Trump, cabinet could avoid millions in taxes thanks to this little-known law – the washington post gas constant for nitrogen


While officials who are forced to sell will be able to avoid capital-gains taxes, they will have to pay them at a later date if they sell the new securities, such as Treasury bonds and mutual funds, approved by federal ethics officials. Still, the benefit offers strong advantages for the officials, including allowing them to cheaply rebalance their holdings and delay their tax burden on any investment gains. That delay could also permit them to pay a lower capital-gains tax rate in the future, as many Republicans favor.

Trump has not committed to divesting his fortune. But if he does, federal ethics advisers said, the self-described billionaire could potentially reap the same tax advantage. The Office of Government Ethics, which leads the program, said this week that it was researching whether the ­president-elect could qualify.

The benefit was used to great effect when Henry Paulson, then chief executive of Goldman Sachs, was nominated by President George W. Bush to serve as treasury secretary. Paulson sold roughly half a billion dollars’ worth of Goldman stock and used the benefit to avoid what the Economist estimated was $200 million in taxes.

“You don’t want someone, just because they’ve done well in the private sector, to pay a penalty for taking a job in the government,” said Ken Gross, a former Federal Election Commission enforcement official who has advised candidates of both parties.

Trump transition and company representatives did not respond to requests for comment. Trump, in a New York Times interview last month, suggested divesting would be “a very hard thing to do” because of his broad holdings in real estate and other assets.

When new officials join the government, federal ethics advisers review their holdings and instruct them on how they should cut through entanglements, such as recusing themselves or divesting stocks and other assets in cases where potential conflicts could arise.

People who sell company stock typically have to pay taxes on any profits, known as capital gains. But the divestiture benefit allows officials to skip that tax bill, as long as they reinvest the gains into assets where conflicts are less likely, such as U.S. Treasury bonds or diversified mutual funds.

It is unclear what Trump officials will be asked to divest, but the tax savings on sold-off holdings could be monumental. Trump’s choice for education secretary, Betsy DeVos, is the heiress of a family Amway fortune worth roughly $5 billion.

The heads of financial divisions, including the Treasury Department, are traditionally advised to sell stocks, bonds and other instruments affected by the country’s fiscal policy. Upon his appointment in 2009 as treasury secretary, Timothy F. Geithner pledged to divest his holdings in several investment funds and college-savings accounts, an ethics letter from the time shows.

That could mean big tax benefits for Trump’s financial leaders. Steven Mnuchin, Trump’s pick for treasury secretary, is a hedge-fund founder and former Goldman Sachs banker who has made tens of millions of dollars on Wall Street. His portfolio includes about $100 million of stock in banking giant CIT Group, according to compensation research firm Equilar.

Trump’s nominee for commerce secretary, billionaire investor Wilbur Ross, has a net worth nearly 10 times that of all of Bush’s first Cabinet in 2001 combined, including tens of millions of dollars in stock and more than $1 billion in cash and assets, Bloomberg data show.

Capital gains are taxed at a far lower rate, 15 percent, than the typical income most people make from working. Mitt Romney, the 2012 Republican presidential candidate, was criticized because his tax rate was so low, largely as a result of the capital gains from his investing career.

Some ethics experts say the benefit has practical value for officials at all levels. Many agencies have their own conflict-of-interest rules prohibiting the ownership of certain stocks. For example, Environmental Protection Agency employees in the office that regulates toxic chemicals are banned from owning pesticide-company stock.

“If you suddenly had to absorb the capital-gains taxes of substantial parts of your holdings, it would be a real body blow to some people financially,” said Robert Lenhard, a campaign-finance lawyer and former FEC chairman. “I just think of it as an act of fairness for those people entering public service.”

Trump said in a financial disclosure filing in May that he owned up to $40 million of stock, including in companies whose value could rise as a result of his policies. Divesting those shares, if he qualified for the benefit, could prove deeply lucrative.

Correction: An earlier version of this report inaccurately described a tax benefit offered to incoming members of the Trump administration and other federal employees. They can defer indefinitely, not avoid entirely, the tax burden on capital gains they earn through the forced sale of assets that could pose conflicts of interest. The taxes come due if the officials sell the new assets later.