Tim Middleton

Mutual Funds6/9/2008 12:01 AM ET

How tax-friendly Obama cuts his own

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 income

By 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."


Barack Obama

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 taxes

Obama 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 wealth

As 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. (Read my earlier column "A look at Barack Obama the investor.")

Continued: Royalties


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