Thursday, March 27, 2008
Several bloggers have note another curious fact about Barack Obama's tax returns: despite over $1.6 million in Schedule C income, most of it from royalties on his book, he did not take the elemental tax planning step of establishing a SEP-IRA. The tax magic is that you can shelter up to 25% of your self-employment income (up to $180,000 in 2007), and the investment earnings accumlate tax-free until withdrawn at retirement. Greg Mankiw (Harvard) suggests possible reasons that Obama did not do this:
Maybe he is getting bad tax advice. Or maybe he is expecting vastly higher tax rates in the future when the accumulated savings will need to be withdrawn and taxed. As Obama economic adviser Austan Goolsbee has written, "Future increases in tax rates potentially threaten to significantly reduce the value of your retirement savings and may even mean that you should not save in 401(k) accounts at all."
See also Joe Kristan, The Audacity of Paying More Taxes Than Necessary.