January 18, 2013

Disclosing Tax Data

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In 2008, Italy’s deputy finance minister published online the declared incomes and corresponding taxes paid by everyone in the country. Vincenzo Visco had led the government’s campaign against tax evasion and believed that Italy’s debt had reached disastrous levels. He said the publication of tax data was “an exercise of transparency, of democracy.” That exercise, however, quickly ended as Italy’s data protection agency ordered the information taken down after a day, saying that its publication violated privacy.

Taxes most everywhere are a controversial issue – just ask Gerard Depardieu, who fled the high taxes of his native France and accepted the offer of Russian citizenship last week. Around the world, many governments are proposing painful solutions to the problem of public debt and imposing heavier tax burdens on citizens. As government services are cut because public coffers are bare, public attention is shifting to the taxes paid – or not paid – by the wealthy and the privileged.

The problem with investigating the taxes paid by individuals is that this information is confidential. And since Visco’s exercise in pique, no country has followed Italy’s example. The exception is Scandinavia, where tax information has been public for over a century (more on how to access this information below). In some countries, too, it’s customary, though not mandatory, for candidates for the highest office to disclose their tax returns. Even in secretive Ukraine, candidates in the last election made public their tax ID numbers and their properties.

There’s been a lot of progress in the last two decades in legislating the disclosure of the assets of officials. The World Bank says that 78 percent of 176 countries it surveyed recently had financial disclosure systems, although only 42 percent made the disclosures public. Asset disclosures, says the Bank, are essential to fighting corruption, illicit enrichment and tax crimes. A public-interest argument can be made that tax disclosures are also a crucial anticorruption tool, yet only a few countries – and no international financial institution – have proposed making such data open.

But if officials are already required to declare their income and assets, why shouldn’t they be required to make public their tax payments as well? It’s hard to argue that revealing information on private taxpayers is in the public interest. But government officials are supposed to set the example for tax compliance because they are the custodians of the public purse. Because they decide how the burden of tax payments is shared, then citizens should be told whether those they elect to office are carrying their fair share of that burden. There can be persuasive arguments as to why heads of state, Cabinet ministers and members of national legislatures should declare their taxes.

Taxes have become a campaign issue as Mitt Romney found out last year. They’re still an issue in the US, as the country hung perilously on the edge of the fiscal cliff. Taxes also caused a kerfuffle in the London mayoral race last spring, when rivals Boris Johnson and Ken Livingstone traded accusations of tax avoidance. To end the row, both men released their income tax returns. Last fall, as tempers rose during the controversial Ukrainian elections, the president threatened to “rip off” the head of the economic minister as they debated tax policy and the opposition claimed that some candidates were pressured to withdraw as the administration threatened tax inspections.

But barring voluntary release, a court order, a leak or Visco-like disclosure, tax returns are almost impossible to get.

This makes the recent exposé by the Center for Investigative Reporting in Pakistan all the more remarkable. Last month, CIRP revealed that two-thirds of Pakistani MPs did not pay their taxes. To do that story, journalist Umar Cheema obtained through his government contacts tax information on over 400 members of both houses of parliament. The process was tedious and time-consuming: First, Cheema approached the elections commission to get copies of the nomination papers the MPs had filed when they declared their candidacy. It took three months to get all those papers as some of them were still at the district or provincial office and not the capital. But this step was crucial as the nomination forms contained the candidates’ Computerized National Identity Card numbers and their National Tax Numbers. With this information, Cheema’s contacts could then retrieve the tax returns from FBR, the tax agency. “I passed them these numbers one by one.,” he said. “It took us six months collecting details, verifying and reverifying them to minimize any errors.”

Cheema also sent letters to all the MPs, asking them six questions, including what their National Tax Number or NTN was, how long they had been registered taxpayers and how much taxes they had paid. Unsurprisingly, he got just two responses. After all, most of the MPs were not even registered taxpayers and therefore had no NTNs. In addition, only 20 ministers of the 55-member Cabinet filed tax returns. In a 70-page booklet,CIRP published how much taxes were paid and by whom. The story caused a furor in Pakistan, and showed how thorough, well-researched investigative reporting can make an impact.

Elsewhere, the publication of tax data has caused debate on the possible harm the release of such information could cause. In Italy, some argued that the highest taxpayers could be targeted by kidnappers. In Norway, where tax data has been public since the 1860s, the debate was more on the public benefit of the information. Transparency is highly valued in Scandinavia, but some wondered whether making the information so easily accessible online contributed to civic virtue by providing evidence of egalitarianism or merely provided titillation, “tax porn” in the words of a Norwegian tabloid.

Not many know that when the US Congress enacted the federal income tax law in 1861, tax filings weren’t private and newspapers published taxpayers’ incomes and taxes. As this New York Times essay recounts, publication was banned in 1870, although requests for tax information could still be made until 1894, when Congress made returns confidential. The policy was changed in 1923 and 1924, as legislators argued that disclosure would encourage tax compliance. But that period was short-lived. The debate about tax secrecy continues. As author Anna Bernasek wrote in the Times:

If Americans all knew one another’s tax bill, they might be motivated to fill out their taxes correctly. “Disclosure could be an automatic enforcement device,” said Laurence J. Kotlikoff, professor of economics at Boston University.

And if the big inequalities in the tax system were brought to light — if you knew, for example, that a very wealthy neighbor paid no taxes at all — political support for tax simplification might climb.

Publicly available tax data in Scandinavia

Norway has made public tax data since 1863, but three years ago, the government put online theskatteliste or tax list that contains the amounts of taxes by its citizens. A local newspaper put up the site  skattelister.no, which contains a searchable database of taxpayers. And this, according to anews report, is what the tax list reveals:

The annual list includes data about fishermen on the western fjords, Sami reindeer herders in the north, city folk in Oslo and even members of the committee that awarded President Barack Obama the Nobel Peace Prize…

The data shows that former cross-country skiing great Bjoern Daehlie still has plenty of cash – 29.3 million kroner ($5.4 million) to be exact. The finances of other famous Norwegians, including actress and director Liv Ullmann, former marathon champion Grete Waitz or writer Jostein Gaarder, are also unveiled.

In Finland, the tax administration publishes the tax list online, and searches on individuals are possible on for a fee of about 36 cents per search. News organizations publish the tax information as well, including the public broadcasting company, YLE, which lists searches the top income earners and taxpayers in each municipality.

In Sweden, tax returns have been public since 1903. Copies of the Taxation Calendar, which lists the earnings of those with middle to high incomes, are printed and made available to requesters. Copies of the 2012 Tax Calendar are can be purchased online at a discounted price of 254 Swedish kroner. There’s one Tax Calendar for each county.

(I’m grateful to the robust discussion on tax data on the FOIANet mailing list for many of the links and other information used in this post.)

Sheila Coronel is director of the Stabile Center for Investigative Journalism at Columbia University in New York. This is reprinted from her blog, Watchdog Watcher.

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