On Monday, Wall Street financier Henry Paulson was sworn in as the new secretary of the treasury, replacing railroad executive John Snow, who stepped down. Paulson and Snow have very little in common except for one thing: Both were very, very rich when they became treasury secretary. This raises a question in the minds of some people: Why do such people take government jobs, even if it is being secretary of the second-highest-ranking department in government? (State is first, by the way.)
One reason, obviously, is a desire to perform public service -- a belief that they can make a difference in terms of policy that will make America a better place. Another reason is prestige. The first treasury secretary was Alexander Hamilton, and I am sure it is a bit of a thrill to sit in his chair, figuratively speaking.
Also, every treasury secretary gets his portrait in the Treasury building. These portraits line the walls starting to the right of the secretary's office, winding around chronologically from Hamilton to the most recent secretary, who fills the space immediately to the left of the office.
This may not seem like all that much, especially in an administration known to treat its treasury secretaries like errand boys. But at least people sometimes remember treasury secretaries, and sometimes they can be extraordinarily important, such as when we are in a financial crisis of some sort. Who knows any of the former chairmen of Goldman Sachs, the New York investment bank where Paulson has worked for 30 years? I do only because another former chairman of Goldman Sachs was Bob Rubin, who was Bill's Clinton's second treasury secretary.
Last, but not least, among the reasons why an ultra-rich banker might want to be treasury secretary is a sweet little tax deal available only to high-level government executives: a one-time, tax-free capital gains exemption. Given Paulson's reported wealth, this tax deal could save him $100 million in taxes -- nice compensation for a job that will last two years at most. Nice even by Wall Street standards.
This provision, Section 1043 of the Internal Revenue Code, was enacted during the George H.W. Bush administration. It was needed, he said, because too many wealthy people were turning down high-level appointments because they didn't want to pay the steep capital gains taxes when they sold their assets to comply with government ethics rules.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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