And neither should anyone else.
The modern income tax was enacted in 1913, over 100 years ago. The debates centered on the revenue function. What is striking in the history of the income tax is how little was said about the intrusiveness of this method of collecting tax. (Here’s a summary.)
An income tax requires some private information. After all, just how does the taxpayer get from the gross to the net? This is especially true for business related income. Then there’s the whole issue of non-taxable income, such as non-profit income. So, an income tax does require some disclosure to the government of private information. But through the decades it was understood that these disclosures were related to protecting the revenues of the government and were to be kept confidential to third parties.
Then, in recent decades, another function of the tax returns have been added: a public disclosure function. So, now we face tax returns that serve two functions: (1) a revenue function and (2) a disclosure function.
This diminution of privacy has not just affected politicians. Because of Obama’s finance industry laws, it has hit the private sector big time. In order for private individuals to obtain financing banks and other financial institutions now require copies of tax returns.
It gets worse than just loss of privacy, much worse. Financing is now routinely denied if taxpayers fail to show enough taxable income. Routine because these denials are based on “policy” rather than individual judgment. Indeed, bank managers complain about lack of discretion in loan denials based on tax information.
So, what are people to do in the face of the adding the disclosure function to the income tax? Adopting tax strategies that legally INCREASE taxable income: (1) foregoing legitimate tax deductions; and (2) including income that they could otherwise exclude. — And that’s what has been happening.
As a CPA who prepares both individual and business tax returns, I have pointed bankers to the Schedule M-1 on business returns. This schedule reconciles tax income to book income. Citing the Obama era regulations, bankers say that these are irrelevant even though they are part of the tax return.
Making the income tax returns disclosure documents in addition to revenue documents have really hurt ordinary people.
But back to the politicians. How informative are those tax returns, anyway?
In the election campaign much was made of a portion of Donald Trump return which showed a massive loss in the ’90’s. But so what? Businesses loose money in some years and earn money in other years. Profit and loss. Why shouldn’t businesses net profit and loss? It is just plain economic sense. The publicity surrounding Trump’s tax returns worsened public understanding of business and taxes, not helped.
Understand, I am not a Trump supporter. I write this because America should oppose more government intrusion, especially using taxes to do so. This is about principle. The income tax should be about collecting revenue for the government not disclosures independent of that function.
A final point about politicians and taxes. People say they want to know that charities the pol has contributed to in the past. They should stop. Conservatives should not care whether or not a politician privately contributed to a controversial organization (Planned Parenthood is in the news) but how they voted on funding it in their official capacities in Congress.
Donald Trump should drop his lame excuses for not disclose his tax returns and simply say that these disclosures are bad for the country. He’s leading by setting an example. He can go a step further and encourage all the other politicians to stop disclosing their tax returns, too.