24 Pages Posted: 28 Apr 2005
Publicity of information is a fundamental principle of American democracy. Not only is it instrumental in increasing compliance with the laws, a necessity of any government, but also it is an essential element of the right to know - which itself is an aspect of the first amendment right to free speech. Unfortunately, publicity often conflicts with another fundamental right - the right to privacy. In regards to taxes, citizens essentially have two rights to know: a right to know what the tax laws are, and a right to know that these laws are being administered fairly. Publicity in the tax context traditionally means making tax return information public records in an attempt to ensure the fair administration of the tax laws. This type of publicity, however, generates intense hostility because taxpayers perceive it as a huge invasion of their privacy.
After examining the pros and cons of traditional publicity of tax information, this Essay suggests that tax publicity be reconceived more broadly. Redefined in the dictionary sense of simply the transmission of information, tax publicity can include a wide array of communications, varying as to content and audience, which can better achieve publicity's underlying goals with minimal invasions of privacy. A large portion of publicity in this broad sense can be - and should be - educational.
The Essay outlines four publicity proposals to stimulate discussion. Three use the expanded definition of publicity and focus on individual taxpayers: an annual tax statement, a short booklet to accompany the 1040, called Know Your Taxes, and an annual W-4. These essentially educational programs should deliver tax information to taxpayers more effectively than currently occurs. The fourth, more controversial, proposal suggests partial publicity - in the traditional sense. It attempts, however, to minimize the customary objections to publicizing tax return information by reducing invasions of privacy.
All the proposals will cost money, but probably less than the costs of enforcing compliance only through increased audits and litigation. They may also have psychic and political costs. Although recent studies show that more informed taxpayers are often more compliant, some of the information may trigger negative attitudes which would decrease compliance and/or create pressure for lower taxes.
Regardless of whether taxpayer reactions to the increased information are positive or negative, the greater publicity proposed in the Essay could have salutary effects, especially if it occurred in the context of a rational debate by elected officials about tax policy (instead of the current inflammatory rhetorical sound bites). On the one hand, if taxpayers respond positively to publicity, compliance will increase. If they act negatively, and their hostility to taxes increase, at least the publicity will arm them with more precise information that will allow them to focus their objections to the income tax and thereby lobby more effectively for real tax reform.
Keywords: tax compliance, confidentiality, tax disclosure, tax returns, income, privacy, right to know, publicity, social norms, education
Suggested Citation: Suggested Citation
Kornhauser, Marjorie E., Doing the Full Monty: Will Publicizing Tax Information Increase Compliance?. Canadian Journal of Law and Jurisprudence, Vol. 18, No. 1, January 2005. Available at SSRN: https://ssrn.com/abstract=712061
By Joshua Blank