Several of President-elect Trump’s choices for his Cabinet stand to reap tax benefits from joining the incoming administration, but those advantages are likely smaller and different from what the public may think.
People joining the administration are required to divest significant business stakes that could present a conflict of interests for them. Doing so could create a major disincentive for rich businessmen to join government, because they would be required to pay capital gains taxes on any stocks they had in their companies. In 1989, raising fears about a lack of talent in government, President George H.W. Bush got Congress to allow incoming officials to sell off their stocks but defer capital gains taxes as long as they invested the proceeds into an approved portfolio of government bonds or mutual funds.
That provision of the tax code was sometimes reported to have provided a major benefit to Hank Paulson, the Goldman Sachs CEO who divested about $480 million worth of Goldman Sachs stock to join the George W. Bush Treasury Department in 2006, and avoided immediately paying capital gains on the sale.
Now, several of Trump’s picks will have the same opportunity, assuming they’re confirmed by the Senate.
The Wall Street Journal used the publicly disclosed stakes of some of Trump’s nominees to estimate how much in capital gains taxes they might defer.
Rex Tillerson, the Exxon Mobil CEO chosen for secretary of state, likely will avoid a tax bill of $4 million on Exxon Mobil shares.
Gary Cohn, the Goldman Sachs president set to run Trump’s National Economic Council, will avoid $13 million of taxes on shares of the bank.
Steven Mnuchin, the hedge fund manager and former Goldman Sachs bank tapped to be treasury secretary, would save $9 million on shares in CIT Group, a bank of which he was a director.
Wilbur Ross, the billionaire private-equity investor who will be the secretary of commerce, will avoid $13 million in taxes on sales of stocks in various companies.
Each individual may get larger tax benefits from the sale of assets that haven’t been disclosed to the public, and other Trump selections, such as Transportation Secretary nominee Elaine Chao, have other interests they will have to sell.
Just because the nominees can defer those taxes, however, does not mean that they get a big benefit out of doing so.
If they ever sell the government-approved portfolio, they would then owe the capital gains taxes they previously deferred.
The advantage, then, is that the incoming official gets a chance to diversify his or her portfolio without paying capital gains.
In the case that they were planning on simply holding on to the portfolio, and never realizing capital gains, that could be a boon to an official who wanted to diversify out of a major stake in just one company.
If he or she didn’t want to do so, however, then they “didn’t really achieve that much of a benefit,” said David Herzig, a professor of law at Valparaiso University who specializes in taxes, noting that many people would prefer to have Goldman stock than Treasuries.
“It’s OK design,” Herzig said. “It’s designed well for people who are coming into public service and they have a portfolio of securities that create a conflict.”
