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 at the time, and their investments were very conservative. (Read my earlier column "A look at Barack Obama the investor.")
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 -- , and -- 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, 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.
At the time of publication, Tim Middleton did not own or control shares of any company or fund mentioned in this column.