A plumbing company with two or three employees would typically provide between $180K and 270K in work, and split between $80 to $130K in earnings between the workers and owners, that they, in turn, would report as taxable earnings before deductions.

Since plumbing is a service business requiring skilled labor to create revenues, it takes lots of employees and lots of work to rack up meaningful business profits. A plumber turned investor must dispatch at least 25 plumbers to do at least $1.8M in work in order to yield $250K in business income. Given the count and ratio of large to small plumbing companies, the chances are 1:20 that this would happen. Accounting for deductions, fewer than 2% of all plumbing companies in the US have a chance to break the $250K profit threshold.

Furthermore, accounting for the ratio of owners to workers, and with insights from D&B into revenue and profit-per-employee, we can also estimate how many people have the potential to share in the profits that come from plumbing. Indeed, all plumbers in the US account for $1.7 billion in work, but net a mere $67 million in taxable earnings before deductions. Assuming these profits are split evenly between shareholders (which they are not), there can only be a maximum of 272 people who earn as much as $250K from plumbing activities in all of the United States.

So Joe’s chances of breaking the magical threshold of $250K in taxable earnings are somewhat less than 3:10000. If he does it he will have outperformed 99.96% of all the country’s plumbers.

What we know about Joe is that it is very unlikely that he’s pulled off such a trick. Moreover, given his odds, I’d suggest that he has much more to worry about today than the taxes he’ll pay on profits he dreams he’ll see in the future.