Thursday, March 27, 2008

Is Obama part of the Investor Class? 
I'm no Obama fan. But the Wall Street Journal's John Fund gets this very wrong:

Ryan Ellis of the American Shareholders Association has examined the Obama returns for calendar years 2001 to 2006 and found that, in all of those years, the couple reported a mere $1,188 in dividends in 2006 and another $2,754 in dividends in 2005. In the previous years, they reported no dividends of any kind.

Indeed, even though Michelle Obama had income from the University of Chicago's Hospital System that exceeded $1 million during the period the tax returns were filed, she appears to have neither a 401(k) plan nor an IRA for retirement contributions. In another sign the Obama household wasn't into building a nest egg, the couple cashed out $6,260 from a pension or 401(k) plan in 2000.

Given all this, Mr. Ellis asks why the Senator is so "hell-bent on pursuing punitive taxes on capital that would wreck America's retirement savings?" His answer: Perhaps it's "because, by and large, he doesn't have any skin in the game."

This is just cruddy reporting, and an example of how to smear someone with bad statistics. It's also an example of a middle class reporter who just doesn't understand the personal finances of the wealthy.

First of all, with Michelle pulling in income of 1 million over that period, that would put them in the highest marginal tax bracket right there. I'd be avoiding dividend income, too. Why take dividends, when you can continue to shelter and compound tax deferred in non-dividend-paying stocks (like Berkshire Hathaway, for instance.)

Second, because stock dividends as a percentage of market capitalization is quite low,that 2,754 in dividend income could well come from a six-figure diversified stock portfolio.

Third, of COURSE she doesn't have an IRA for retirement contributions, moron!!! She's not eligible to contribute!!! She's way, way above the income threshold.

Likewise, because of her income, she may very well fall under the "top hat" provisions that restrict highly-compensated employees from participating in 401(k) programs directly.

Instead, she may be participating in a deferred compensation plan of some sort, for example, and they would do well to keep what they could in appreciating non-dividend-paying assets, and possibly real estate.

Indeed, had Fund or the Shareholders' Associaton twitbird done 20 seconds of research, they would easily have found that in 2006, Obama had between 100k and 250k EACH in the Vanguard Wellington fund and the Wellesley Income fund, and between 1,000 and 15,000 with Bill Gross in the PIMCO Total Return fund. They also have over $50,000 invested with the Illinois State Pension fund, and between $1,000 and $15,000 EACH in Goldman Sachs large cap investor shares and Marshall Midcap investor shares, as well as an option to purchase thousands of shares of Tree House Foods.

Interestingly, they did not attempt to quantify the value of these options at the time.

During 2006, Obama sold over $50,000 in bonds and additional thousands in several stock funds.

So this assertion that the Obamas are 'not part of the investment class' is a nasty little ignorant partisan lie.

Splash, out


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You can contribute to an IRA regardless of your income. You just cannot deduct it if your income is too high.
Ah, yes, you are correct.

Thinking about this a little further, though, even if they used a nondeductible IRA, why would they want to? At their level of accumulation, they have got to be very reluctant to consider having their retirement income taxed as income, rather than capital gains.

Then again, maybe he WANTS to eliminate the advantage of long-term capital gains versus ordinary income taxes.

I'd be inclined to load up on Berkshire and some other low-dividend stocks and take my chances with cap gains rather than ordinary income, while maybe using whole life insurance for the bond allocation part of my portfolio.

Some would argue with me, but they can sell that policy in later years, or take a loan against its cash value, to generate some of that income.

I haven't dug through how that's taxed, though. But I believe you can withdraw up to your basis in LI anyway tax free.
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