In Fiscal Citizenship and Taxpayer Privacy, forthcoming in the Columbia Law Review, Alex Zhang explores ways of thinking about the effects of the disclosure of individual income tax returns. Disclosure of information about individual tax liabilities is one of those topics that won’t ever go away. Even if no imaginable contemporary Congress would reinstate a requirement that information about individual tax liabilities be publicly available, it is well worth thinking about the circumstances in which disclosure would be justified. After all, most state property tax systems include disclosure not just of the values subject to tax, but of taxpayer compliance. And, as Zhang describes, such disclosure was on more than one occasion a part of the administration of the federal income tax. Especially in light of this history, it is worth exploring whether an income tax—especially the individual income tax—should be so different.
The consensus answer seems to be that the intrusion on individual taxpayer privacy cannot be justified by the possibility of enhanced compliance, especially when research indicates that the impact of disclosure on compliance is ambiguous. Zhang’s critique of this response rests on the idea that increased knowledge of the way taxpayers—especially wealthy taxpayers—interact with the income tax system is the key to a more democratic and egalitarian tax system and therefore a more democratic and egalitarian fiscal polity.
Zhang’s succinct historical account of the various measures the federal government has used to raise tax revenue from individuals and the information requirements related to these measures should help his readers reframe their approaches to the administration of federal tax laws more generally. For instance, the idea that the pre-tax distribution is not sacrosanct but instead that the government may be entitled to a share in exchange for the provision of security and stable markets provides justification not just for progressive taxation but also for a more transparent approach to tax administration. Although this proposition is hardly original with Zhang, his historical examination further reveals that this transparency with respect to taxpayer behavior has in the past been recognized to be important to the evolution of tax policy.
Zhang posits that taxpayers and the information required to assess their income tax liabilities potentially affect the fiscal polity in four important ways: first, because of the information made available in the process of preparing and filing returns; second, because of the extent to which taxpayers become stakeholders in the economy supported by the tax system; third, because of the role of taxpayers in the economy more generally; fourth, because the decisions of many individual taxpayers combine in a way that amounts to an delegation by Congress to taxpayers in the interpretation of the tax law.
With respect to most of these interactions, requiring disclosure of tax information about very wealthy taxpayers is likely to be less objectionable than requiring disclosure of taxpayers of lesser means. First, there is likely to already be more public information about wealthy taxpayers, and so disclosure of their tax situations may involve less threat to personal autonomy than disclosure of the situations of others. Second, disclosure of information about wealthy taxpayers is more likely to affect the general public’s perceptions of the fairness of tax base design and tax enforcement. Third, disclosure of the government benefits delivered to wealthy taxpayers through the tax system is far less likely to involve dignitary harm than disclosure of the benefits to lower income taxpayers. The benefits provided to wealthy taxpayers are far more likely to have been inducements to engage in desired behaviors. These inducements should be viewed as investments in partnerships by the government—that is by the public. The public is therefore entitled to information about how its investment has performed. And fourth, the interpretive discretion afforded to very wealthy taxpayers is far greater than that afforded to others.
One of the most significant take-aways from Zhang’s analysis is a strong sense of the contingent nature of any taxpayer’s claims to the income subject to tax, and to any claim of privacy with respect to the information involved in the application of that tax. Contrary to what may be a common perception, the claims to privacy of the very wealthy taxpayers are likely to be weaker than the privacy claims of taxpayers of lesser means.
