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HENRY PAULSON: THE PAY'S NOT GREAT, BUT BENEFITS AREN'T BAD

June 02, 2006

The Wall Street Journal Law Blog notes a New York Times story that may help explain why Henry Poulson might have been willing to walk away his $37 million (2005) Golman Sachs job to accept the relatively paltry $175,500 salary that comes with being Treasury Secretary:

Because of a little-known provision in the federal tax code, Mr. Paulson, the departing Goldman Sachs chief executive, could receive a tax break of at least $48 million if he is confirmed.

The tax rule, Section 1043 of the Internal Revenue Code, allows individuals who are forced to sell stock to meet federal conflict-of-interest rules to defer paying capital gains tax, so long as the proceeds are reinvested in government bonds, diversified index funds and other similar instruments. The provision applies only to employees in the Executive Branch (Congressional lawmakers, Supreme Court justices or ordinary taxpayers need not apply) and is intended to "minimize the burden of government service" resulting from a forced divestiture.

The story says that Mr. Paulson owns 3.23 million shares of Goldman stock worth $495 million. The gain on the shares sold by a blind trust would be deferred until the securities purchased with the proceeds are sold.

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