Why Not Make EVERYONE'S Income Taxes Public?

There's been a lot of discussion lately about whether Donald Trump should make his income tax returns public (or at least let Congress see several years worth of them). Personally, I think anyone running for public office should release at least five years worth of income tax returns -- and ten years worth would be even better. Unfortunately, it looks like it's going to take a court order to make Trump turn over his tax returns (and that court order will probably have to come from the Supreme Court).

There is a simple solution to all this -- make everyone's tax returns a matter of public record (which could be accessed by anyone). That may strike you as extreme, and I'm sure the rich will be aghast at that prospect. But it's done in other countries, and has been done in the United States in the past (before the rich convinced Congress to outlaw it).

It's not a crazy idea, and a good case can be made for doing it. Here's the case made by Benyamin Appelbaum in The New York Times:

In October 1924, the federal government threw open for public inspection the files that recorded the incomes of American taxpayers, and the amounts they had paid in taxes.

Americans were gripped by a fever of interest in the finances of their neighbors. This newspaper devoted a large chunk of the front page to a list of the top taxpayers in Manhattan under a banner headline that read “J.D. Rockefeller Jr. Paid $7,435,169.” One story reported that a number of wives and ex-wives had lined up at a government office in New York to seek information about their present or former husbands. Journalists soon began to note the curious absence of some conspicuously wealthy people from the lists of top taxpayers.

Congress had ordered the disclosure as a weapon against tax fraud. “Secrecy is of the greatest aid to corruption,” said Senator Robert Howell of Nebraska. “The price of liberty is not only eternal vigilance, but also publicity.” 

There is every reason to think that sunlight served the desired purpose. One important piece of evidence is that wealthy Americans absolutely hated the disclosure law, and soon persuaded Congress to execute a U-turn.

Almost a century later, it’s time to revisit the merits of universal public disclosure. Democrats in Congress are fighting to obtain President Trump’s tax returns under a separate 1924 law, written in response to related concerns about public corruption. That issue could be resolved, at least in part, if Congress embraced the broader case for publishing everyone’s tax bill.

Now as then, disclosure could help to ensure that people pay a fair share of taxes. Americans underpay their taxes by more than $450billion each year, more than 10 percent of total federal revenue. Publishing a list of millionaires who paid little or no taxes this year could significantly reduce the number of millionaires who pay little or no taxes next year.

In Norway, where tax records have been public since the founding of the modern state in 1814, a newspaper put the records online in 2001. One study estimated that the records’ greater availability caused a 3.1 percent increase in the reported incomes of self-employed Norwegians over the next three years, perhaps because they feared exposure.

Disclosure also could help to reduce disparities in income, as well as disparities in tax payments. Inequality is easier to ignore in the absence of evidence. In Finland, where tax data is published each year on Nov. 1 — jovially known as National Jealousy Day — people treat the information as a barometer of whether inequality is yawning too wide.

Consider that public corporations are required to report the compensation of top executives — who check disclosures of rival companies to ensure they are not underpaid.

Another benefit would be identifying patterns of illegal discrimination against women or minorities. Lilly Ledbetter, for whom the 2009 fair pay law is named, would have learned a lot sooner that she was making less than her male colleagues at a Goodyear plant in Alabama if she could have looked up their annual incomes on a government website.

Transparency could even help to increase economic growth. People who know how much their co-workers are paid — and how much people are paid at other companies, and in other industries — can make better career decisions.

Tax data also is a rich source of information about American life. The I.R.S. tightly limits access, but one of the few researchers allowed to work with that data, the Harvard economist Raj Chetty, has produced a series of important studies illuminating the mechanics of economic inequality. He and his collaborators have shown that Americans have a dwindling chance of making more money than their parents, and that living in a good neighborhood as a child has a lifelong impact on earnings. One can only imagine what others might learn from the data.

Calling for more disclosure may seem discordant at a time of growing concern about privacy. But income taxation is an act of government, not an aspect of private life. Property tax records provide a reasonable model. Local governments disclose the name of the property owner, the value of the property and the amount of taxes owed and paid. The same information should be available for income taxes — nothing more is necessary.