By James Donahue

John McCain’s pal Joe The Plumber has a lot more government red tape to deal with than merely paying a federal business tax if he is really in business for himself or expects to expand those business interests.

During our brief experimentation with becoming private business persons my wife and I discovered that our government does more than just tax the money any small entrepreneur may generate. There is a demand for business licensing and general paperwork that knocks the wind out of the sails of people not trained for business operations and bookkeeping.

Democratic presidential hopeful Barack Obama is offering federal tax relief for businesses that show less than $250,000 in profit per year . . . but that may be conditional. The Internal Revenue Code structures businesses in various ways and the business must be licensed in accordance to the rules of the IRS. That calls for a lot of paperwork and reporting of income to the federal government, sometimes monthly, even if the overall earning is too low to be taxed. To assure Joe tax relief, even if his profits come in below the $250,000 level, there probably needs to be a broad rewriting of the federal tax code.

And Joe The Plumber would probably not be exempt from Ohio state taxes, or from local property and possibly even city income taxes, depending on where he is located. Joe also needs a state business license which subjects him and his business to filing regular monthly paperwork to the state treasury, and possibly paying taxes due with each filing.

Cities and townships often require local licensing before Joe can do business. The volumes of paperwork sometimes associated with operating a business . . . even a small mom and pop operation, can be overwhelming.

If Joe has employees working for his business, there are even more rules, depending on just how many people he has on the job. He has issues like workman’s compensation and social security issues to deal with for starters. Each state and some cities have certain other rules for employers to follow. We recently saw a promotion for special training in California to help employers meet restrictions generated by new state legislation. It may have involved hiring Mexican citizens to work in California.

There are so many government restrictions for business operations of any size that we are beginning to understand why many American manufacturing plants are going overseas to operate. The paperwork alone can be so overwhelming that a staff of bookkeepers is needed to keep up with the demand.

A few years back my wife and I got interested in collecting certain kinds of antique and collectable glass and my wife was looking for old cookie cutters, cookbooks and crockery. Our hunts eventually brought us from the garage sale circuit into flea markets. As our hobby grew, it was not long before we became interested in buying things for resale at flea markets.

We did flea marketing as a way of financing our collections, making a little extra cash on the side, and we enjoyed the weekend contacts with other venders as well as the discovery of antiques and collectables in out-of-the-way places. In short, it was a lot of fun and we made somewhat of a business out of it.

That was a mistake. I noticed the venders throughout the markets always making their deals “under the table;” that is cash in and cash out, and all calculating done in the head and never on paper. I decided to be honest and forthright about our operations so I kept books. Or at least I thought I was keeping good records. Because we were buying garage sale items sometimes costing as low as twenty-five cents to a dollar, then putting them on our flea market table priced at double and sometimes (if it was a good collectable) many times what we paid for them, the exchange of money for the many items bought and sold was impossible to pin down to the penny. Thus I worked out a system of calculating how much was spent each week buying items, calculating in gross amount of cash added to our till each day at the flea market. In the end I subtracted one from the other to determine my weekly profit.

I dutifully reported all of my figures to the IRS when we prepared our income tax that year and promptly got audited. Getting audited by the IRS is a frightening experience. They don’t come to you. Instead you go to their office, usually taking time off from your job on a busy week day. For us the nearest IRS office was located a hundred miles or more from where we lived. And there they make a fellow sweat for hours while an agent goes over those tax forms line by line, demanding proof of everything you claim as a deduction.

If you have ever filled out your own federal income tax form, you know how confusing it can be. Most of us hire someone to do that for us. Thus proving my income tax numbers on a form I not only did not clearly understand, nor did I write without the help of a professional tax preparer, was like battling my way through a laboratory maze for rats. Make a wrong turn and you get zapped. Correct turns bring rewards.

While the IRS accepted my estimate that year for a profit from flea market sales, they would not accept a subtraction of the cost of buying the stuff we sold. That was because I could not produce receipts.

Who ever heard of getting a receipt for a salt and pepper shaker purchased for a dime at a garage sale? For that matter, who ever heard of a flea market vender writing receipts for items sold? Business on the street is never conducted like that.

In the end, after volumes of paperwork connected with my state sales tax license and federal income tax blunder, we ended up owing the IRS and the state nearly $1,000 more than we had already paid that year. The experience taught me a valuable lesson. If you are going to work flea markets or most other back-yard mom and pop style business, always buy and sell under the table. Never keep books. And never tell anybody, especially the government, what you have been up to.

It has turned into a “them and us” mentality. In the United States we have known for a long time that the police are no longer our friends. Unfortunately, it works that way for government in general.

As for all those wonderful tax deductions enjoyed by the big businesses, they exist. But they are for the very big business operations that can afford high-priced bookkeepers and tax specialists who know how to find and use those loopholes. Joe the Plumber won’t find any help there either.

As the story was eventually revealed, Joe is really am unlicensed worker who was posing a hypothetical question when he approached Obama. The story got twisted a bit when picked up by rival John McCain in last week’s debate. It turns out that Joe earns just over $40,000 a year and would fall in the category of escaping all federal income taxes under the Obama plan.

It also was made public that Joe the Plumber still owes back taxes for 2007. He is obviously hurting like just about every other hard working American today.