The recent sentencing of a former IRS contractor to five years in prison raises a pivotal question: Should income tax information be public? This dialogue has been propelled to the forefront following exposés by ProPublica and the New York Times, which revealed details about wealthy Americans skirting tax duties, fueled by data leaked by the IRS whistleblower.
Tax Information: A Controversial Debate
The revelation that thousands of wealthy individuals, including former President Trump, have avoided paying an equitable share of taxes, as disclosed by leading journalistic investigations, has triggered a nationwide outcry for transparency. This episode, unparalleled in IRS history, was labeled "an attack on our constitutional democracy." The central figure in this narrative, the contractor, received the maximum sentence on Monday, spotlighting the contentious debate over the public's right to tax data.
Historically, income tax records have not always been shrouded in confidentiality. When first introduced during the Civil War, these records were accessible to the public. Newspapers in 1864 printed names, incomes, and the taxes paid by local taxpayers. However, critiques over privacy invasion led the Bureau of Internal Revenue to end transparency in 1870. Yet, public access was permitted until the income tax lapsed post-war.
From Secrecy to Transparency
The introduction of the modern income tax in 1913 did not include measures for public disclosure. Nonetheless, rural representatives advocated for openness, aiming to curb tax evasion by the northeastern industrial elite. A significant moment came in 1924 when tax payments of high-profile figures like Andrew Mellon became public knowledge. Mellon, then Secretary of the U.S. Treasury and a millionaire industrialist, opposed these measures, which were reversed by 1926.
The early New Deal era marked the last significant attempt at transparency. Wealthy taxpayers swiftly mobilized against the policy requiring a "pink slip" indicating only top-line tax information for public viewing. Congress quickly overturned this effort following a public outcry organized by wealthy industrialists, mirroring the battles faced in past transparency attempts.
Public Access to Tax Information: Learning from the Nordics
The debate in the United States starkly contrasts Nordic countries' policies, where tax data is broadly accessible. In Norway, for example, income tax records are available online. Finland celebrates the annual disclosure of high earners' tax data, nicknamed "National Jealousy Day," pointing to a cultural acceptance of transparency that clashes with American privacy values.
The pushback against income tax transparency in the United States is historically rooted yet faces modern challenges. While transparency proponents argue it could be a tool against corruption and evasion, the strong opposition from wealthy circles underscores a persistent struggle.
The Ongoing Debate and Future Perspectives
The sentencing of the former IRS contractor has spotlighted the use of leaked data to expose tax avoidance and rekindled arguments over privacy versus transparency in tax matters. With property tax information already a matter of public record, proponents of income tax transparency might wonder why similar principles shouldn't apply. However, the path to income tax publicity is fraught with opposition from powerful interests.
The dialogue ignited by ProPublica and the New York Times has led to a renewed interest in the bounds of taxpayer privacy. Whether the United States will lean towards greater transparency or continue to protect individual privacy remains to be seen. However, the debate indicates a broader conversation about democracy, accountability, and fairness in the tax system.
