Should presidential candidates be required to disclose their federal income tax returns? A recent push comes from Republican Senator Lindsey Graham, a critic of President Trump, with the latest Congressional effort to require candidates to do just that. But is forced disclosure of candidates tax returns a good idea? On balance, we think not. Tax returns are poorly equipped to inform the public regarding legitimate issues involving a candidate’s qualifications for the presidency. Furthermore, the informative value of tax return data is outweighed by its inflammatory impact. We explain.
Why Tax Return Privacy is Mandated
Congress long ago recognized that information contained in individual income tax returns is highly personal. As a result, it provided statutory protections for tax return privacy.
Americans with net taxable income must file returns. Taxpayers must disclose information to the Internal Revenue Service sufficient to permit calculation of tax that is due. Congress realized that disclosures are not made to secure a privilege. It understood that forcible disclosure of this information could materially harm a taxpayer. It concluded that a taxpayer’s need to maintain privacy outweighs any public need to know an individual’s tax return information. This privacy need covers two categories of information: personal information and commercial information. This personal and commercial information is highly confidential to the reporting taxpayer. In effect, it is proprietary.
Parameters For Considering Forced Disclosure of Candidates Tax Returns
Information contained in a tax return is fundamentally and essentially personal and, thereby, private. A taxpayer discloses this information to the IRS so that the IRS may properly calculate the amount of income tax due. Disclosure to the IRS is mandatory, not voluntary. The public’s right to gain access to that information can only be supportable if there is a compelling public interest supporting forced disclosure. We suggest that a compelling interest may exist, if at all, only if the tax return information meets several criteria.
First, the information sought by the public must bear directly on a candidate’s qualifications to become President, including his personal character. Second, each piece of information sought must be overwhelmingly material to determining a candidate’s qualifications. Third, that information must not otherwise be publicly available, directly or indirectly. Said another way, the information sought for which public disclosure must be a unique attribute of the tax return itself. Fourth, forced disclosure of that information must not have a reasonable likelihood for causing irreparable personal or commercial harm to a candidate.
Adding these criteria together, we distill it down to this. The probative value (the informative value) of each item of disclosed tax return information must materially outweigh the burdens of disclosure. By burdens we include both the potential harm to a candidate from disclosure, and the potential inflammatory impact on his candidacy from such disclosure.
Let’s explore these points in more detail.
Does Tax Return Information Bear Directly and Materially on a Candidate’s Presidential Qualifications?
Here’s the general argument. Disclosure of candidates tax returns allows the public to vet presidential candidates. The public has a need as a necessary condition to effective evaluation of the candidate. But beyond the salacious desire to know that information, the vetting claim really does not withstand closer scrutiny. The financial information contained in a return reveals very little direct relevant information. And the American people are very well equipped to vet candidates without review of income tax returns. How important is that information for vetting purposes? We suggest, very little. Of course, President Trump won without disclosing it.
But let’s look at the claim a little more closely. What information contained in candidates tax returns bears directly on Presidential qualifications?
Several possible categories of information come to mind. There are likely others that we have overlooked.
As an Indicator of Financial Success Suggesting Presidential Capability? Not Likely
The amount of a candidate’s taxable income provides some insight into his financial success. But not really much insight. The amount of taxable income can differ greatly from the annual cash flow that the candidate receives from his investments. Moreover, generally speaking a candidate’s relative business success will be evident from a wide variety of publicly available sources. But a candidate’s income level, whatever it is, has little bearing on his presidential capabilities. Abraham Lincoln was a man of relatively modest means, as was Harry Truman. Their comparative lack of financial success was not an indicator of their fitness for office or of their presidential capabilities.
Charitable Contribution Deductions as an Indicator of Compassion or Values?
A candidate may portray himself as “charitable.” The public may desire access to a candidate’s tax returns to see the financial value of the candidate’s charitable contributions in a particular year. In theory, the financial value might bear on claims of charitability or compassion. Similarly, the financial value of charitable contributions might be an indicator of the candidates values.
Disclosure of Charitable Contributions Does More Harm Than Good
But does the financial value of charitable contributions actually have any meaningful relationship to qualities of charitability or compassion? Do they really tell us much as to a candidate’s value system? Is it meaningful or materially relevant to attempt to measure these qualities through financial metrics? To the contrary. It is far more likely that an annual mathematical calculation from a tax return is just a lightening rod for criticism or exploitation.
The charitable contributions inquiry implies that questions regarding a candidates charitability, compassion and values are by their nature compelling. These personal qualities may indeed be highly relevant to the public’s consideration of a candidate. But a particular level of charitable contributions in any given year is impacted by a wide variety of personal factors. The amount of charitable contributions, we suggest, is a very poor tool to measure these personal qualities. As a tool, it does more harm than good.
Consider a few basic scenarios. If a candidate made contributions to three charities, does that suggest a limit as to the candidate’s charitability, compassion, or values? For example, if a candidate did not contribute to an animal rights organization, does that really mean that the candidate has no concern for animal rights? Given the almost infinite number of worthy charitable causes, this type of analysis is endless. And, we suggest, this analysis adds no value to consideration of a candidate’s personal qualities. It tells us absolutely nothing regarding a candidate’s value system.
Rather, the fair conclusion is simply this. Forced disclosure of the financial value of charitable contributions has no public benefit. It would simply push a candidate into a debate defending whatever contributions he may, or may not, have made. There is no compelling public interest here.
Non-Financial Charitable Contributions Are Not Included
Let’s not forget, the charitable contribution information contained in the return may, in any event, be fundamentally misleading with respect to the public’s claimed interest in disclosure. For example, a candidate may make significant non-financial contributions to charity that are not reported on a return. These non-financial contributions would not be easily measurable by the public. They may even be hard to verify. They would also likely be ignored by a public that would focus only on the more readily available financial calculation contained in a tax return.
In all, there is a reasonably high likelihood that the financial value of contributions reported on the return actually has little, if any, probative value. It tells us little with respect to the candidate’s personal qualities. And it ignores all non-financial charitable contributions, including time devoted by a candidate to charitable activities.
Can Tax Return Information Reveal Potential Conflicts of Interest?
Some commentators suggest that disclosure of candidates tax returns would reveal the potential for conflicts of interest between a candidate’s personal interests and his future role as president. For example, they argue, a candidate’s tax proposal, if enacted, might unduly enrich the candidate. As one commentator put it, without tax return disclosure “Americans cannot know whether [a candidate] is using the presidency to enrich himself and his family.” If the candidate was forced to disclose his tax return, the connection between his policy position and his personal interest would be revealed. At least so the thinking goes.
But this really is a poor argument for why the public’s need to know should outweigh the candidate’s privacy rights. The obvious point here is that Congress initiates all legislative proposals, not the President. The President would not be able to assure himself of a selfishly favorable legislative outcome. Let’s go a little further.
Tax Returns Disclose Little About Actual Financial Interests
But yet again, a tax return is a very poor source for addressing the stated concern. The tax return does not contain sufficient information to permit fair judgments on potential conflicts of interest. The tax return, in and of itself, does not show the underlying nature of a candidate’s business interests. It only reveals the name of an investment and any associated income, deductions, tax credits or other tax reportable items.
A tax return is a very poor informational source for uncovering whether a potential policy position could create a conflict. The return does not contain substantive information concerning the types of businesses owned by the candidate. It does not contain any detail that might make evident the types of assets that could create a conflict. And whether a policy position would cause the candidate to pay more or less income tax would also not be germane to any material issue regarding the candidate’s presidential qualifications.
Of course, any proposed change to the income tax laws may very well impact a candidate. Under this line of thinking, a candidate who simply proposes to reduce tax rates has a conflict of interest because he would benefit from the reduction. Under this theory a candidate’s integrity should be questioned with respect to any policy that could potentially benefit him.
Like any American citizen a President may or may not benefit from a policy proposal. We suggest that the relative merit of any policy proposal should, and is, vetted in its own right. Policies should stand or fall on this basis alone. If a policy is good for the American people as determined by Congress, then the President’s interest is, by definition, aligned with the public’s.
Mandatory Ethics Disclosures Tell Us More – If There’s a Driving Need to Know, They Could Be Enhanced
Candidates must file personal financial disclosure reports with the Office of Government Ethics. All of the information contained in this report directly bears on potential conflicts of interest, and in more detail, than a tax return. This information includes all of a candidate’s (i) positions held outside of the U.S. government, (ii) employment assets and income, (iii) employment agreements and arrangements, (iv) sources of compensation exceeding $5,000 in a year, (v) spouse’s employment assets and income, (vi) other assets and income, (vii) transactions, (viii) liabilities, and (ix) gifts and travel reimbursements. President Trump’s personal financial reports are very detailed. They are available here.
The subject matters of the financial disclosure reports are more than sufficient regarding a candidate’s financial status. However, if they are viewed as insufficient, they could be enhanced. For example, they could require candidates to provide a brief narrative as to the business purpose of each particular enterprise. This type of textual detail would be directly responsive of any public need to know. And certainly much more directly responsive than a tax return. Remember, tax returns are not designed to elicit details regarding candidates financial affairs. They are designed for disclosure of information to permit a calculation of tax due.
Can Tax Return Information Bear on a Candidate’s Honesty?
Another frequent claim is that information in candidates tax returns bears on the candidate’s honesty and integrity. This line of reasoning consists of two notions, one subtle and the other more direct.
For one, a wealthy candidate may face public scorn if he has comparatively little taxable income. Disclosure of his low taxable income may easily create an appearance of tax impropriety. This inference would likely arise even if the candidate has fully complied with tax laws to legally reduce his taxable income. Tax avoidance (tax minimization) is perfectly legal, and most Americans do what they can to achieve it. Usually, with pride. In this context, the disclosure of a candidate’s taxable income has little probative value as to the candidate’s character for honesty and integrity. In fact, disclosure is harmful to the inquiry because it may be highly inflammatory.
Can Disclosure Reveal Intentional Legal Violations?
More directly, perhaps disclosure of candidates tax returns would reveal whether a candidate has actually evaded his tax obligations. But the public is very poorly positioned to make this judgment. This is especially the case with wealthy candidates who file complex tax returns.
The discovery of tax evasion is the role of the Internal Revenue Service. Realize further that the IRS never brings evasion/fraud allegations simply as the result of review of a tax return. Rather, it reviews a wide variety of information not contained in the return, as it must, to determine whether the return is materially or intentionally inaccurate. None of the information necessary to determining whether a candidates tax returns are fraudulent is self-contained within the returns. In effect, this whole argument is a red herring. Just as a return, on its face, is not fraudulent without additional informational review by the IRS, neither is it fraudulent by virtue of a simple public review.
Disclosure Will Reveal Tax “Issues” – Does that Potential Benefit Satisfy Our Criteria For Disclosure?
Tax experts may claim that their review of a complex return would reveal “tax issues” raised by the return. The argument might be that these “tax issues” have some bearing on a candidate’s character. But the return would never contain the full context of any “tax issue” that experts might raise. Again, a tax audit would be needed just for that purpose. Tax experts raising these types of “tax issues” would contribute little if anything to the public discourse regarding a candidate’s qualifications or character.
In effect, this whole line of argument boils down to a simple point. Income tax disclosure of complex returns leads to a form of public audit of candidates tax returns. Two sides would wind up debating whether claims made on a return were valid, what they mean, their implications, etc. And none of those matters would be resolvable without a full audit, which the public is not equipped to conduct. Moreover, such a public audit could simply not be completed within the confines of a presidential campaign.
Once again, the probative value of any disclosure focused on revealing a candidate’s character is completely compromised by the inflammatory nature of the debate that will ensue. It would be harmful to the claimed underlying purpose for return disclosure – assessing the candidate’s character and qualifications for the presidency.
Do Candidates Tax Returns Reveal Candidates’ Creditors?
Another claim in favor of disclosure is that tax returns show both the identify of a candidate’s creditors and the extent of his debt. This disclosure permits the public to consider whether a candidate is beholden in a manner that may impair his ability to function as president.
Unfortunately, this is simply not the case. Taxpayers are not required to disclose the identity of their creditors. Tax returns do not oblige taxpayers to report the amount of their debt. Now, financial disclosure forms do require the disclosure of general information regarding creditors. Whether that disclosure is sufficiently detailed is a different issue. But it is clear that tax return disclosure does not provide any additional meaningful information regarding creditors and debt.
Other Observations
A tax return is simply an annual income statement – but not entirely. It does not report a person’s annual cash flow receipts. Said another way, the taxable income of a wealthy person is likely less, and perhaps significantly less, than the annual cash flow received from investments.
Candidates tax returns do not contain any information that describes the extent or nature of the assets owned by a candidate. Asset disclosure is very limited. The tax return contains a list of investments directly owned by a candidate. But not assets owned indirectly. In the case of a wealthy candidate, assets owned indirectly are likely far more significant.
Chilling Effect
Mandating candidates tax returns disclosure as a condition for running for president can have a chilling effect. Qualified and capable persons with complex financial holdings may simply choose to avoid public service in lieu of running the gauntlet of detailed tax disclosure. The hysteria over tax disclosure ignores this reality. And we shouldn’t simply dismiss it, particularly given all of the arguments we’ve put forth here. Does this explain why Mario Cuomo elected not to run for President?
Disclosure Focus Should Be on More Important Information Not Otherwise Available
The public has an insatiable desire to know the intimate details of celebrity lives, presidential candidates included. It’s human nature. But there should be forced disclosure of only those details that directly and materially bear on candidates qualities. We’ve made our point about candidates tax returns. We believe, on balance, that they actually detract from the analysis. We focus only on forced disclosure. Candidates are free to disclose voluntarily.
But there is no conversation about much more germane disclosure. If we worry about a candidate’s ability to execute the office of the Presidency, should a candidate be forced to reveal his medical condition? If we worry about conflicts of interest, should a candidate be required to disclose everyone he meets with once he announces his candidacy?
Forced disclosure of candidates tax returns is a red herring. It really adds little if anything to a presidential election. We should focus on more important matters.