Introduction
Economic inequality in the United States has reached record levels and poses serious threats to the egalitarianism that forms the foundation of our democracy.
Exacerbating this inequality is a perception that the ultrawealthy have not borne their fair share of the costs of governance.
In response, policymakers and advocates have renewed calls for not only substantive tax and welfare reforms but also transparency in the tax records of the wealthy and the powerful.
President Donald Trump’s tax returns provided the most dramatic illustration. During his first presidential campaign and tenure, Trump refused to release his tax returns, breaking from the longstanding practice—since 1973—of voluntary disclosure.
The fight for Trump’s tax returns prompted the House Ways and Means Committee to request his tax records from the Treasury Department.
The New York District Attorney and the House Financial Services Committee likewise subpoenaed them from Mazars, LLP, and Deutsche Bank.
This struggle culminated in two Supreme Court rulings on separation of powers and the criminal investigation authority of state grand juries,
as well as an order quietly acquiescing to the disclosure of Trump’s tax returns to the House Ways and Means Committee under the Internal Revenue Code (Code).
After the House released those tax returns to the public, it became clear that Trump had engaged in years of tax avoidance, often reported no income tax liability due to business losses, and broken his campaign promise to donate his salary.
Even more consequential is the leak of thousands of ultrawealthy Americans’ tax records to ProPublica in 2021.
These records, including the tax information of Jeff Bezos, Elon Musk, and Warren Buffett, reveal how the wealthy use legal doctrine and loopholes to achieve substantial tax avoidance. For example, the ProPublica report revealed that Musk used the realization doctrine and the nontaxation of borrowed funds
to pay no federal income tax in 2018.
The ProPublica leak triggered investigations by the Department of Justice and the Inspector General for Tax Administration after some lawmakers decried the “egregious and unprecedented leak of confidential taxpayer information.”
Ken Griffin, the billionaire founder of a major hedge fund, sued the Internal Revenue Service (IRS) in federal court for willful and grossly negligent disclosure of his tax return, citing provisions of the Code that—according to his complaint—show “Congress’s promise” to safeguard taxpayer privacy.
In January 2024, a federal district court sentenced the leaker—a former IRS contractor—to five years of imprisonment for his “egregious” crime of “attack[ing] . . . our constitutional democracy.”
In June, the IRS settled Griffin’s lawsuit, “sincerely apologize[d]” for the leak, and promised “to strengthen its safeguarding of taxpayer information” by investing in data security.
Recent events thus foreground the enduring debate whether individuals’ tax information should be public records or kept confidential.
In the United States, the Tax Reform Act of 1976 enacted the statutory scheme that governs taxpayer privacy today.
I.R.C. § 6103 prohibits employees and officers of the United States from disclosing to the public any tax information or returns, broadly defined to include the taxpayer’s identity, income, deductions, exemptions, liability, and net worth.
Exceptions authorize disclosure only to congressional committees in charge of tax legislation (e.g., the House Ways and Means Committee, which obtained Trump’s tax returns), state and federal law enforcement, and the taxpayer’s designees.
But confidentiality has not always been the rule. The nation’s first income tax, enacted to fund the Civil War, authorized public inspection of tax records.
By 1865, the New York Times regularly printed the incomes and the tax liabilities of the richest Americans, like the Vanderbilts.
Transparency again prevailed in the mid-1920s, after progressive lawmakers pushed for public scrutiny of tax evasion,
and for a moment in 1934, at a time of heightened economic inequality during the Great Depression.
Today, Finland,
Norway,
and Sweden,
among others, allow a significant degree of disclosure of individual income and wealth tax information to the public. Importantly, both historical legislative debate and contemporary disclosure regimes ground tax transparency in egalitarian terms. That is, disclosure of tax information instantiates a foundational, democratic commitment to open fiscal governance.
In this lasting contest between taxpayer privacy and disclosure, scholarship has had a clear focus: compliance. It has questioned whether publicity aids compliance with tax laws, and if it does, whether the compliance gains outweigh the intrusion into a generalized notion of the taxpayer’s right to privacy.
Proponents of disclosure stress its potential as an automatic enforcement tool.
They argue that public access to tax information could deter tax evasion by increasing the perceived risk of detection and lower revenue-collection costs by fostering social norms of voluntary compliance.
By contrast, defenders of privacy dispute the enforcement potential of publicity.
They contend that taxpayers entrust the state with private information on the expectation that it will keep such information confidential.
More recently, scholars have argued that privacy enables the federal government to exploit taxpayers’ cognitive biases to influence their perception of its tax-enforcement capacity, thus aiding compliance goals.
But the choice between privacy and transparency implicates more than just tax compliance.
Federal taxation not only aims to maximize the revenues collected within the bounds of rules that determine taxpayers’ liability, it also structures our fiscal relationship with a state that aspires to democracy and egalitarianism.
Whether the government should disclose any individual citizen’s tax records to the public therefore depends on the nature of this dynamic relationship between the taxpayer and the state. This Essay constructs such a framework, positing that taxpayers play four main roles as they interact with the fiscal apparatus of a democratic regime: (1) as reporters of nonpublic information; (2) as funders of the state; (3) as stakeholders entitled to what they deserve as a matter of law and dignity; and (4) as policymaking partners with the government in shaping federal tax law.
Within these roles, transparency and privacy have distinct valences. Further, the degree to which any taxpayer partakes in each role depends on two factors: (a) the taxpayer’s own income and wealth; and (b) the extent of inequality in the distribution of income and wealth within the community structured by federal taxation.
This Essay refers to the “community structured by federal taxation” because noncitizens, including unregistered immigrants and foreign workers, also contribute to and occasionally derive benefits from the federal fiscal machinery.
This Essay’s taxonomy suggests that the propriety of disclosure falls onto a spectrum. Rises in economic inequality and in taxpayers’ own income or wealth accentuate the need for transparency. Given this normative conclusion, lawmakers can limit disclosure regimes to segments of the population who exercise significant fiscal power. They can choose from individualized, anonymized, or statistical disclosure. They can even leave the choice between transparency and privacy to taxpayers themselves.
This Essay thus makes three contributions. First, it uncovers historical arguments that ground demands for tax transparency in egalitarianism in addition to compliance. Second, it intervenes in the taxpayer-privacy debate by developing a conceptual framework to analyze when, and for which taxpayers, privacy values should prevail. In the process, it propels the scholarly discourse beyond tax enforcement and compliance and yields insights to help policymakers design public-disclosure regimes that cohere with the norms implicit in our fiscal social contract with the state.
Third, this Essay contributes to the burgeoning literature on fiscal citizenship. Drawing on federal income taxation’s use of voluntary compliance, scholars have conceptualized taxpayers’ political and civic engagement with the state as they self-assess their tax liabilities.
This Essay adds to this scholarly dialogue a positive, analytical framework of precisely what roles taxpayers occupy as they shape, and are shaped by, the fiscal state.
This Essay proceeds in three Parts. Part I examines past disclosure regimes of the federal income tax. It shows that tax confidentiality has always been contested in the United States. It also uncovers historical arguments in favor of disclosure not (only) to increase revenue collection but also to advance egalitarian goals. Part II discusses contemporary treatment of tax transparency. It provides a comparative analysis of the disclosure regimes in Nordic countries, as well as an overview of the scholarly literature. Part III builds a taxonomy of fiscal citizenship. It articulates the four roles of taxpayers as they interact with the fiscal state and explains the distinct valences of privacy and transparency within each role. It examines how each component of our fiscal citizenship—as reporters, funders, stakeholders, and policymakers—varies based on our income levels and the degree of equality in the distribution of income within the community structured by federal taxation. Finally, it discusses scholarly and policy implications. It contends that transparency values, instead of privacy demands, prevail as to the tax records of the ultrawealthy, especially in times of high economic inequality.
One final note: By “democracy” and “egalitarianism,” this Essay refers broadly to a notion of democratic equality.
Citizens in democratic regimes should have, all else equal, an equal share in ruling, instantiated in equal opportunity to ventilate their views in public debate and, absent justification, roughly equal influence in policy outcomes.
Importantly, this is not to require that political power be, in substance, equally shared. Deviations from the baseline of equality are common and not necessarily illegitimate. It only shifts the burden to demand reasons for any inequality in governance. Expertise, for example, grounds certain forms of inequality in a democracy. Transparency may do the same. Importantly, transparency serves a higher-order and trans-substantive value: It allows the public to see whether any inequality—deviations from the principle of equal share in ruling—is in fact grounded in a legitimate value. It enables the state to write policy on an informed basis, thus fulfilling its reciprocal duty to ensure a fair and effective tax system.
Both are key to democratic fiscal governance.