Tax Analysts Blog

Why Should Trump Get Special Treatment for His Tax Returns?

Posted on May 12, 2016

Donald Trump has now reneged on his promise to release his personal tax returns. That should come as no surprise, given The Donald’s difficulty in keeping his story (and his excuses) straight.

But in saying that he expects to disclose no tax returns before the November election, Trump is set to become the first major party nominee since 1976 to elevate his personal privacy over the public interest.

Don’t be confused: There is a vital public interest at stake. Refusing to release a tax return sullies the reputation of a candidate, prompting endless rounds of damaging speculation. Just ask Mitt Romney.

But tax stonewalling also threatens something more important: The integrity of the tax system. That’s not something we can tolerate or excuse in any candidate – even one who has built his brand on breaking all the rules.

Tax return disclosure is important for many reasons. Most obviously, returns can tell us a lot about a candidate’s finances. They tell us how much taxable income he reports (which is different from how much actual income he earns, since tax returns leave some kinds of income, like unrealized capital gains, out of the picture).

Returns can also tell us how much tax a candidate pays in taxes, which by extension tells us about her average tax rate. In a political world of Buffett rules and millionaire surcharges, that sort of information is interesting and maybe even relevant to a candidate’s bid for office.

But other factors are even more important. Returns can shed light on the way a candidate lives his life. It can tell us about charitable giving as well as personal borrowing and investment activity. Returns can also illuminate the complicated business arrangements that often provide the bulk of a candidate’s income, especially for a real estate mogul like Trump.

Again, these bits of information are important, putting hard data behind a candidate’s breezy claims to probity, generosity, and honesty.

But tax returns tell us something else, too – something much harder to define but vastly more important. Tax returns tell us a lot about how candidates conduct themselves in the gray areas of the tax law. Some items on a tax return are black and white, like the income reported on a W-2. But other items, especially for someone with lots of non-salary business income, are open to debate and interpretation.

Consider, for instance, the home office deduction. Lots of people with far less money than Trump claim this tax break. But whether the home office deduction is justified under the rules is often a matter of interpretation. Is a home office used solely for business, or does it double as a kid’s playroom? Is it used regularly for business, or just once in a while? The answers to those questions are often open to debate – which is one of the reasons why the IRS conducts audits.

Now imagine that you’re not a self-employed, aspiring novelist working from the kitchen table but a billionaire real estate investor with homes, offices, and investments scattered around the world. You, too, have lots of items on your tax return open to some debate. Some of your claims and positions might be entirely defensible, others less certain. A few might be simply implausible. Sorting out which is which can be complicated—and again, that’s what audits are for.

But voters, not just the IRS, also have the right to know how a candidate – and especially a rich candidate – is approaching the tax laws. Is she trying to wring every last ounce of advantage from the tax laws? If so, then good for her. Is she trying to get every last drop of reasonable tax minimization, plus a few extra gallons of questionable advantage? Then not so good for her.

And what if a candidate – or a president (since all these same issues would apply to a President Trump who would presumably still be under audit once he’s ensconced in the Oval Office) – is making outright errors on his return. What if he is engaged in genuine wrongdoing? Voters certainly have a right to know that, too.

Of course, we could rely on the IRS to keep tabs on the president (and the various candidates) on our behalf. But that’s not so simple, either. After all, the IRS commissioner works for the president, as does the commissioner’s boss, the Treasury secretary. Can we really count on the president’s subordinates to keep the president in line?

For the most part, I think we can. But doubts about the agency’s ability to audit the president are real and persistent. Indeed, those doubts are what prompted Nixon to release his tax returns back in 1973. Critics – including my employer, Tax Analysts – insisted that a reliable presidential audit could only be conducted by an independent auditor.

The IRS considered that argument, but ultimately rejected it. And Nixon’s last IRS commissioner, Donald Alexander, soon demonstrated that the agency could be relied upon to audit the president with independence and authority.

But Alexander’s audit was bolstered by something new: a communal audit of the president’s returns conducted by the entire nation. When Nixon released his returns to the public, he ensured that every American would have a chance to evaluate his honesty and candor. That decision, in conjunction with the simultaneous IRS audit, helped shore up the country’s faltering faith in its tax system.

Today we might call Nixon’s tax disclosure a form of “social auditing.” Every president since has recognized the value of social auditing (with the exception of Gerald Ford, who released only partial tax information during his abbreviated stint in office).

More to the point, every major party presidential nominee has also acknowledged the importance of social auditing, releasing at least a single year’s return, sometimes several, and occasionally dozens.

These candidates have all recognized that social auditing is a way of demonstrating not just their personal integrity, but the integrity of the tax system itself. Public disclosure of personal tax returns ensures that every president – and every serious presidential aspirant – gets the same hard look that regular taxpayers get from the IRS.

Donald Trump seems to think that such concerns are not his problem. He wants special treatment from American voters – looser, less exacting rules than those applied to every other commander (and taxpayer) in chief.

Trump shouldn’t get that special treatment. And he should release his tax returns today.

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