Here are some moments in US history involving the disclosure of income tax information, followed by a few thoughts of my own. I'll draw here the Disclosure and Privacy Law Reference Guide published by the IRS in 2012.
The Civil War Income Tax and 19th Century History
"The history of tax information confidentiality may be traced to the Civil War Income Tax Act of 1862, when tax information was posted on courthouse doors and sometimes published in newspapers to promote taxpayer surveillance of neighbors. ... In 1870, the Commissioner prohibited newspaper publication of the annual list of assessments, but the list itself remained available for public inspection. The Revenue Act of 1870 confirmed this directive. Two years later, in part because of problems stemming from publicity of tax returns, the income tax law was allowed to expire. When the income tax was reinstated by the Revenue Act of 1894, Congress affirmatively prohibited both the printing and the publishing in any manner of any income tax return unless otherwise provided by law, and provided criminal sanctions for unlawful disclosure. In 1895, the Supreme Court declared the income tax unconstitutional ..."The 1924 disclosure
"The proponents of full [income tax return] disclosure had a limited victory in 1924. The Revenue Act of 1924 provided that the Commissioner would:
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.
As a result of the 1924 Act, newspapers devoted pages to publishing the taxes paid by taxpayers, and the right of newspapers to publish these lists was upheld by the Supreme Court.The Revenue Act of 1926, however, removed the provision requiring that the amount of tax be made public while leaving the requirement that a list be published containing the name and address of each person making an income tax return."The 1934 disclosure
"In 1934, after a widely publicized income tax evasion scandal, CongressThe 1976 confidentiality rules
enacted another form of limited disclosure. The Revenue Act of 1934
contained a provision for the mandatory filing of a so-called "pink slip" with
the taxpayer's return. The pink slip was to set forth the taxpayer's gross
income, total deductions, net income and tax payable. The pink slip was
to be open to public inspection. Fueled by images of kidnappers sifting
through pink slips looking for worthwhile victims, the provision was
repealed even before it took effect."
The Senate Select Committee on Presidential Campaign Activities (Watergate Committee) hearings revealed that former White House counsel John Dean had sought from the IRS political information on so-called "enemies." Furthermore, it was disclosed that the White House actually was supplied with information about IRS investigations of Howard Hughes and Charles Rebozo. The Committee noted that tax information and income tax audits were commonly requested by White House staff and supplied by IRS personnel.
The House Judiciary Committee investigating the possible impeachment of President Nixon learned of the apparently unauthorized use of IRS tax data by the President. One of the Articles of Impeachment proposed by the Judiciary Committee alleged that President Nixon had:
endeavored to obtain from the Internal Revenue Service, in violation of theconstitutional rights of citizens, confidential information contained inincome tax returns for purposes not authorized by law ...
[A]s part of the Tax Reform Act of 1976 ... Congress recognized that the IRS had more information about citizens than any other federal agency and that other agencies routinely sought access to that information. Congress also understood that citizens reasonably expected the IRS would protect the privacy of the tax information they were required to supply. If the IRS abused that reasonable expectation of privacy, the resulting loss of public confidence could seriously impair the tax system. ... Ultimately, Congress amended section 6103 to provide that tax returns and return information are confidential and are not subject to disclosure, except in the limited situations delineated by the Internal Revenue Code.
The arguments for and against disclosure of individual income tax information haven't changed much over time. The 2012 IRS report illustrates this point with a matched set of quotations. Here is former President Benjamin Harrison (his term ended in 1893), making the case for disclosure in an 1898 speech:
"Each citizen has a personal interest, a pecuniary interest in the tax return of his neighbor. We are members of a great partnership, and it is the right of each to know what every other member is contributing to the partnership and what he is taking from it."
For an alternative view, here's Secretary of the Treasury Andrew Mellon, commenting in the aftermath of the 1924 income tax disclosures:
"While the government does not know every source of income of a taxpayer and must rely upon the good faith of those reporting income, still in the great majority of cases this reliance is entirely justifiable, principally because the taxpayer knows that in making a truthful disclosure of the sources of his income, information stops with the government. It is like confiding in one's lawyer. ... There is no excuse for the publicity provisions except the gratification of idle curiosity and filling of newspaper space at the time the information is released."Both comments raise interesting questions. For example, the last few words of Harrison's comment in 1898 suggest that if we are going to have a conversation about revealing tax returns publicly, perhaps we should also have a discussion about revealing publicly all amounts and kinds of government assistance received. When Mellon writes in 1924 that the government does not know sources of income, he is of course writing at a time before income taxes are automatically withheld from wages, and at a time before employers and financial institutions send detailed records of income paid to the government which can be checked against income tax returns.
Some evidence from Norway
Norway is the world leader in disclosure of income tax information. Erlend E. Bø, Joel Slemrod, and Thor O. Thoresen investigate the effects of Norway making individual tax returns publicly available online in "Taxes on the Internet: Deterrence Effects of Public Disclosure," which appeared in a recent issue of American Economic Journal: Economic Policy (2015, 7:1, pp. 36–62). (Full disclosure: The AEJ: Economic Policy is published by the American Economic Association, which also publishes the Journal of Economic Perspectives, where I have worked as Managing Editor since 1986.The journal is not freely available on-line, but many readers will have access through library subscriptions or AEA memberships.) Here's how they set the stage (citations omitted):
Norway has a long history of public disclosure of information from income tax returns, going back at least to the middle of the nineteenth century. Citizens could visit the local tax office or the city hall and look through a book that contained information about each taxpayer in the local area. Persons were listed by name and address, along with key measures from the income tax return: income, tax payment, and wealth. The information was generally available for three weeks after the tax statement was made public. As the media had access to the same type of information, local newspapers would often communicate highlights from the lists, such as rankings of the citizens with highest wealth and income, or incomes of sports and entertainment celebrities.
However, the advent of the Internet changed the form of the public disclosure of tax information rather dramatically. In the fall of 2001, a national newspaper offered online access to tax information for the whole population through the web version of the newspaper, and soon all of the major national newspapers followed. Now, one could simply sit at home by the computer and obtain information about relatives, friends, neighbors, or celebrities. Whereas not many people took the trouble to visit the local tax office for manual searches, obtaining the same information by computerized searches from home substantially reduced the information access hurdle. The web pages offering search engines for tax information have been among the most popular websites inWould we expect tax returns on the Internet to alter tax payments? For example, one possibility is that people might be less likely to hide income, for fear that if they reported a low income but had a visibly high level of spending (new car, big vacation, home remodelling), the neighbors might turn them in to the tax authorities.
Norway, especially shortly after the release of new annual information.
Bø, Slemrod, and Thoresen tackle the question this way. They reason that most wage-earners have little ability to understate their income, because their employer reports income to the tax authorities in the first place. However, the self-employed and other business owners have more freedom to understate their income. Thus, they carry out a detailed comparison of income reported to tax authorities by wage-earners and by the self-employed and business owners both before and after 2001, when the income tax returns became publicly available on the Internet. They conclude:
We attribute an approximately 3 percent increase in reported income to Internet public disclosure. The main hypothesis of a shaming effect from public disclosure on tax evasion is also supported by finding somewhat larger effects in smaller, less densely populated areas, and for business categories which are believed to be “reputation sensitive.”Of course, this 3% figure cannot easily be applied to other proposals that would make income taxes public. After all, the shift in Norway was from publicly available, but not on the Internet, to publicly available, and also on the Internet. Moreover, one suspects that the very fact that Norway makes tax information public suggests that attitudes about taxes and tax enforcement may differ there from many other countries. For example, did you notice in the earlier quotation that Norwegians are required not only to disclose their income and tax payments each year, but also their wealth?