The wealth of Donald Trump’s proposed cabinet is unprecedented. According to the Boston Globe, Trump and his top nominees are together worth over $13 billion.
With that unprecedented wealth comes unprecedented potential for conflicts of interest.
Before ExxonMobil CEO Rex Tillerson, billionaire Republican donor Betsy DeVos, and the rest of Trump’s nominees are sworn in, they’ll need to unload any assets that pose a conflict of interest with their new positions. But due to an obscure tax provision that applies only to executive branch nominees, this “burden” may actually end up allowing them to avoid paying millions in taxes.
In the late 1980s, Congress passed a law allowing nominees to indefinitely defer paying taxes on all capital gains. They still have to sell off their conflicting assets, but as long as they reinvest the money from those sales in low-risk assets like mutual funds or government bonds, they don’t have to immediately pay taxes on their profits.
This means that many will get away without paying a cent. They can diversify their assets, reduce the level of risk in their portfolio, and live off the dividends of their newly-acquired bonds or mutual funds for the rest of their lives.
As an example, let’s look at the case of Tillerson, Trump’s pick for secretary of state.
Tillerson currently plans to liquidate $180 million worth of ExxonMobil stock — about $100 million of which he can sell today, according to my own calculations. If you or I sold that much stock, we’d pay long-term capital gains taxes — a little under 20-percent — on whatever profits we made.
I don’t know what Tillerson paid for his shares, but it surely wasn’t zero. Let’s say he paid $70 million. That would make his profit $30 million, leaving a tax bill of about $6 million.
But due to this special rule for rich people who are appointed to government positions, he may not have to pay that $6 million. Certainly not now, and possibly not ever.
Unlike you or me, Tillerson could take the $100 million and invest it in a mutual fund that pays him about $3 million per year in dividends. If he stays in that fund for the rest of his life, neither he nor his heirs nor anyone else will ever need to pay any tax on his $30 million in profit.
Because of the “stepped-up basis” loophole, which allows assets to be revalued when they’re inherited, his heirs would only pay taxes on any gains in value above what was passed down to them. This means that $30 million of capital gains would never be taxed.
This has never been a trivial issue, but the extreme wealth of Trump’s cabinet nominees makes this special rule even more troubling. Their total wealth is larger than the combined wealth of a third of American households.
These individuals are already incredibly wealthy, and while giving up their private sector positions is clearly a sacrifice, it’s a voluntary one. Public service is an incredible honor that gives them immense power and influence. Should it really allow them to avoid paying tens if not hundreds of millions of dollars in taxes?
We as a nation need to decide whether some of the most powerful people in the country should have access to their own special tax laws.
Morris Pearl, the former managing director of BlackRock, serves as the chair of the group Patriotic Millionaires. Distributed by OtherWords.org