Why Should Congress See Trump's Tax Returns?
Congressional-committee disclosure goes back almost a century and was never so politicized before.[A version of this article appeared April 22, 2019, on page A15 in the U.S. edition of The Wall Street Journal.]
House Ways and Means Committee Chairman Richard Neal has demanded that the Treasury turn over six years of President Trump's tax returns by April 23. Citing concerns over "an abuse of authority," Treasury Secretary Steven Mnuchin says he will not comply. Who is right?
The 1924 Revenue Act required the Internal Revenue Service to make public the amount of tax paid by every individual and corporation. Lacking modern methods for determining who was subject to the income tax, publicizing such information was considered a useful way to detect nonfilers, as neighbors might snitch on anyone understating income.
Reading about your neighbor's income, and that of celebrities, turned into a national pastime. Most inspection requests came from women wanting to know how much alimony to claim, what their fiances earned, or simply what their husbands earned. Celebrities' finances were published in newspapers.
The same law also allowed the Ways and Means Committee or Senate Finance Committee to require that the Treasury furnish "any data of any character contained in or shown by the returns." It permitted the committees to outsource its examination to outside agents and to share "relevant or useful information thus obtained" with the full Congress.
Publicity was repealed in 1926 but Congress retained the right "to inspect any or all of the returns at such times and in such manner as it may determine." An identical right was given to the newly formed Joint Committee on Taxation. A 1940 amendment limited congressional inspection to a "committee sitting in executive session," suggesting that returns examined this way could not be made public.
There has been very little debate or controversy over these provisions. A 1938 Treasury directive allows the secretary discretion in granting access when "it appears that compliance therewith would be in violation of law, or inimical to the public interest."
In 1974 as part of the Watergate investigation, President Nixon's tax returns from 1969-72 were examined by both the Internal Revenue Service and the Joint Committee on Taxation, the latter known for being nonpartisan tax experts. Both revealed a nearly $450,000 underpayment.
Nixon's underpayment resulted from his deducting a gift of pre-presidential papers to the National Archives. A major tax law was passed on Dec. 30, 1969, under Nixon's signature. It included a provision making donation of personal papers after July 25, 1969, ineligible for a charitable deduction. Nixon's lawyer negligently missed the deadline and had papers falsely backdated showing that the gift was completed on March 27, 1969. Two people served jail time for their role in defrauding the IRS.
Had Nixon been aware that the gift he authorized hadn't been completed, he likely could have obtained an exception written into law, as is often done in tax legislation, to include transactions in an advanced state of completion but not yet consummated. Hubert Humphrey was also trapped by the new law. He was audited and denied a tax deduction to the Minnesota Historical Society for the papers from his years as Lyndon B. Johnson's vice president.
More significant, the Nixon White House regularly pressured the IRS to audit his "enemies." This became one of the articles of impeachment. Watergate and revelations of IRS abuse for political and other nontax purposes threatened public confidence in the privacy of tax returns. Congress responded with a 1976 law making tax returns confidential -- not subject to disclosure except in limited situations when an agency's need for information exceeded the citizen's right to privacy.
The scope of the congressional-committee disclosure law has never been litigated, so it's unclear what the limits are. Nixon consented to a public review. The referral to the Joint Committee was based on the deposition of a White House official arising out of the 1972 Watergate break-in. His tax deficiency did not contribute to his impeachment.
Rep. Neal gave as the reason for requesting Mr. Trump's tax returns that he wanted "to determine the scope of any such [IRS] examination and whether it includes a review of underlying business activities." For that purpose, he could do better by asking the IRS commissioner to testify. The president, vice president and all IRS employees are audited annually.
That Mr. Trump negotiates satisfactory settlements with the IRS is evident from the absence of Tax Court litigation. He retains top tax advisers such as former IRS chief counsel William F. Nelson and has more than 500 entities on his tax return. It's unlikely that six years' worth of Mr. Trump's returns can be competently reviewed in executive session to assess the IRS audit. Few if any of the 42 members of Ways and Means know how to prepare a tax return, let alone analyze a return that is thousands of pages. Unlike the Joint Committee on Taxation, Ways and Means may not be properly staffed for such a task.
Mr. Neal and his allies do not appear to have any nonpolitical reason for requesting Mr. Trump's returns. But this may not be necessary. The courts could soon decide this issue, and we will see.
A version of this article appeared April 22, 2019 on page A15 in the U.S. edition of The Wall Street Journal.