Making Public the Tax Returns of Candidates
by Fred E. Foldvary, Senior Editor, 23 January 2012
There has been much pressure by the other presidential candidates and the press for Mitt Romney to make his tax returns public. Romney said after the South Carolina primary election that he would now release his 2010 taxes, as the fuss about his taxes was impacting his campaign. The law requires the candidates to reveal their ownership in assets, but not their income taxes. Presidential candidates are required to submit a financial disclosure report to the Office of Government Ethics (To see the site, click here ).There is also great concern about the tax rates paid by the wealthy candidates. But why should candidates for office have to reveal their tax information? Maybe a candidate would be embarrassed about giving little to charity, but that should be their personal decision. A person’s income and spending are personal affairs that should be nobody else’s business.
The tax returns of individuals are kept private, because a person’s finances have intimate information that most people want to keep secret. For example, if one donates to a church, the tax deduction is on the tax forms, and one may not want others to know the amounts. People also don’t want thieves to know where they have financial accounts.
One reason why people want to know the tax returns of candidates is to see if there are some special interests the candidate is involved with. Perhaps the candidate has investments that would affect his judgment about policy. But a candidate’s business associations, such as that of Romney with Bain Capital, is usually already known, and the law requires them to reveal their financial assets. After the candidate is elected, then the finances can be put in a blind trust. Moreover, the influence of special interests is stronger when they contribute funds to a campaign, and that would not be on a personal tax return.
When presidential candidate Ron Paul, who is opposed to income taxation, was asked about releasing his tax returns, he said that he would be embarrassed by his income being much smaller than those of the other Republican candidates. What he could have said is that the income tax is an evil intrusion into people’s finances, and that his income and spending are none of anybody’s business. He would have made headlines by refusing to show his tax returns on principle.
A morally proper tax system would not force people to declare their intimate financial affairs to the government. The morally proper governmental public finance system consists of user fees, pollution charges, and the community tapping of land value.
User fees can be kept private; for example when one enters a national or state park, the fee could be paid in cash. Pollution charges are paid by the owner of a vehicle, but the title of the vehicle could be a partnership or company rather than a natural person. Pollution charges paid by the owners of a factory would be public, and properly so, since the pollution itself is a public matter, and the public has a right to know that the polluter is compensating for damages.
The public collection of land rent, applied as a tax on the land value, can be kept private by having the title held by a partnership or company. The identity of the landowner is nobody’s business so long as the community rent is being collected. Moreover, with a property tax on land value, one does not have to reveal the sources of income from wages, interest, dividends, and other gains from financial assets. One does not have to reveal tax-deductible spending.
The great concern about the tax rates paid by wealthy candidates presumes that the taxation of personal income is morally proper. That implies that the public has an ownership claim on people’s labor and personal property. If you do not fully own your wage, then you don’t own your labor, and therefore you are not a self-owner. The government as agent of the people has a claim on your body, life, and time. If others own you, then to a degree you are a slave.
It is not morally wrong to seek to legally minimize one’s income tax payments. If the wealthy have a lower tax rate and take advantage of that by paying a lower rate than that paid by workers with much less income, that is the fault of the tax system. The taxpayer should not be blamed.
Moreover, there are good reasons why dividends and capital gains are taxed at rates lower than those of wage income. The dividends paid by corporations have already been taxed at the corporate level. Suppose the corporation is paying a tax rate of 35 percent, and the shareholder pays taxes also at 35 percent. For $100 in profit, the corporation pays $35 in taxes, and transfers the remaining $65 profit to the share holder, who then pays $22.75 in personal income taxes. The total tax paid is $57.75, a total rate of 57.75 percent. To keep the total rate equal to the personal tax rate, the double taxation should be eliminated; either the personal or the corporate tax rate on the corporate profit should be zero.
As for capital gains, suppose you buy an asset for $100, and ten years later, the price has doubled, and you sell the asset. You pay a capital gains tax on the increase. But suppose that prices in general have doubled. The real gain is zero. So to make up for the inflation tax, the tax rate on long-term capital gains is less. The tax rate should be equal to that on wages, but adjusted for inflation, but the government does not do this. So capital gains that rise by more than inflation get a tax break. It is the fault of Congress, not the taxpayer.
If people were to understand that the taxation of income, other than land rent, is an unnecessary evil, they would not be so anxious to get candidates to reveal their tax returns. I am waiting for a candidate to declare than his income taxes are a private affair and that he will refuse to make them public out of principle.
-- Fred Foldvary
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Copyright 2010 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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