What Will Treasury Secretary Paulson Do?

David Wessel wonders what Treasury Secretary Paulson will do for the next two years:

Capital - WSJ.com: President Bush faces a big decision in coming weeks: how best to deploy his energetic, impatient new Treasury secretary, Henry Paulson, after November's congressional elections.

Although his presidency will be defined by Sept. 11, 2001, and the Iraq war, Mr. Bush and his chief of staff, Josh Bolten, surely are beginning to ponder whether they can accomplish anything economic in the two years Mr. Bush has left in office. If they decide to be ambitious -- and that is a big if -- Mr. Paulson is eager to be the field marshal.

"When there is a big problem that needs fixing, you should run toward it, rather than away from it," Mr. Paulson said in his first speech. "That is one of the reasons I decided to come to Washington."...

China obviously looms large in the Paulson portfolio, and he plans to return there before year end. But that is a long-term investment.... Paulson, alarmed that so many companies are choosing to make their initial public offerings outside the U.S., is serious about making America's capital markets "more competitive."...

Mr. Paulson has the advantage of being unscarred by the partisanship of the past few years.... "If you see me in Ohio, I'll be there for reasons other than political," Mr. Paulson quipped while in China. "And I've got no plans to go to Ohio in the immediate future."

Whether Mr. Paulson can do anything depends largely on the president. One bold stroke would be to team Mr. Paulson with Trade Representative Susan Schwab to resuscitate the stalled Doha Round of world trade talks....

An even bolder stroke would be for the president to tell Mr. Paulson to tackle long-term budget issues, reopening the conversation about fixing Social Security, perhaps tying it to some kind of tax reform. Moving on fiscal issues, though, would require Mr. Bush to give Mr. Paulson negotiating authority to consider things the president, so far, has sworn to avoid. Without that, Mr. Paulson would be well-advised to spend more time in China and less in Washington....

If Paulson were going to try to close the Doha Round or fix entitlement programs, he would have negotiated for the baton to do so before he took the Treasury Secretary job. He didn't. So the odds are he will focus on the U.S.-China relationship--a place where he could actually do a lot of good.

Comments

[Policywonk]

Paulson will leave Treasury before the next Congress begins. He will have served the White House's need to get John Snow to get out of town before the election and won't want to stick around with no real authority. Plus, hasn't Paulson already received that verfy large special tax break because he disposed of assets to comply with ethics rules?

[bakho]

or he will focus on privatizing Social Security. But that cat has to be kept in the bag until after the elections.

[China Law Blog]

I like how Paulson understands China is not as economically strong as the Western media makes it out to be, and he is willing to act accordingly.

[anne]

http://www.nytimes.com/2006/06/02/business/02tax.html?ex=1306900800&en=70f26ea111b802af&ei=5090&partner=rssuserland&emc=rss

June 2, 2006

A Tax Rule Could Save Treasury Nominee Millions
By ERIC DASH

Henry M. Paulson Jr., the nominee for Treasury secretary, has a big reason to support tax relief.

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.

If confirmed, Mr. Paulson is expected to give up control of at least $700 million, a fortune built largely from Goldman Sachs stock, by putting those assets in a blind trust. Then, it is likely that Mr. Paulson will be required to sell his Goldman Sachs shares to avoid any conflict of interest. The tax provision, accounting specialists said, represents an opportunity for Mr. Paulson to use the sale to diversify his holdings without paying capital gains tax on the bulk of those Goldman shares, which have almost tripled in value since the investment bank's initial offering in May 1999.

"If you do that, the gain you diverted from the Goldman sale will never be taxed," said Robert Willens, an accounting expert at Lehman Brothers. "This has got to be part of the inducement that allows them to take these positions."

Mr. Paulson's 3.23 million shares of Goldman stock are worth more than $495 million, based on the most recent regulatory filings and yesterday's closing price of $153.55 a share. (This does not include the value of his restricted stock units and options, which are generally taxed as ordinary income, not capital gains.)

Assuming conservatively that the most of those shares have a cost basis at or below the initial offering price of $53, he would have roughly $325 million in capital gains, said Brian Foley, an independent compensation consultant in White Plains. Deferring the 15 percent federal tax results in the $48 million break....

[linearperegrination]

Brad -- what good do you think that Paulson can accomplish in US-China relations? I'm just curious what can be accomplished that is not purely rhetorical. Are you thinking he will be able to pressure Beijing to have their currency appreciate at about the current 3% annually?

[save_the_rustbelt]

Paulson will be busy selling American blue collar jobs to the Chinese as a means of increasing American corporate profits and enriching Wall Street.

Why do you think he took the job?

And gosh, we get to buy cheap stuff at Wal-Mart!

[save_the_rustbelt]

"If you see me in Ohio, I'll be there for reasons other than political," Mr. Paulson quipped while in China. "And I've got no plans to go to Ohio in the immediate future."

Of course not, he could give a damn about most of this country. In DC (and on Wall Street) they think there is no civilization between Dulles Airport and Orange County airport. Flyover country.

[bakho]

70 percent of Delphi's workers OK buyouts

About 1,400 more hourly workers have decided to accept buyout offers from Delphi, meaning the struggling auto supplier will lose more than 70 percent of its work force by the end of the year.

Delphi released the buyout numbers yesterday, bringing to 20,100 the number of its production workers who have decided to leave this year either through buyout offers or early retirement packages.

[STS]

I've gotten the impression Paulson is working hardest on opening China (and other emerging markets) to US financial services. Sort of a natural inclination for the latest "man from Goldman."

As the Bush team boldly leads us into ... what did he call it? ... the "Finance Economy"? ... it probably would be a good idea not to totally fumble our leadership position in financial services.

[Ponzi Q. Globalization]

"Paulson will be busy selling American blue collar jobs to the Chinese as a means of increasing American corporate profits and enriching Wall Street."

Agreed. However, I'll add that blue is no longer the only collar color when it comes to jobs being sold to China and other cheap production nations. There will be no jobs, other than domestic non-exportable services, that will be safe.

Can anyone out there tell me why any company would hire Americans for any type of work that does not have to be performed in America? Unless, of course, American living standards drop a heck of a lot.

[save_the_rustbelt]

Now we have an answer to Brad's question.

Paulson was apparently instrumental in killing Schumer-Graham, at least in its current form in the current term.

Now Congress is also toadying to the Chinese thugs.

Swell, just swell.

[STS]

STR:

Graham & Schumer had an op-ed in the Wall Street Journal this past Monday which said their bill was intended as a "bargaining chip" which they hoped never (needed to) pass. So it's not clear anybody "killed" it so much as the Republican leadership decided against using that particular weapon just yet.

If they ever do pull the trigger, we'll find out whether they're aiming at China ... or Uncle Sam's foot.

[Ken Houghton]

I took the "Ohio" comment as a dig at Tony Snow, who is going campaigning over the next few weeks.

If so, Paulson's willingness to take a shot at the face of the administration lends some credence to Policywonk's comment, though I'm still betting Bakho is correct.