How tax-friendly Obama cuts his own

[audtatious]

Democratic presidential candidate Barack Obama would raise taxes on the rich, but as an investor, he seems eager to cut his own.

By Tim Middleton

This is part of a two-part series on the candidates and their money. To read the other part, on John McCain, click here.

Democratic presidential candidate Barack Obama wants to raises taxes on the wealthy, but as a member of that social class, he isn't eager to fall victim himself. He has invested at least $1 million in a fund that yields tax-free income.

The Illinois senator's latest campaign-finance disclosure shows that his investments have nearly tripled in the past two years to as much as $7.4 million, and his income in 2007 surged past $4 million, not counting his government salary.

Obama reported accounts with Morgan Chase Private Client Asset Management, an elite firm that deals only with the rich, as well as a host of retirement accounts, some in the name of his wife, Michelle.

Because the required disclosure forms allow candidates to report their assets in ranges, such as $250,001 to $500,000, Obama's net worth at the end of 2007 -- not including his home and other nonfinancial assets -- was pegged between $2,022,016 and $7,356,000.

Tax-free incomeBy far the largest account, valued between $1 million and $5 million, was in the Northern Municipal Money Market Fund. It generated tax-free interest in 2007 of between $15,001 and $50,000.

Northern Trust "has built a well-deserved reputation around being the banker for the überrich," says Andrew Richards, a Morningstar equity analyst. In a report on the Chicago company's stock, he writes, "The firm estimates it serves roughly 20% of the richest families profiled annually in the Forbes 400."

Obama certainly doesn't fall into that category, but he does fit into the top 1% of federal income-tax payers. According to the Tax Foundation, this group accounts for 21% of total adjusted gross income nationwide but pays 39% of all individual federal income taxes.

As of 2005, the latest data available, the cutoff for the top 1% was adjusted gross income of $364,657. The cutoff for the top 5% was $145,283.

Raising taxesObama has proposed a host of increases that would raise the federal income-tax rate on top earners -- and not just that 1% -- to 52% from 35%, according to an analysis by Investor's Business Daily. That calculation includes applying the 12.4% payroll tax that funds Social Security to some income above the current $102,000 cap, and letting some of President Bush's tax cuts expire.

His former rival for the Democratic nomination, Hillary Clinton, has called his plan to raise Social Security taxes "a trillion-dollar tax hike on the middle class."

Interest on municipal bonds, however, is exempt from tax, which is why Obama's Northern Trust fund generates tax-free income.

Despite repeated requests over several days, the Obama campaign declined to comment.

Ballooning wealthAs recently as 2006, when Obama filed financial disclosures in advance of his presidential campaign, he reported a liquid net worth of between $1 million and $2.5 million. He and his wife already were private clients of JPMorgan Chase (JPM, news, msgs) at the time, and their investments were very conservative.

Since then his wealth has ballooned, notably due to sales of two books, "Dreams From My Father" and "The Audacity of Hope." In 2007, he collected royalties of $815,971 on the former and $3,278,719 on the latter.

According to an attachment to his report, Obama received an advance in 2005 of $1.9 million for those books plus an untitled children's book, which has not yet been published. The attachment says that $200,000 of that was pledged to charity.

The royalty payments received in 2007 are in excess of the advance, reflecting robust sales.

Obama's Senate salary in 2007 was $165,200, rising this year to $169,300, in line with core inflation of 2.5%.

The Obamas also reported owning U.S. Treasury notes valued between $500,001 and $1 million.Socially responsible lossesBoth the candidate and his wife reported owning shares in Vanguard FTSE Social Index Fund (VFTSX) in retirement accounts. His account was valued up to $250,000 and hers up to $100,000. Despite a miserable performance record, having trailed the S&P 500 Index ($INX) by an average of 3.1 percentage points a year over the past five years, Morningstar calls the fund "one of the most attractive socially responsible options around."

Obama reports that his wife owned shares in another, much better fund, Vanguard Wellesley Income Fund (VWINX), that were worth between $100,001 and $250,000, also in a retirement account. However, the fund owns positions in three foreign oil companies -- Total (TTFNF, news, msgs), BP (BP, news, msgs) and Royal Dutch Shell (RDS.A, news, msgs) -- that do business with Iran, a position Obama opposes. His campaign told reporters the Wellesley fund would be sold.

The Obamas also reported having invested between $100,001 and $250,000 in each of two 529 college savings plans, one intended for children from birth through age 8, the other for kids 9 to 12 years old. The Obamas have two daughters.

They had a joint checking account with Morgan Chase Private Client valued between $15,001 and $50,000. Michelle Obama had a similar account valued between $1,001 and $15,000.

The Obamas reported no liabilities, such as credit card debt. Mortgages and auto loans are exempt from reporting.

Separately, Obama released his 2007 income taxes, showing that he and his wife had adjusted gross income of $4,139,965, including $260,735 from salaries. They made charitable contributions of $240,370, or 5.8% of their AGI, and paid federal taxes of $1,396,772.

Michelle Obama resigned as a director of TreeHouse Foods (THS, news, msgs), a specialty food manufacturer, in May 2007. According to the disclosure, options she had to purchase company shares were canceled when she resigned, and none was exercised during her tenure.

The Obamas' wallets are practically empty compared with the $100 million-plus fortune of Hillary Clinton and her husband, former President Bill Clinton. That of John McCain's wife, brewing heiress Cindy McCain, is larger still.

McCain's disclosure, which I'll report on in my column tomorrow, also reveals investments in tax-free accounts in his wife's name, though none in his own -- but McCain has pledged to cut taxes, not raise them. Hillary Clinton has received an extension on her 2007 disclosure filing to June 30, when it won't matter.

For now, the raise-taxes-and-avoid-them platform is occupied solely by Barack Obama.

http://articles.moneycentral.m....aspx

[Encryptshun]

1) Article is from the beginning of June. Be interesting to see what those investments are worth now.

2) Obama invested wisely and took advantage of tax-free options. Any other earner (edit: in the top 1% or not) could do the same and would be stupid not to.

3) Future tax changes have ZERO bearing on what happened in 2007. Post something when he refuses to comply with his own new tax code...

Vote McCain, but not because of this vapid crap.

[audtatious]

He's made some smart moves with his money, I have no issue with that at all. It just seems he gets a pass with his smart money management whereas others in the same tax bracket get derided for doing the same thing.

I thought Democrats wanted to pay MORE taxes because they can afford it

[ishkabibble]

He paid an effective tax rate of 32% overall.

What's the issue? I'm not seeing it.

[AZhitman]

Good job Obama for taking advantage of the tax code. I encourage everyone to exploit EVERY loophole they can find. That's your RIGHT as an American.

MY issue is with this: His former rival for the Democratic nomination, Hillary Clinton, has called his plan to raise Social Security taxes "a trillion-dollar tax hike on the middle class."

Where are all the Hillary supporters? Where is their outrage?

Are they all of a sudden OK with this? Are they *gasp* willing to ignore (assuming Hillarious speaks the truth) this fact? Are they *gasp* "party-line-voters" who don't CARE about the issues?

[audtatious]

He paid an effective tax rate of 32% overall.

What's the issue? I'm not seeing it.

My issue is the normal blame-game of "the rich" taking advantage of the tax code, thus not paying their fair share of taxes. Obama is doing the same thing with his money, as are those who are throwing out the remarks. It's hypocritical.

The above is not directed as a slam against Obama at all. He's protecting his money just as those who have the stones thrown at them are. I have no issues with it at all, just the mentality level of the stone throwers.

[smockers83]

3) Future tax changes have ZERO bearing on what happened in 2007.

Mmm, not necessarily.

[marlin29311]

Quite frankly, I think that someone should step up to the plate and say that they are going to reform the tax loopholes. Instead of bumping up the higest bracket to over HALF of what someone brings home, why not close the holes on all the little crap that people aren't paying. A lot of a little adds up to a nice chunk of change. And then we don't have to bump up income taxes. I think it's very unfair to say that a family making 250k a year is wealthy, especially when they are putting 3 kids through college...

[AZhitman]

Here's another point that NEEDS to be made to the American people:

Someone making, say, $45K/yr, who has a kid and a house, ISN'T paying Federal income taxes ANYWAY!!!

If they are, they're NOT taking advantage of all the opportunities in the tax code.

Then again, the Left IS all about "protecting the stupid".

[Encryptshun]

Here's another point that NEEDS to be made to the American people:

Someone making, say, $45K/yr, who has a kid and a house, ISN'T paying Federal income taxes ANYWAY!!!

If they are, they're NOT taking advantage of all the opportunities in the tax code.

Then again, the Left IS all about "protecting the stupid".

Greg, please show us, in detail, these "opportunities in the tax code" that you are talking about.

Also, please help me understand -- were you just labeling any homeowning parent earning under $45K per year who pays taxes as "stupid"?

EDIT: [calm voice] Okay, in the interest of "straight talk", I come from a family where both my parents worked (mom was a school teacher, dad was a small business owner), they had two kids, a mortgage AND they paid taxes. A LOT of taxes. Their combined income, before tax, was just over $7K per year when they were married in 1972, and it rose to a lifetime peak of $40K per year in 2004, the year before my mom retired and my father became ill and died. After tax, that same income was $6K year one and $25K the final year. That's 15K in taxes on a $40K/year base. So, a 37.5% tax burden while paying a mortgage and having two dependent children.

My father was a business major with an accounting background. All our taxes, business and personal, were done by a CPA (three, in fact, during my lifetime) and every "loophole" and "credit" they might possibly use was identified. The bottom line was that they didn't make enough money to take advantage of the tax code. Which is why, Greg, I want to know what's changed between then and now.

And by the way, anyone who implies that my parents were "stupid" for contributing to our society while being home-owning, family-centric citizens will earn a nice friendly right-cross to the jaw -- I don't care who he/she might be. That attitude is eleitist, fascist, and ignorant.[/calm voice]
Modified by Encryptshun at 12:57 PM 10/3/2008

[audtatious]

Greg, please show us, in detail, these "opportunities in the tax code" that you are talking about.

Also, please help me understand -- were you just labeling any homeowning parent earning under $45K per year who pays taxes as "stupid"?

The Left thinks so. Why else do they think they need to inject socialistic policy if they were not smarter than everyone else?

[Encryptshun]

The Left thinks so. Why else do they think they need to inject socialistic policy if they were not smarter than everyone else?

If I could make any sense out of what you just said, Matt, I would respond with more than this. Maybe I'm stupid.

I don't believe in this "The Left" boogeyman any more than I believe it has a "Right" counterpart. Namely because no one that I've ever met can define those terms for me. Economically, there is a value system that falls to the "left" or "right" of some imaginary middle line between Communism and Capitalism, but it's all semantic and academic.

I'm a fiscal conservative but a social liberal, as are millions of people in the world. There are millions more who are fiscally liberal and socially conservative. Are we "Right" or are we "Left"? It's that sort of stigma that only serves to polarize our population and it's quickly becoming an outmoded way of thinking. But I digress.

I really look forward to Greg's response backing up his outlandish assertion that home-owning parents earning less than $45K per year don't pay taxes unless they are stupid.

[AZhitman]

Greg, please show us, in detail, these "opportunities in the tax code" that you are talking about.

Nope. Read the tax code. I did, you can.

Also, please help me understand -- were you just labeling any homeowning parent earning under $45K per year who pays taxes as "stupid"?

There'll be no panty-bunching in this forum - Take anything in here personally, and you'll be pissed all day. God knows I get aggro about a lot of perceived "slights".

Here's the deal: I don't trust anyone but myself to do my taxes. I've done my own since I started owing (age 16), and even after adding a business or two, investments, real estate, kids, mortgages, rental property... I still do them.

I've sent mine to "H & R Blockhead"... Guess what? They failed to get me all the deductions and allowances I was entitled to. "CPA" means nothing to me. They get paid regardless.

Example for you: A couple makes $50K annually. With a house and one kid, and $3K in itemized deductions, their effective tax rate is less than 5%.

Re-running the calculations with $40K in income, filing jointly, with 2 kids, and NO itemized deductions results in a tax REFUND of $490. Granted, that's the 2008 tax code, but that's with NO mortgage interest, no charitable contributions, no other deductions on taxable income.

http://www.dinkytown.net/java/TaxMargin.html#calc

Run their EFFECTIVE tax rate, with NO deductions, and you still only get an effective rate of 15%, or $0 owed (for tax year 2005).

http://iloancalculator.com/cal....html#

So E, just because it doesn't come across as instantly comprehensible to you does not make it "outlandish".

And I simply cannot accept that $15K in taxes were paid on a $40K/year salary for a couple with a mortgage and kids. Hell, the standard deduction for 2 kids plus a year's mortgage interest is over $15K.

[audtatious]

Knowing Greg he sure didn't mean it the way you are taking it.

Anyway....If your parents are paying $15k taxes on 45000 income and not getting almost all of it back then they should look more at the tax plan. I went through and filled in a 1040EZ form just to see what it would really be. It came out like this:

Wages tax and tips: 45000Standard exemption married filing joint: 17500Taxable income: 27500Federal tax withheld: 15000Tax (on 27500 married/joint): 3346

Based on the above they get a refund of 11654. If they have dependent kids they get further exemption as they would if they own a home, etc. Conceivably, based on the above scenario and doing a 1040 itemized they should be able to get it all back and possibly more.

[AZhitman]

A little more education, since I sure as hell don't need to get punched:

Federal Income Tax Bracket TableThe thresholds for the 2005 tax year stand at:

* Up to $7300: 10% tax rate * $7300 - $29,700: 15% tax rate * $29,700 - $71,950: 25% tax rate * $71,950 - $150,150: 28% tax rate * $150,150 - $326,450: 35% tax rate

How Tax Brackets WorkYou pay the tax rate for each tax bracket for the part of your income in that bracket. So if you earned $100,000 of taxable income, you would not pay 28% of your income. Instead, you would pay 10% on the part under $7300, 15% on the part between $7300 and $29,700, 25% on the part between $29,700 and $71,950 and 28% on the part between $71, 950 and $100,000.

[AZhitman]

Save that right cross for the CPA who hosed your folks.

[audtatious]

How Tax Brackets WorkYou pay the tax rate for each tax bracket for the part of your income in that bracket. So if you earned $100,000 of taxable income, you would not pay 28% of your income. Instead, you would pay 10% on the part under $7300, 15% on the part between $7300 and $29,700, 25% on the part between $29,700 and $71,950 and 28% on the part between $71, 950 and $100,000.

The sliding scale is a bit different at tax time. Based on the 1040ez the taxes owed were calculated on 27500, not 45000.

[Encryptshun]

Nope. Read the tax code. I did, you can.

I'll remember that the next time someone makes a statement and you ask for evidence.

There'll be no panty-bunching in this forum

I don't wear panties. And, even if I did, nothing said on this forum could get them in a bunch. I was asking you what you meant by what you said (which you still didn't answer) and was expressing my protective nature. BTW-- I can crack a buddy in the jaw and still give him a hug and buy him a beer afterward -- that's one of the benefits of being male.

[Encryptshun]

Knowing Greg he sure didn't mean it the way you are taking it.

Anyway....If your parents are paying $15k taxes on 45000 income and not getting almost all of it back then they should look more at the tax plan. I went through and filled in a 1040EZ form just to see what it would really be. It came out like this:

Wages tax and tips: 45000Standard exemption married filing joint: 17500Taxable income: 27500Federal tax withheld: 15000Tax (on 27500 married/joint): 3346

Based on the above they get a refund of 11654. If they have dependent kids they get further exemption as they would if they own a home, etc. Conceivably, based on the above scenario and doing a 1040 itemized they should be able to get it all back and possibly more.

That's fine if they work for a company that withholds taxes. This would be non-applicable to self-employed, 1099 or LLP small businesses, right?

[AZhitman]

I was asking you what you meant by what you said (which you still didn't answer) and was expressing my protective nature. BTW-- I can crack a buddy in the jaw and still give him a hug and buy him a beer afterward -- that's one of the benefits of being male.

I definitely answered it. I'll assume the real fault lies with the really, really bad "CPA" in this instance.

I'll definitely take the beer, got no problem with manhugs, but I'll take a raincheck on the haymaker.

[ishkabibble]

My issue is the normal blame-game of "the rich" taking advantage of the tax code, thus not paying their fair share of taxes. Obama is doing the same thing with his money, as are those who are throwing out the remarks. It's hypocritical.

I think the people you are talking about take issue with people who exploit loopholes to make massive incomes subject to little or no tax. With an effective tax rate of 32%, Obama does not seem to be doing that.

Poor example, IMO.

[AZhitman]

That's fine if they work for a company that withholds taxes. This would be non-applicable to self-employed, 1099 or LLP small businesses, right?

The tax code is pretty kind to 1099's, LLC's and those who file Schedule C... Home office, insurance, property taxes, amortization of office equipment, supplies, mileage, etc... ALL add up to some nice deductions for small business owners.

[audtatious]

That's fine if they work for a company that withholds taxes. This would be non-applicable to self-employed, 1099 or LLP small businesses, right?

Then based upon the tax scale they should have paid a maximum of 3,346 instead of getting a refund.

[audtatious]

I think the people you are talking about take issue with people who exploit loopholes to make massive incomes subject to little or no tax. With an effective tax rate of 32%, Obama does not seem to be doing that.

Poor example, IMO.

No, they are against them doing anything to cut their taxes. Any loophole is inappropriate. The main complaint is that the poor do not have access to their loopholes so neither should the rich.

[ishkabibble]

Since when is following the law as originally intended a "loophole"?

A "loophole" is something that people like really clever CPAs and financial advisers find, and then can exploit beyond the law's original intent. For example, something that would completely eliminate someone's taxable income but was not intended to do so. Clever CPAs and financial advisers are something the wealthy can afford.

I understand what you are getting at, but your original article which shows Obama's significant effective tax rate, and small return on tax-free investments does not show hypocrisy IMO. Greg, you are probably the expert on this forum about the subject, do you think it shows hypocrisy?

[audtatious]

Do you read? I did not say it shows HIS hypocrisy. Why are you rambling on as if I attacked Obama? When tax rates are discussed and the "rich" are brought into the conversation, numerous dip-sh1ts always start arguing about how the rich use loopholes. Then you have Kerry and gang saying they are against the Bush tax cuts and want to pay more taxes. These people are doing the same as Obama which is pretty much the same as "most" (there are cheats of course) rich people. That's the hypocrisy, those who complain about it. I'm just using his finances and investments to show even HE does it.

Stop trying to pull my chain when I was explicit in my 2nd and 3rd post of this thread.

[ishkabibble]

I did not say it shows HIS hypocrisy.

Neither did I.

Do YOU read?

[audtatious]

Do you?

"and small return on tax-free investments does not show hypocrisy IMO" - in regards to the Obama article

Who's hypocrisy were you talking about if not assuming I was calling Obama a hypocrit?

[AZhitman]

A tax "loophole" is an exploitation of a tax law which reduces or eliminates a tax liabilitiy of the filer, wherein the filer's intent is not illegal, but the definition can be exploited for personal gain.

You guys lost me on the rest, but suffice it to say that a person exploiting a tax loophole is NOT to be looked at askance.

[audtatious]

The discussion turned to loopholes which I did not talk about until I responded to someone else. I even stated loopholes were inappropriate. BUT, I don't find a issue with someone using one if they can do so. The rest seems to be an issue of who I accused of being a hypocrite.