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Return of the Presidential Tax Disclosure Tradition

Posted on May 10, 2021
Joseph J. Thorndike
Joseph J. Thorndike

Joseph J. Thorndike is a contributing editor with Tax Notes and the research director of the Tax History Project.

In this installment of Tax History, Thorndike argues that the tax system would be improved if the release of presidential and vice presidential tax returns were no longer voluntary and a more comprehensive disclosure regime were enacted.

President Joe Biden is expected to release his 2020 tax returns any day, reviving a decades-long tradition of voluntary tax disclosure by America’s chief executives. Richard Nixon began the practice in 1973, releasing four returns to help quiet an escalating controversy over his personal taxes (it didn’t work). Donald Trump ended the tradition in 2017 when he declined to release his returns.

If Biden’s release marks a return to the pre-Trump tradition of presidential tax transparency, it also underscores the fragility of a disclosure regime constructed on a foundation of voluntary compliance. Voluntary disclosure also tends to be inconsistent disclosure, as history makes abundantly clear; while every American president from Nixon to Barack Obama made some sort of tax release, they differed in what, when, and how they chose to make their personal tax information available to the general public.

Congress is now considering legislation to make tax disclosure mandatory for sitting presidents and vice presidents, as well as nominees for both offices. What better time to take stock of past practice in presidential tax disclosure?

5 Things to Know About Presidential Tax Returns

1. Presidents are taxpayers just like you and me — only different.

Presidents pay income taxes, just like millions of other Americans. Oddly, however, that wasn’t always the case.

Until at least the late 1920s, presidents were considered constitutionally shielded from having to pay income taxes, at least on their official salaries. Article II, section 1, clause 7 of the Constitution requires that “the president shall, at stated times, receive for his services, a compensation, which shall neither be increased nor diminished during the period for which he shall have been elected.” For decades, federal courts interpreted this language to mean that presidential salaries couldn’t be reduced by an income tax.

In practical terms, this meant that Presidents Abraham Lincoln, Andrew Johnson, Ulysses S. Grant, William Howard Taft, Woodrow Wilson, Warren G. Harding, and Calvin Coolidge all seem to have avoided paying income taxes on their salaries. Several paid taxes on other kinds of non-salary income, but all of them avoided paying taxes on their official “compensation.”

Or so we think. It’s a little hard to know for sure because presidential tax returns are legally shielded from public disclosure — just like the tax returns filed by everyone else.

That’s always been the case, with a couple of notable exceptions. One of those exceptions came during the Civil War, when tax payments were considered a matter of public record. Even today, a little online sleuthing will uncover official Treasury files reporting Lincoln’s tax payments for 1864; found to be residing at “The White House,” he apparently paid $1,279.15 into federal coffers. (After his death, Lincoln’s family successfully sued to recover the portion of his tax payments that reflected taxes on his official salary, Treasury having determined that this compensation was constitutionally nontaxable.) (Prior analysis: Tax Notes, July 8, 2013, p. 122.)

Secret or not, Americans have always had a keen interest in the taxpaying habits of their chief executives. Newspapers have regularly reported on presidential filing, assuring readers that occupants of the Oval Office sweat the deadline just like the rest of us.

Starting in the 1950s, Americans began to ask for more detail about presidential taxpaying. In 1952, while running for vice president, Sen. Nixon found himself embroiled in a minor scandal over his personal finances. (Prior analysis: Tax Notes, July 16, 2012, p. 234.) During the ensuing fracas, Democratic presidential candidate Adlai Stevenson and his running mate, John Sparkman, tried to claim the moral high ground by releasing their personal tax returns and challenging Nixon (and his running mate, Dwight D. Eisenhower) to follow suit. Nixon declined to make any sort of tax release, but Eisenhower felt compelled to release a summary of his own taxes.

The Nixon episode wasn’t the beginning of a trend; it would be years before another major candidate released personal tax information, and no sitting president would release actual returns until Nixon himself was in the White House, embroiled in yet another financial scandal. Still, the 1952 episode marked the beginning of a new era in public views of presidential taxpaying — an era in which voters began to recognize that presidents had special responsibilities as taxpayers.

2. Presidents are both the taxpayer in chief and the tax collector in chief.

The American president has a dual relationship with the tax system. As the nation’s First Citizen and therefore symbolic taxpayer in chief, the president’s personal tax behavior is freighted with the norms and responsibilities of fiscal citizenship writ large. At the same time, the president is the tax collector in chief; as head of the executive branch, he has ultimate responsibility for enforcing the laws that bind every taxpayer, including the one who works in the Oval Office.

That dual role creates some awkward political and administrative dynamics. On one hand, it creates pressure — both implicit and explicit — to transform private taxpaying into a public exercise.

Pressure to erase the boundary between private and public isn’t unique to taxpaying: Presidents sacrifice their privacy in several realms, including other aspects of their financial lives. But that pressure is particularly hard to reconcile with the nation’s strong tradition of taxpayer privacy.

When pressure for presidential tax disclosure begins to mount, it raises questions about the ostensibly voluntary nature of that disclosure. At what point does the shaming, badgering, begging, and pleading amount to something more than a voluntary process?

In a sense, the initial presidential tax disclosure by Nixon may have set the tone for many later disclosures; Nixon was under intense pressure to release his tax records when he finally agreed in November 1973. While his disclosure wasn’t legally required, it would be a stretch to call it purely voluntary.

To a lesser extent, the same might be said of Mitt Romney’s tax release during the 2012 presidential campaign. Romney was clearly a reluctant discloser. His acquiescence might have been desirable from a civic standpoint, but to call it voluntary is something of a stretch.

The president’s dual role, in other words, tends to create problems for the president as a taxpayer. But it also creates problems for the president as a tax collector — and specifically, as collector of his own taxes.

Historically, presidents have generally taken a hands-off approach to the processing of their own returns. (Generally, but not universally; Wilson, for instance, sought and received assistance from the Justice Department in crafting his argument that presidential salaries should remain exempt from taxation.) (Prior analysis: Tax Notes Federal, Oct. 7, 2019, p. 16.) But presidents retain supervisory responsibility for the agency processing those returns. Whether that responsibility might be used to interfere remains an open question.

Not all interference, moreover, must be overt to be effective. It’s easy to imagine, for instance, that IRS officials might be inclined to treat a presidential return with kid gloves, given the taxpayer in question and his power over the agency.

Perhaps more to the point, it’s impossible to know whether favoritism is at work because the processing of a presidential return is shielded from any sort of public scrutiny. Indeed, under normal circumstances, the process is also shielded from the scrutiny of government officials outside the executive branch — anyone, in other words, who doesn’t work for the president.

Ultimately, the person responsible for enforcing the tax law regarding any taxpayer is the president — even when that taxpayer is the president himself.

3. Nixon was tricky, so presidents began to release their tax returns voluntarily.

In 1973 Nixon offered the nation a case study in why presidents can be tricky taxpayers. In the middle of that year, a series of newspaper stories suggested that the president had claimed unreasonable deductions for the charitable donation of his official vice presidential papers to the National Archives (you could do such things back then). As a result, Nixon had paid a relative pittance in federal income taxes for at least a couple of years in the early 1970s.

The IRS had actually audited Nixon’s returns for the years in question and accepted them as filed. “I want to compliment you on the care shown in the preparation of the returns,” an agency official told Nixon in words that would later prove embarrassing. (Prior analysis: Tax Notes, Apr. 22, 2019, p. 522.)

A series of leaks from the IRS raised more questions about Nixon’s tax compliance. In late November 1973, under enormous political pressure to quiet the scandal, Nixon agreed to release four years of personal tax returns. He also asked the congressional Joint Committee on Internal Revenue Taxation to examine the returns. Several months later, the panel produced a report outlining $476,431 in proposed deficiencies — equal to roughly half of Nixon’s net worth at the time.

The Nixon episode didn’t reflect well on the IRS, at least initially. The agency had clearly failed in its first attempt to audit the president’s returns. It did a better job the second time around, when a new commissioner, Donald Alexander, took aggressive action to restore the agency’s reputation for independence and integrity. Under his leadership, the IRS conducted a second, much more thorough audit of Nixon’s returns, while also cooperating with congressional investigators who were undertaking their own investigation.

Still, the Nixon debacle had underscored the danger of relying on executive branch officials to audit the chief of the executive branch. Because audits are shielded from public scrutiny, no one had ever checked on the quality of a presidential audit until the Nixon episode. Looking over the agency’s shoulder for the first time, the results were not encouraging.

Was the agency’s subpar performance the product of overt political pressure? Implicit deference? Routine incompetence? Hard to say. But none of the possibilities were reassuring, especially because the structures of federal governance made most of them hard to remedy.

Reforms introduced in the wake of the Nixon scandal never completely addressed the problems inherent in the president’s dual role. In 1977 the IRS itself introduced procedures requiring automatic audits of all sitting presidents and vice presidents during their terms in office. A good thing, to be sure, but not really a solution to the most intractable, structural problems. The agency also established clear procedures for handling presidential and vice presidential returns, presumably to help shield audits from pressure and interference. But those procedures were hardly foolproof, given the uncertain limits on presidential authority within the executive branch.

Meanwhile, presidents developed their own ad hoc solutions to the problem of the president’s dual role: They began to release their tax returns to the public every year, shortly after they were filed with the IRS. That tradition wasn’t born full blown in the wake of Nixon’s tax disclosure to congressional investigators; his successor, Gerald Ford, didn’t release complete tax returns at any point. Instead, he released a 10-year summary of his taxes when running in the 1976 presidential election.

But Jimmy Carter released a complete return while he was a candidate in 1976. And as president in 1977, he released a complete return. All sitting presidents since have chosen to follow suit — until Trump, of course. Each has released a tax return during every year in which he has occupied the Oval Office. (This practice has produced an odd quirk of timing and official accountability: Because they are not in office during the April following their final year in office, presidents have not released returns covering their final year as a sitting president.)

4. Voluntary tax return disclosure is good but not great.

Trump’s refusal to release his tax returns became a major issue during the 2016 presidential campaign and remained one throughout his presidency. Some of Trump’s more excitable critics seemed to convince themselves that public release of his returns would prove his undoing, revealing rampant corruption that would force him from office. Trump’s former personal attorney, Michael Cohen, described the returns as the “Rosetta Stone for understanding the depth of his corruption and crimes.”

Such things are possible, I suppose. But “magic bullet” theories about the Trump returns are a distraction from more important arguments about the importance of presidential tax disclosure — arguments rooted in the president’s dual role as taxpayer and tax collector in chief.

Does the voluntary disclosure tradition inaugurated by Nixon (under duress) and Carter (by choice) actually help resolve the tensions inherent in the president’s dual role? Not completely, but it provides at least a partial solution.

Public release of presidential returns allows for a sort of crowdsourcing when it comes to presidential audits. Upon its release, every presidential tax return gets a hard look from the nation’s multidisciplinary community of tax experts. Journalists pore over it, looking for newsworthy problems, law professors ask their students to dissect it on exams, and Tax Notes subscribers write letters to the editor explaining how the returns illustrate larger problems with the tax law.

Amid all that analysis, we learn quite a bit about the president’s behavior as a taxpayer. The experts, of course, do not possess the information necessary to do a true audit — or even a fraction of it. But they have nevertheless been known to identify important problems and issues with presidential returns. Their unofficial, public scrutiny serves as a backstop to official, private audits conducted without meaningful oversight.

Still, a crowdsourced audit leaves a lot to be desired. How much? Let Joshua D. Blank, a law professor at the University of California, Irvine, tell you.

In “Presidential Tax Transparency,” a paper to be published later this year in the Yale Law & Policy Review, Blank argues that tax return disclosure is inadequate to the task of monitoring presidential tax behavior. Its shortcoming is the same, moreover, whether return disclosure is voluntary or mandatory. “Mandatory public disclosure of an elected official’s or candidate’s tax returns would provide voters with only a partial and one-sided view of that individual’s tax compliance,” he writes, adding:

This limited view would be due to two features of mandatory public disclosure of tax returns. First, candidates’ and elected officials’ tax compliance would be shrouded by the structure of the federal income tax and of federal income tax returns themselves. Second, it would be further obscured from public view as a result of opportunities for strategic reporting and disclosure by candidates and elected officials.

Blank lays out in persuasive detail exactly how and why tax returns, as documents, fall short as a tool for measuring taxpaying, as a process. As typically and legally defined, returns are simply not comprehensive enough to answer many of the most important questions about how a person meets their fiscal obligations — and for the president, how the First Citizen engages in the responsibilities of fiscal citizenship.

If you want the full indictment of tax return disclosure, by all means track down Blank’s fine article — it’s very much worth the effort. But let me offer you my distilled version of his complaints, which resonate with my own experience charting presidential tax disclosure tradition over the past 25 years.

First, the voluntary tradition has no set rules. Presidents have interpreted its requirements differently over time. Some have released complete returns, including all accompanying schedules and taxpayer statements, as well as state income tax returns. Others have released less complete versions of their returns, occasionally supplementing their initial release with more material when prodded by the media — but not always.

The voluntary tradition has grown over time to include not just sitting presidents and vice presidents (the latter joined the tradition almost from the start), but also major party nominees for both offices. Many pre-nomination candidates have also hopped on the bandwagon. But not all of them, and in some years not even most.

Even more problematic, the substance of tax disclosure has varied dramatically. Presidents tend to release complete (or nearly complete) returns, as do most vice presidents. But at least one vice president, Dick Cheney, was famously stingy with his disclosed materials, releasing only a Form 1040, and then only when pressured by the news media.

For primary candidates and party nominees, however, the scope and substance of tax disclosures has been much more inconsistent. Some candidates have chosen to release dozens of years of complete returns. Others have released just a single Form 1040 or perhaps two. And as noted above, numerous primary candidates have chosen to release nothing at all.

The timing of voluntary disclosures, while reasonably consistent for sitting presidents and vice presidents, has also varied dramatically for candidates. Some release early, others rather late, and some at the very last minute (looking at you, Romney).

The voluntary release of a tax return provides a glimpse of a particular document at a particular moment in time, usually at the moment of filing (at least for a sitting president or vice president). If those returns are later amended, the public has no way of finding out because the voluntary disclosure tradition hasn’t generally been interpreted to include amended returns. Nor have presidents generally released the results of any audits later performed on their publicly released returns (although they have, very occasionally, released general information about changes to their returns). Nor do disclosing officials and candidates typically release information about later settlements reached with the IRS, as Blank points out in his article.

Nothing is terribly or necessarily wrong about those inconsistencies in the voluntary disclosure tradition. But they make that tradition confusing, while also imbuing it with more than a little tension as the media and political activists try to enforce unwritten norms on reluctant candidates. In Romney’s case, for instance, the unwritten and uncertain nature of the tradition produced months of hectoring, shaming, and self-justification. In Trump’s case, it produced all that and more.

Arguably, debates over voluntary disclosure are a good thing. As Blank points out, they can allow candidates to “provide a signal” to voters about transparency and openness. Or they might allow a different sort of candidate to send a different sort of signal: one about “nonconformity” and a willingness to challenge elite norms of behavior. Either way, we can view arguments about disclosure as part of a broader, basically healthy political debate.

Or we might view it in a different, less favorable light. All that begging, pleading, and shaming surrounding the disclosure tradition does real damage to our political discourse. It cheapens objectively good things like transparency by making them seem optional — and ultimately dispensable. And it elevates the rewards to obstreperous, shameless political behavior — as if populist grandstanding against the ideals of good government weren’t rewarding enough already.

5. A better, more comprehensive disclosure regime is possible.

For all its flaws, voluntary disclosure is better than nothing. Or perhaps it’s more accurate to say that it was better than nothing. Is the disclosure tradition even alive today? Trump’s refusal to disclose, followed by Biden’s expected willingness, leaves it in uncertain territory.

In decades past, the tradition was fully bipartisan, and some of its most enthusiastic adherents have been Republicans. (Jeb Bush holds the record for releasing the most returns as a candidate.) But like so many other elements of contemporary politics, the disclosure debate has taken on partisan overtones, thanks to the bitter controversy over Trump’s returns. How that controversy will affect the long-term health of the disclosure tradition is hard to tell, especially while Trump remains a possible candidate for the presidency.

Still, it’s possible to imagine a better, more vigorous, more comprehensive disclosure regime — one that helps resolve the tension inherent in the president’s dual role as taxpayer and tax collector. Blank has imagined exactly that sort of regime, proposing a set of mandatory disclosure requirements that would do more than simply formalize the current voluntary practice of return disclosure.

Blank’s proposal, for instance, would require presidents, vice presidents, and candidates to reveal a wide variety of other documents not currently included under the definition of a tax return but still pivotal to the taxpaying process. For instance, those required to make a tax disclosure would be directed to “include any document filed by the candidate or elected official with the IRS during a specific period of time.” Such a requirement would compel the production of amended returns, for instance, as well as taxpayer statements and various attachments. “Without a clear and comprehensive tax return definition, candidates and elected officials may pursue the types of selective disclosure strategies they have used during the past forty years of voluntary tax return disclosure,” Blank explains.

Blank also suggests that rather than asking officials and candidates to deliver their tax materials for subsequent disclosure to the public, those materials could be made available directly by the Treasury secretary. “The primary benefit of this approach is that it would ensure that all documents that the candidates and elected officials have filed with the IRS are submitted to the election authorities without any changes or omissions,” Blank explains.

If this requirement strikes you as being unduly suspicious, let me suggest that you are being unreasonably credulous. The problem with having officials and candidates supply their own tax materials for public disclosure is that no one would be in a practical or legal position to call them out. Certainly not the IRS, which is unable to comment on anyone’s tax information. (This problem exists under the current voluntary regime as well; the public has no way of knowing whether the returns released by any political figure are accurate or complete.)

Blank would require public disclosure of presidential audit results, as well as independent analysis of IRS presidential audits by a third party, such as the congressional Joint Committee on Taxation. “Review by the Joint Committee on Taxation could improve the quality of the presidential and vice presidential audit by the IRS and increase public confidence in the validity of the audit results,” he writes.

Blank has other ideas for expanding the disclosure regime, all of them laudable. In this realm, more is certainly better because the tax system generally thrives with more sunlight. To be sure, there are costs to transparency, most of them paid by the officials and candidates subject to the new disclosure requirements. But public service has always come at a price, and yet we seem to have no shortage of people willing to vie for these offices.

I suspect the republic will survive demands for greater tax transparency by our leaders. And the tax system will certainly be better for it.

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