April 10, 2009

The Obamas were in debt -- and now so are we

Richard Henry Lee

An examination of the Obama’s finances show that they were living off lines of credit along with their salaries until 2005, when the book royalties came through and Michelle received her astonishing 260% pay raise at the University of Chicago.

This reexamination of the Obama’s finances was triggered by a Chicago Tribune story on whether the Obama’s should refinance their home in Chicago. In addition, it is tax time with tea parties and that is another good reason to take another look.

As we first reported here last year, the Obamas received a better mortgage rate from Northern Trust than the market rate when they bought their mansion in the upscale Kenwood area of Chicago with the aid of now-convicted felon, Tony Rezko. The Tribune story asked mortgage experts if the Obama’s should refinance and the answer is “no”.

But the public record of their spending shows that they had to regularly take out lines of credit to pay their bills. As reported during the campaign, Michelle Obama complained in hard hit Ohio:
I know we’re spending — I added it up for the first time — we spend between the two kids, on extracurriculars outside the classroom, we’re spending about $10,000 a year on piano and dance and sports supplements and so on and so forth,”

The Obamas were living beyond their means for several years according to an examination of their tax records and their mortgage documents.

In 2000, the first year that we have tax records, the Obamas had an adjusted gross income (AGI) of $240,505 and yet reported only a paltry $38 in interest, which indicates either a small savings account or interest on a checking account. In 2002 they reported $33 in interest and no interest in 2001, 2002 and 2004. This means there was virtually no savings account for those years. They were spending their entire income, plus whatever they had from lines of credit. During the five year period from 2000 to 2004, their combined AGI was $1,217,482.

In 2005, the year the book royalties came in and Michelle received her remarkable raise (coincident with Obama’s swearing-in to the US Senate), they reported a total of $13,285 in interest along with an AGI of $1,665,106. This is also the year they bought their Hyde Park mansion.

Acording to Cook County property records, the Obama’s purchased a condo on South East View Park in Chicago in 1999. They took out a 30 year adjustable rate mortgage of $159,250 with an initial rate of 6.6% on April 6, 1999. One month later on May 7, 1999, they took out a line of credit for $20,750.

On September 25, 2002, they refinanced their condo with a $210,000 30 year mortgage. This means they took out at least $60,000 of equity from their home. But that was not enough. On May 3, 2004, they took out another line of credit for $100,000 with a variable interest rate. Interest rates are not given for these mortgages, but they paid $14,395 in mortgage interest deductions in 2004. It is hard to estimate total debt outstanding since this deduction could include points. Mortgage interest deductions in 2003 were $12,241 by comparison.

In 2003, they reported almost $24,000 in child care expenses and in 2004, about $23,000. They also paid about $3400 in household employment taxes each year. They did receive a $700 child care credit each year.

Their AGI for these two years was $238,237 in 2003 and $207,647 in 2004. This drop in income was probably the reason for the refinanced mortgage.

In 2005, their AGI jumped to $1,217,482 due to the aforementioned book deal and Michelle’s pay raise. At this time, the Obama’s purchased their mansion for $1,650,000 and obtained a $1,320,000 mortgage from Northern Trust. But once again, six months later, they took out a $250,000 line of credit also from Northern Trust.

It is apparent from these numbers that the Obama’s were living beyond their means. They had to borrow again and again to make ends meet. And now President Obama is spending our nation's treasury at a profligate rate, far beyond previous presidents. But maybe Obama has a plan: perhaps he will write another best-selling book and donate the proceeds to the US to get us out of debt. One possible title might be: "The Decline and Fall of the American Republic".