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Rep. Brad Sherman's big return on campaign donations

U.S. Rep. Brad Sherman prepares to do a television interview at the U.S. Capitol building in Washington, D.C. Many lawmakers invest campaign contributions, but not all make money. Former accountant and Democrat from California Brad Sherman has made over $650,000 on Treasury securities.

Kai Ryssdal: California Democrat Brad Sherman's been having a pretty good run in the bond market. We saw a story in Politico this morning outlining Rep. Sherman's success. His congressional campaign committee reported a return of $650,000 on investments Sherman's made with his political contributions. Money and politics are, of course, inseparable. Who knew investing was part of the mix?

Politico's John Bresnahan wrote the story. Good to have you with us.

John Bresnahan: Hi. How are you?

Ryssdal: So Brad Sherman, he can't be the first and only one to have this kind of game. Right?

Bresnahan: No, he's not. It's a relatively standard practice for members and senators who have a lot of money in their campaign accounts to invest in. You have to think of a campaign committee as a separate entity. It's like a small business. It raises a lot of money. It spends a lot of money. It pays taxes. It's a stand-alone entity.

Ryssdal: But it's got to find something to do with its own money is the bottom line?

Bresnahan: If you have the money and you have a safe seat, you can do some very interesting things. Now members have lost hundreds of thousands of dollars. Congressman Joe Barton, Republican from Texas, he lost $700,000 in the market when it crashed. What was interesting about Sherman was all of a sudden you look at his campaign finance report and there's this nearly $652,000 gain and so we wanted to dig into that further.

Ryssdal: So where did it come from? What's he investing in?

Bresnahan: He is investing in what's known as TIPS -- Treasury Inflation Protected Securities, a financial instrument. In this first quarter of 2012, he reported this gain and all of a sudden there was a $652,000 gain. I interviewed Mr. Sherman on it and he said he was told by the Federal Election Commission that he could only report the gain at one time. Over a course of several years he's put a lot of money into this and he got a big boost and it was very noteworthy. He's in a very tough race and that kind of money could make a real difference.

Ryssdal: Well, I was just going to say he and the guy in the next district over, Howard Berman, here in Los Angeles -- they're having to compete now, two long-time Democrats. Is this money, the $650,000 going to make a difference in this race?

Bresnahan: It could be a huge boost to Sherman. That could pay for a week of advertising, which could be very critical in a race like this.

Ryssdal: Yeah, $650,000 never hurts, right?

Bresnahan: No, it doesn't. In a House race, that is a lot of money. Now in this race, we're going to see a ton of outside money come in. This is probably one of the biggest House races in the country this year. You have Democrat on Democrat. It's brought about because of redistricting. It's two high-profile members, two well-known members, let me put it that way. Super PACs are already playing in this. We're going to see millions of dollars spent in here, so any nickel that these guys can put in this race, they will do.

Ryssdal: One other thing from your piece this morning that struck our fancy, you note that the tax code is very friendly to congressional committees when they're doing this kind of investing.

Bresnahan: I've been covering congressional campaigns for a long time. I was not aware -- this is a very little known provision -- that campaign committees pay a tax rate of maximum percent of 15 percent. So on an investment like this, he will pay 15 percent. Now, he has to pay all the taxes on it, but on a lower rate than if you or I were investing in these securities or our own portfolios.

Ryssdal: John Bresnahan, he's a senior congressional reporter at Politico. John, thanks a lot.

Bresnahan: Thanks for having me.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.
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$652,000 gain from an investment in TIPS bonds? Interest rates and OIT's on TIPS are very low these days. How much did this congressman have to have in his account to earn this much money -- even over several years? Paying a 15% tax rate on capitol gains is not strange (eg Mitt Romney), but the interest on TIPS, I believe, counts as interest income not capital gains, or have I been doing my taxes incorrectly?

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