No Capital Gains Tax For Paulson
Is Paulson Friends With Thaksin?

Former Goldman Sachs CEO Henry Paulson filed to sell about US$500 million worth of Goldman Sachs stock last Thursday shortly after the U.S. Senate voted to confirm his appointment as U.S. Treasury Secretary. Paulson filed to sell 3.23 million shares in a shelf offering of Goldman Sachs stock according to a prospectus filed with regulators. Based on the bank's closing price of US$152.50 on Thursday, the stock is worth about US$492 million. The banking chieftain is unloading the shares to adhere to conflict-of-interest rules. In addition to the 3.2 million shares, Paulson also owns restricted stock units representing 494,054 shares of common stock, all of which are vested and deliverable. The restricted units are worth about $75 million. He also owns options to purchase 680,474 shares of common stock, all of which are exercisable. Paulson's common stock, together with the shares of common stock underlying the restricted stock units and options represent approximately 1.02% of the outstanding shares of common stock of Goldman Sachs.

Paulson became chairman and chief executive officer of Goldman Sachs in May 1999, US$35 million in salary including cash and stock options in 2005. Interestingly, under U.S. government ethics rules, while Paulson is required to sell the shares, he is also exempt from paying taxes on any capital gains on the sale if he obtains a certificate of divestiture. The rule granting the exemption is designed to make sure prospective government employees who own a lot of stock are not dissuaded from joining the government. The Economist magazine estimated the rule eliminate a tax liability of up to about US$200 million for Paulson. As a result, Paulson, and others in the same position, are able to sell shares have the funds reinvested in more diverse holding, and will only be subject to taxes on the capital gain when and if they are later realized.

Paulson, who joined Goldman in 1974, is following the path of former Goldman CEO Robert Rubin, who was Treasury Secretary under President Bill Clinton. Other recent Goldman Sachs executives now in high-profile jobs include New Jersey Gov. Jon Corzine and John Thain, a former Goldman Sachs operations chief who now heads up the New York Stock Exchange. Current White House Chief of Staff Josh Bolton was working at Goldman before being tapped as policy director for President Bush's 2000 campaign.