Peek-A-Boo! I See Your Tax Return

by Tom Yamachika, President, Tax Foundation Hawaii

Recently, some lawmakers proposed a bill that would require presidential candidates to release their five most recent tax returns to the public as a condition of being allowed on the ballot.

The measure apparently is in response to President Donald Trump’s refusal to release his tax returns.

“It’s a reasonable step since every modern president has released their tax returns and put their assets into a blind trust to make sure the only interest they have is the interest of our country and its people,” the Star-Advertiser quoted one lawmaker as saying.

Similar proposals are circulating in California, Massachusetts, and New Mexico.

In most states, including ours, tax returns and tax return information are confidential. The reason for the confidentiality is that it is generally believed that people will be more honest with the government about their finances if the people won’t have to worry about collateral consequences from other folks peeking. What might happen if a nosy neighbor wants to peek? Or a business competitor? Or an opposition candidate if you are trying to run for public office? The interest in confidentiality is strong enough so that in civil litigation where parties are suing each other, parties are usually able to demand that the other side disclose any information “designed to lead to the discovery of admissible evidence,” but aren’t allowed to demand tax returns unless the judge thinks that there is a special need for them.

Even in Hawaii, people don’t like to cough up tax returns or other sensitive financial records. Back in 2014, when a law (Act 240, Session Laws of Hawaii 2014) required that sensitive financial disclosures of many state volunteer boards and commissions be made public, Hawaii News Now reported that at least sixteen board or commission members resigned rather than allow their financial disclosures to be released to the public. The state Land Use Commission lost five of its nine members (56%), the board of the Agribusiness Development Corporation lost four of 11 (45%), the University of Hawaii Board of Regents lost four of its 15 (27%), and the board of the Hawaii Housing Finance and Development Corporation lost two of eight (25%).

We need to ask ourselves what price is necessary to have a participatory role in government. If we want to have those with relevant experience and backgrounds to serve the public interest, do we need to have them bare all their financial information? In this digital age, potential office holders may well ask what consequences they or their family will suffer at the hands of those who may have a different political agenda once this information is irrevocably exposed. Some won’t want to take the heat and will get out of the proverbial water, leaving our country to be run by whoever is left.

Even here at the Tax Foundation, where we often sing the praises of transparency in government, we have concerns about going too far. If the processes by which government decisions are made is open and honest, do we really need to thumb through every share of stock owned and scrutinize every deduction and credit claimed by each decision maker before we can restore some measure of trust in government?

Maybe the supporters of this legislation think the answer is “yes.” If that’s the case, then why stop at presidential candidates? Maybe we should start in our own back yard. Would the proponents of this bill be willing to demonstrate their endorsement of that policy by producing their own tax returns for all to see?