Paul L. Caron

Wednesday, April 15, 2009

Why Not Public Disclosure of Tax Returns?

Joseph J. Thorndike has published Show Us the Money on the Tax History Project website:

In a few days, President Obama will release his tax returns. So will Vice President Joe Biden and a smattering of other politicians around the nation. Willing to sacrifice privacy for the sake of transparency, they will offer us a glimpse into their personal financial lives.

Now what about the rest of us? By law, all tax returns are shrouded in secrecy. The IRS is barred from releasing them or any shred of personal data derived from them. The IRS can't even share your information with most other federal agencies. ... 

Congress has twice recognized our common interest in private payments.

During the Civil War, lawmakers gave each citizen the right to inspect returns. "He is interested in these returns," explained the commissioner of internal revenue, "because the burden of the national duties is a common one, and every person should be required to pay his due proportion of it."

Public returns disappeared, along with the income tax itself, in 1872. But half a century later, Congress dropped the veil again. In cities across the nation, readers opened the newspaper on October 24, 1924, to find a roster of local taxpayers and the sums they sent to Washington. ... The voyeuristic appeal of such disclosure was undeniable -- and more than a little unseemly. In fact, popular discomfort with the 1924 experiment prompted lawmakers to repeal the publicity provision two years later.

But the case for public tax returns, if a bit shaky, is still compelling. Publicity reveals the actual, rather than the theoretical, functioning of the tax system. By disclosing disparities in the tax payments of people with similar incomes, public returns compensate for the most serious weakness of the income tax: the tendency among politicians to riddle it with loopholes.

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It's the privacy of people's finances which allow the corporate powers to control the workers. If you could look up the salary of the guy sitting next to you on the IRS website, you would have a lot more bargaining power with your employer.

So as radical as it sounds, I'm in FAVOR of making everyone's tax returns public.

This might also help to lower the "tax gap," because it would encourage private enforcement of the tax code.

Posted by: Half Sigma | Apr 15, 2009 2:41:49 PM

Perhaps voluntary disclosure would be a good plan. You might see lots of tax preparers agreeing to let others take a look at their returns -- it's certainly a good advertisement.

But for the most part, this sounds like an awful, awful idea. There are lots of companies that, for example, have salespeople who make more than their bosses do. That's sustainable if the bosses don't know about it, but it's hard to keep it going if they do. And, of course, it's hard to judge someone by their tax return (Bernie Madoff gave a whole lot more to charity than Warren Buffett, until recently) -- if you want to know how much money you could get out of someone by illegal means, though, public tax returns would be a great deal.

Posted by: TaxRascal | Apr 15, 2009 12:06:30 PM

This makes sense and I think President Obama is fully on board.

Here is what he said the other day on this very issue:

"And I want to be very clear that we are resolved to halt the rise of privacy [sic] in that region...."

Posted by: peter | Apr 15, 2009 6:37:37 AM