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Tax History: When John Roberts and Ronald Reagan Showed Why Tax Disclosure Works

Posted on Aug. 17, 2020

Chief Justice John G. Roberts Jr. made news last month when the Supreme Court handed down a pair of decisions regarding President Trump’s personal financial records, including his tax returns. As the author of both decisions, Roberts guaranteed himself a central spot in the annals of presidential tax disclosure.

But Roberts’s opinions in Trump v. Vance, No. 19-635 (S. Ct. 2020), and Trump v. Mazars USA LLP, No. 19-715; No. 19-760 (S. Ct. 2020), weren’t his first venture into the high-profile world of presidential taxpaying. In the early 1980s, while serving as an associate White House counsel in the Reagan administration, a young Roberts — just four years removed from his Harvard Law School graduation — found himself fielding inquiries regarding President Reagan’s personal tax returns. In particular, Roberts was charged with defending the president from suggestions that he was getting special treatment from the IRS.

Roberts’s response to that suggestion — his assurance that presidents play by “the same rules the rest of us taxpayers must follow” — was a case study in the value of presidential tax disclosure.

Reagan’s Disclosure

Roberts’s stint as a presidential tax defender came in the spring of 1983, shortly after Reagan filed his 1982 return and released it to the public. As president, Reagan had chosen to follow the precedent established by Jimmy Carter, who was the first sitting president to routinely release personal tax returns.

Reagan’s decision to follow Carter’s lead was notable. Generally speaking, Reagan wasn’t a great fan of tax disclosure, having resisted it during his campaign for the presidency, as well as during his tenure as California’s governor. (Prior analysis: Tax Notes, May 23, 2016, p. 1021.) In fact, he had refused to make any tax disclosure until after formally accepting the GOP nomination in July 1980. Even then, he chose to release only a single year. Reagan was not, in other words, an enthusiastic or obvious champion of presidential tax transparency. But he was an important one.

Presidential tax transparency hadn’t been much of an issue until Nixon released his returns in 1973. But Nixon had made his disclosure under duress; his version of disclosure was really just a bid for exoneration from particular charges, and it didn’t necessarily imply the need for future disclosures by him or any other president. (Prior analysis: Tax Notes, June 13, 2016, p. 1527.)

And indeed, when Gerald Ford assumed the presidency, he didn’t feel compelled to follow Nixon’s lead. While in office, Ford released summary information about his taxpaying, but he declined to release complete returns.

Carter, by contrast, made a point of full tax disclosure once he became president. As in so many other ways, he was eager to distinguish his post-Watergate approach to governance from the sullied version that preceded it.

Still, when Reagan took office, it’s fair to say that the “tradition” of presidential tax disclosure was not yet truly established. Since 1973 one president had made a full disclosure under duress, one president had offered a partial disclosure, and one president had made a show of complete and voluntary transparency.

Reagan’s decision to adopt the Carter model transformed this mixed record into an actual tradition — one with real political clout. By making voluntary disclosure a bipartisan practice, Reagan did more to institutionalize presidential tax transparency than any other occupant of the Oval Office.

Reagan’s 1982 Return

On April 15, 1983, Reagan released to the public the 1982 tax return he had filed jointly with his wife, Nancy.

The return got some careful attention from media observers, who were quick to ask professional return preparers for an assessment of how Reagan had fared under the tax laws passed during the first two years of his presidency. The answers, notably, weren’t exactly consistent with one another.

Ronald W. & Nancy D. Reagan, occupations President and First Lady, saved about $44,000 in Federal income taxes because of legislation adopted in Mr. Reagan’s term,” reported The New York Times in a story published on April 16. The article, written by Robert D. Hershey Jr., featured an analysis prepared by a partner (“with the aid of a computer”) at one of the then-Big Eight accounting firms. The partner asked to remain anonymous.

According to Hershey, the Reagan return underscored two “seemingly contradictory” facts:

  • “the well-to-do have, indeed, gained far more than the average citizen from the fairly ambitious reductions that have been made in tax rates since Mr. Reagan came to office”; and

  • “the well-to-do are likely to pay more in taxes than they did before.”

The return showed an adjusted gross income of $741,253 and a tax liability of $292,616. The Reagans’ income included the president’s official salary, a large gain from the sale of their house in the Pacific Palisades neighborhood of Los Angeles, and income from the president’s blind trust.

According to the unnamed accountant consulted by the Times, the Reagans’ tax bill would have been about $47,000 higher had the 1981 tax law not cut the top marginal income tax rate from 70 percent to 50 percent. (The Times argued that only about $44,000 of this amount was attributable to changes in the law for which the president was “directly responsible.”)

The Washington Post, looking at the same return but with the assistance of a different tax expert, arrived at a different bottom line. “Taxpayer Ronald Reagan saved $91,619 on his 1982 taxes — about one-third of what he otherwise would have owed — as a result of legislation signed in the last two years by President Ronald Reagan,” wrote reporter Juan Williams on April 24. Reagan owed some of the savings to lawmakers, however, rather than his own efforts. “Congress sweetened his recommendations in a way that gave him a bigger tax cut for 1982 than he would have given himself,” Williams wrote.

Relying on help from Ross L. Collins II, a CPA in McLean, Virginia, the Post concluded that the Reagans would have paid taxes of $384,235 (rather than $292,616) on their 1982 income had recent laws never been enacted.

Neither the Times nor the Post seems to have felt the need to explain the discrepancy between their estimates of the Reagan tax savings.

The Withholding Issue

In an April 17 follow-up to an April 16 story on the Reagans’ taxes, The Washington Post reported that the paper had received “dozens of phone calls” asking if the president and his wife would be penalized by the IRS for failing to withhold or prepay 80 percent of their tax liability. The couple had withheld $68,034 from the president’s salary and made $100,000 in estimated tax payments, but 80 percent of their actual tax liability would have been $234,093, leaving them short of the mark by $66,059.

Callers to the Post weren’t the only ones to notice the apparent problem. Two members of Congress had called the White House to ask the same question, in both cases at the request of concerned constituents. The responsibility for responding to these congressional inquiries fell to young Roberts.

Roberts, in a memo to his White House counsel, Fred F. Fielding, pointed out that the penalty for underpayment through withholding and estimated taxes did not apply when the amount withheld or paid as estimated tax exceeded the previous year’s tax liability. Because the Reagans’ 1981 tax liability was $165,291, the amount they had paid in 1982 had exceeded that amount by $2,743.

Roberts drafted letters to the interested constituents, explaining the exception to the penalty. But in the case of one constituent, for whom Roberts did not have contact information, he wrote the lawmaker directly. That letter included an illuminating response to the constituent’s original complaint. “You may assure your constituent that the President is not ‘exempt from the same rules the rest of us taxpayers must follow,’” Roberts wrote.

That assurance speaks directly to the rationale for presidential tax disclosure. If Reagan-era Americans — like the constituent complaining to Rep. Tony P. Hall — suspected that presidents were playing by a different set of rules, they could be forgiven. After all, it had happened just a few years before.

In 1982 Nixon’s tax misdeeds were a recent memory. So, too, was the IRS’s failure to detect and punish those misdeeds, at least initially. Nixon’s behavior came to light the hard way: first, through dogged investigative reporting; later, through unauthorized leaks; and finally, through voluntary disclosure and official investigation by Congress.

Carter had established the tradition of voluntary tax disclosure as an alternative to this cumbersome (and extra-legal) method of ensuring accountability. When Reagan released his own returns, starting in 1980, he chose to foster and institutionalize that nascent tradition, joining the effort to quiet the doubts of his skeptical fellow taxpayers. And when Reagan’s 1982 return seemed to actually raise new doubts about the president’s taxpaying, John Roberts’s public explanation was able to put them to rest.

Of course, had Reagan never released his 1982 return, there would have been nothing to question in the first place. But opacity breeds its own set of questions, especially in the wake of a scandal. Reagan embraced the idea that transparency — and the scrutiny that comes with it — is the best way to set doubts to rest.

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