Bending the Third Rail
Because We Should, We Can, We Do
Friday, June 02, 2006
Now I Get It
I've been wondering why a Wall St. heavy weight like Henry Paulson would agree to join a failing Bush administration as Treasury Secretary. He has much to lose in credibility and reputation. Reportedily, he was told he would have legitimate input over the economy and access to the President. The press has been tut-tuttin Bush's concessions to Paulson as the motivation behind Paulson being willing to risk taking a losing job. But, as usual, there's something else in the equation that the press doesn't seem to have mentioned:
Jessica Holzer writes for Forbes that Paulson, with his $700 million equity stake in Goldman Sachs, will "have the chance to diversify a good chunk of those holdings without paying a dime to the Internal Revenue Service.

"By accepting the Treasury post, Paulson is poised to take advantage of a tax loophole that allows government officials to defer capital gains taxes on assets they have to sell to avoid a conflict of interest, as long as the proceeds are reinvested in government securities or a broad array of mutual funds approved by the government within 60 days. . . .

"The tax break was designed to ensure that the wealthy are not deterred from taking posts in government because they fear a big tax hit. But it amounts to a significant perk of public office."
Having 700 million eggs in one basket is not a very good investing strategy. Paulson can now thoroughly divest and reallocate his money with no tax consequence. Given Paulson tax bracket, that's a very, very heavy incentive to take some shit from Bush, at least long enough to get reallocated. Then again, perhaps a few hundred million here or there doesn't matter to him.

Blogger Lynne said...
Sometimes I feel like my head will explode.

Blogger mikevotes said...
Greyhair, I wrote you a long and rambling post on why I think that media criticism is extremely important. Just kind of a follow on to the discussion we were having awhile back. Not directly on the same topic, but it probably gives a better idea of where I stand.