Great financial cost? He got his massive stock package tax free. He probably made over $50million in tax savings taking this position
I had not heard of the tax free stock package. Can you please explain so we understand?
Rex Tillerson’s favorable tax deal may have made a year in Trump’s orbit worth it
Rex Tillerson was required to divest his stocks when he became secretary of State post.
His stock holdings were estimated in January 2017 at $54 million.
Tillerson also held the right to an estimated $174 million in Exxon Mobil shares for his four decades at the oil giant, and Exxon set up a special trust in which it sold the shares and agreed to pay cash to Tillerson over a decade.
Both deals deferred any taxes the former Exxon Mobil CEO would ordinarily owe on stock sales, and in the best-case scenario, could defer taxes forever.
“Great financial cost? He got his massive stock package tax free. He probably made over $50million in tax savings taking this position”
To take a much lower job in government service he was forced by law to divest 611,000 shares of Exxon stock which deprived him of the potential upside in the stock price plus the flow of future dividends. The law also requires the proceeds be invested in government bonds which pay less than the 4.1% dividend yield of Exxon stock. Capital gains on the sale of the Exxon stock were not tax free. The taxes were deferred as long as he keeps the proceeds invested in low yield government bonds. At the point he sells bonds to reinvest the money, he pays the deferred capital gains.
The government forces the sale of assets for people like Tillerson to avoid real or perceived conflict of interest. Forcing him to his assets and pay millions of dollars in taxes in order to take what turned out to be a short tenure job seems unfair, which is why the taxes are deferred, not eliminated.
Forcing someone to divest property is a limitation on their freedom. To force the sale of property and immediately levy a heavy tax only adds insult to injury. Likely few wealthy private sector individuals would take appointed senior government roles if compelled to divest property and immediately taxed on the proceeds. Capital gains tax deferral, as long as the funds are invested in government bonds, allows the executive to preserve principal while giving up the potential for higher returns on equities. Ultimately Uncle Sam will collect the taxes because the government bonds will ultimately be sold or mature.
The only thing certain in life is death and taxes. He got nothing tax free. One other thing to note. If he disposes of the bonds after the next Democrat administration takes power, it is likely he will likely face a higher capital gains rate than he does today.