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Drew Harwell over at the Washington Post has an interesting story about a tax loophole that could allow Trump appointees to avoid paying millions in taxes.
President-elect Donald Trump's ultra-wealthy Cabinet nominees will be able to avoid paying millions of dollars in taxes in the coming weeks when they sell some of their holdings to avoid conflicts of interest in their new positions.
The tax advantage will allow Trump officials, forced by ethics laws to sell certain assets, to defer the weighty tax bills they would otherwise owe on the profits from selling stock and other holdings.
The benefit is one of the more subtle ways that the millionaires and billionaires of Trump's White House, which already will be the wealthiest administration in modern American history, could benefit financially from their transition into the nation's halls of power.
The legal tax maneuver, offered for years to executive-branch appointees and employees, was designed to help ease the sting of being forced to suddenly sell investments.
But the federal program, encoded in Section 2634 of federal ethics laws and known as a "certificate of divestiture," has never been tested quite like this. Trump's Cabinet picks have amassed assets worth billions of dollars from lifetimes in banking and investing, much of which they will be able to sell tax-free.
(Score: 4, Informative) by romlok on Monday December 05 2016, @01:22PM
Actually, it's not a reduced tax loophole, as such. There is a key word in the article, and the SN summary, that a lot of people seem to have missed:
The article itself currently includes the following correction, which clarifies the situation:
(Score: 3, Informative) by AthanasiusKircher on Monday December 05 2016, @03:32PM
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.
This is absolutely correct -- and not only is TFA misleading, but it's diverted this entire thread because of the way it's misleading.
Nonetheless, there are still some potential significant benefits even with this stipulation:
(1) I don't believe these deferred taxes are subject to inflation. Since they can be deferred indefinitely, that can add up to huge effective savings if they are sold in the far future. Say some of these folks hold the assets for ~20 years. If you would be hit with a $200 million capital gains bill for selling some assets now (in 2016), but you're allowed to pay for that $200 million in 2036 dollars, that could amount to a huge windfall, assuming inflation continues, since the value of that tax will likely be a lot less in the future. And that doesn't even take into account the possibility of strategic use of these deferments, i.e., selling some of the assets in years when it makes the most financial sense (e.g., when you're showing higher losses, etc.).
(2) I vaguely recall when this all came up with appointment of Paulson under Bush that the strategy was really to NEVER sell the new assets. The implication was that the deferred taxes then expired upon your death, which could turn into a huge windfall for the heirs of cabinet members. I don't know whether this is an accurate statement of tax law, but I remember it being said years ago when Paulson had to divest his Goldman Sachs holdings.
So, yeah, WaPo really didn't make the situation clear in their initial reporting, and they probably should rewrite most of the article rather than just putting that correction of a few sentences at the bottom. But it still IS clearly possible for this tax benefit to save Executive Branch appointees millions of dollars (probably a lot more) in taxes.
By the way, I don't know that there's a much better way of doing this -- it makes sense that public officials shouldn't be significantly penalized just to divest themselves of assets so as not to have an inappropriate conflict of interest. In a fairer world, perhaps the deferred taxes could be indexed to inflation after X number of years after the person leaves office (leaving a reasonable window for them to sell at a "good time" if they want), which would at least get rid of some of the benefits.
And as for the WaPo article in general, I think the much more interesting fact pointed out in it is the the President (and VP) are exempt from most of these conflict-of-interest laws, which means Trump actually doesn't have to sell. In the past, many Presidents opted to put their holdings in a blind trust, but that's also not required by law. To me, THAT is a much bigger story here, if Trump opts NOT to divest his interests and maintains control over them while in office. (I know he has said he's going to hand control over to the kids or whatever... but I think it's still pretty safe to say there could be huge conflicts of interests here.)
(Score: 0) by Anonymous Coward on Monday December 05 2016, @04:05PM
> I think the much more interesting fact pointed out in it is the the President (and VP) are exempt from most of these conflict-of-interest laws,
That's received a ton of coverage in recent days. Trump himself has even talked about it. [politico.com]
This story is interesting precisely because its not received as much coverage and Trump's cabinet is packed full of billionaires. [theguardian.com]
(Score: 0) by Anonymous Coward on Monday December 05 2016, @03:49PM
This applies to Trump.
He's complying with the requirement, and happens to fall into the intentionally defined reduced tax loophole.
Go back and read the story. The law the requires cabinet members to divest potential conflict of interest holdings apparently doesn't apply to the POTUS. Even so, they usually do, but Trump is "a different kind of President", as Paul Ryan likes to say.