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Tax Reform Should Address Privacy Risks

The press has criticized President Trump’s cabinet choices who are reluctant to share their tax returns with the world. It’s the same noise critics made about candidate and then president-elect Donald Trump delaying and then refusing to share his tax returns. Some are now proposing extreme measures to obtain personal information. Congressman Bill Pascrell, a senior Democrat on Ways and Means, has suggested using the power of the Committee to get the returns and study them in a closed session as an excuse to then release them publicly.

This interest is not just about the money. A person’s tax return has a wealth of information about them because the disclosure is required by the law. This very personal information can then be plucked from the form without any benefit of understanding or context. 

This threat should give all tax filers pause. First, because most people do not even realize that there is a difference in a personal financial statement and a tax return. A tax return follows rules made by Congress rather than generally accepted accounting guidelines. A personal financial statement, by contrast, follows the principles of finance and investment. The press typically ignores this fact and spins stories that are often conceived in ignorance and pushed out to an unsuspecting readership. But also, the amount of personal information found in a tax return is generally more than most people would be comfortable having bandied about publicly. 

But ultimately this is not a problem with the press; it is a problem with the government. Over time, particularly as the tax code became increasingly long and complicated, a person’s tax return contained more and more information about a person’s life and lifestyle choices. The responsibility for the complication and length rests squarely on the shoulders of Congress. 

Tax reform should address this problem. Support for individual privacy is frequently supported on both sides of the aisle, and tax-form privacy would be a great start in showing that members of Congress are in fact serious about privacy protections. 

Even private citizens who will never run for office should be concerned. The hacking of the IRS in 2015 and then again in 2016 exposed information from hundreds of thousands of tax returns. Taxpayers were left defenseless because their information was not protected. As reported “…if there’s information about yourself you might consider sensitive, it’s probably on your tax return somewhere.” And specific to the incident, “…the hack gave attackers access to entire tax returns, which means people’s social security numbers, address, and incomes were all compromised.” 

Successful tax reform will include efforts to protect the privacy of tax filers. Even better is to dramatically reduce the information required by force of law in the first place, perhaps by considering a flat tax that only asks for total income and then applies an appropriate tax rate. The IRS should not need need to know more than that.