The Simple Fix Our Tax Code So Urgently Needs: Sunshine!

America’s super rich are seeing red over ProPublica’s bombshell release of data from their tax returns — and so are America’s tax collectors. Treasury Department officials have already referred this “illegal” and “unauthorized disclosure of confidential government information” to the FBI. Merrick Garland, the U.S. attorney general, has pledged to lawmakers that finding the source of the leak to ProPublica “will be at the top of my list.”

“This is an extremely serious matter,” Garland told the Senate Appropriations Committee the day after the ProPublica tax tale went public Tuesday. “People are entitled, obviously, to great privacy with respect to their tax returns.”

Amen, echoed billionaire Michael Bloomberg, who says his own attorneys will “use all legal means at our disposal” to nab the leakers and “ensure” they’re “held responsible.”

“In the United States,” Bloomberg declared, “no private citizen should fear the illegal release of their taxes.”

Bloomberg paid a mere 3.7 percent of his $1.9 billion 2018 income, the ProPublica reporting shows, in federal taxes. Typical American households sent Uncle Sam around 14 percent of their incomes that year.

The ProPublica coverage, even more revealingly, notes that Bloomberg saw his personal fortune increase by a majestic $22.5 billion between 2014 and 2018. The federal taxes he paid in those years amounted to a mere 1.3 percent of those billions.

The tax returns for America’s 25 richest, ProPublica notes, follow the same pattern. These 25 deep pockets together ended 2018 worth $1.1 trillion, a total that equals the combined net worth of 14.3 million average-income Americans. In 2018, those 14.3 million Americans paid $143 billion in federal taxes. The nation’s 25 richest, ProPublica points out, paid $1.9 billion.

No wonder Michael Bloomberg would rather we focus on the “illegal release” of his tax returns. Anything to change the subject.

But does Bloomberg have a point? Does our Attorney General Garland have good cause to be making the race to uncover ProPublica’s source his top priority? More fundamentally: Do all “private citizens” have a basic human need — and right — to have how much they pay in taxes kept secret?

No. The secrecy around federal income tax returns serves no innate human need. The maintenance of this total tax secrecy serves only the richest among us. Just ask folks in Finland.

Every November 1, the latest Finnish personal tax records go public. Journalists like Tuomo Pietilainen, an investigative reporter at Finland’s largest daily, eagerly look forward to that day. A few years back, newly released data helped him figure out that several top Finnish business execs had relocated to Portugal to collect their pensions tax-free. His subsequent reporting created an uproar that convinced Finnish lawmakers to shut the tax loophole the business execs were exploiting.

Years of this tax transparency have baked the notion of tax disclosure deep into the Finnish psyche. In Finland, notes University of Helsinki philosopher Esa Saarinen, society “just expects” this disclosure to happen.

In Norway, another nation that discloses tax return data, the same expectation.

“It’s part of the national heritage,” as Torgeir Micaelsen of Norway’s Labour Party has observed. “Norwegians have strong feelings of fairness, that everyone must contribute.”

Could tax return disclosure in the United States ever evoke similar levels of support? Or can we — should we — dismiss tax disclosure as just another Nordic peculiarity? In fact, tax disclosure has never been peculiar to the Nordic nations. We’ve had income tax disclosure right here in the United States.

The question of whether or not to disclose tax return data figured significantly in the early debates over the modern American income tax. Former President Benjamin Harrison held, as a Treasury Department report to Congress in 2000 put it, that taxpayers all belong to a “great partnership” and have the right to “know what every other member is contributing to the partnership.”

But Harrison’s disclosure perspective wouldn’t gain full traction until the Revenue Act of 1924 directed the Treasury Department to “as soon as practicable in each year cause to be prepared and made available to public inspection . . . lists containing the name and . . . address of each person making an income-tax return . . . together with the amount of income tax paid by such person.”

Newspapers promptly began covering the resulting disclosures, to the intense displeasure of Americans like Andrew Mellon, then the U.S. secretary of the treasury and one of the nation’s three richest men. Mellon would successfully engineer a rollback of that disclosure in the 1926 Revenue Act.

The transparency spirit would survive that rollback and resurface in 1934 after an income tax evasion scandal helped enact legislation that mandated the filing of a pink slip with every tax return. These pink slips — all open to public inspection — would indicate how much each taxpayer made, deducted, and paid in federal income tax.

No American of means, things turned out, would ever have to complete one of these pink slips. Disclosure opponents artfully turned the hysteria that surrounded the notorious Lindbergh baby kidnapping case into an antidote to pro-disclosure sentiment. Evil-doers, the claim went, would use the pink slips to identify families able to afford to pay huge ransoms. No parents of means could be safe with tax disclosure on the books.

Anxious lawmakers ended up repealing the pink-slip provision before it ever went into effect. Income tax returns have been under wraps ever since.

Other personal tax information, meanwhile, has been a matter of public record all along. You own your own home? The property tax-related history of that home sits in full public view. Why don’t we treat income tax records the same as property tax records? The rather simple answer: Rich people would rather we not.

The Nordic nations with tax disclosure in effect today all rate as much more equal societies than the United States. Tax disclosure, by itself, hasn’t made these societies more equal. But tax disclosure has helped keep these nations’ tax systems on the tax fairness up-and-up. The rich in these societies have to worry how they’ll look if fellow citizens see how lucratively they might be gaming the tax laws. They have an incentive — the sunlight of disclosure — to do the right thing at tax time.

And that dynamic tends to help keep progressive tax systems progressive. The rich, in a disclosure environment, become more likely to pay their fair tax share. The society tilts toward greater equity.

But what about Merrick Garland’s rush to hunt down the leakers who passed all that revealing tax data to ProPublica? Those leakers certainly did break the law. So did leaker Daniel Ellsberg fifty years ago in the classic Pentagon Papers battle. History now regards Ellsberg as a noble public servant. Fifty years from now, we can only hope, a much more equal United States will salute the public service that surrounds this week’s ProPublica leak.

Sam Pizzigati co-edits Inequality.org. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Follow him at @Too_Much_Online.