Washington Update: Presidents and Their Taxes
Tax returns contain some of the most sensitive personal information about Americans imaginable. So it’s understandable that, according to the Internal Revenue Service (IRS), federal law prevents the agency from disclosing an individuals’ tax information in almost every circumstance. The IRS can only share information with state revenues agencies, the Social Security Administration, or with law enforcement under certain conditions.
Taxpayers themselves, however, can disclose whatever information they want about their taxes, to whomever they want. Indeed, we routinely share our W-2 and 1099 forms, even our full tax returns, to qualify for loans or for other financial products.
Additionally, according NBC, “Any information you give to a company that helps you prepare your taxes can be sold to anyone else.”
And that is where President Donald Trump finds himself today.
Neither the 2016 Trump campaign nor the president’s administration have shared his tax information with the Democrats in Congress who have demanded them. So now lawmakers are working with one of the companies that has these documents. As The New York Times explained yesterday, “Lawyers for [Deutsche Bank] have spent months cooperating with investigators from two Democratic-controlled congressional committees, which issued … a ‘friendly subpoena’ to the bank in mid-April. The bank could end up sharing decades of [President Trump’s] personal and corporate financial records.”
The president filed a federal lawsuit on Monday trying to block the disclosure.
The notion that politicians must release their IRS records is a relatively recent idea – though it’s not as new as some politicians would have us believe. According to Tax Notes’ Tax History Project, while lawmakers enjoy the same legal right to privacy that individual citizens do, “Since the early 1970s … most presidents and some vice presidents have chosen to release their returns publicly.”
We do have a glimpse at the returns of some earlier presidents, too. President Franklin Roosevelt didn’t release his tax information, but his library did after FDR’s death – 25 years of it in fact. Those returns went back to 1913, the year the Sixteenth Amendment was ratified, giving Congress the power to collect personal income taxes. History.com argues FDR’s returns “would have caused quite the scandal if they had been released during his presidency” because “though he strongly criticized other Americans for trying to get out of paying their taxes, FDR made a habit of minimizing his own.”
While we have 32 years of President Harry Truman’s (Roosevelt’s successor) tax data thanks to his library, we don’t have a single year of information from Presidents Dwight D. Eisenhower, John F. Kennedy, or Lyndon Baines Johnson.
According to the Tax History Project, Truman’s returns show he listed himself as a "writer-lecturer-farmer” after leaving the White House, and that his farm had losses totaling at least $1,000 during most years. The returns also show the former commander in chief sold his post-presidential memoirs to Life magazine for $600,000, more than $4 million in today’s dollars.
President Nixon started the practice of releasing tax information, but, like the current president, that disclosure came under duress. As History.com explains, with Watergate brewing, opponents were calling for an IRS audit of Nixon. The agency refused, but “one of the agency’s employees leaked information showing Nixon paid only $792.81 in federal income taxes in 1970 and $878.03 in 1971, despite income of more than $200,000.” (The IRS employee was discovered and forced to quit but the administration declined to prosecute him.) The returns also showed the president “took a huge number of deductions, including $570,000 for the gift of his vice-presidential papers to the National Archives, which he apparently had his aide backdate to the previous year (before it became illegal for him to take the deduction).”
Nixon then released four years of returns on his own accord, saying “People have got to know whether or not their president is a crook … Well, I am not a crook.”
Every president since Nixon has released at least one year of returns. President Donald Trump’s predecessor, Barack Obama, released seven years of information in the run-up to the 2008 presidential election. (The Tax History Project now has 16 years of data, however.)
While Nixon’s disclosure proved a headache for the White House and Republicans in Congress, some disclosures have been decidedly more politically advantageous. President Ronald Reagan, for example, paid 40 percent of his income in taxes annually before he took the White House. President George H.W. Bush’s returns revealed that the man had donated almost 62 percent of his income to charitable causes. (In contrast, President Bill Clinton’s returns showed that first couple’s tendency to take deductions for even the smallest of donations.)
The pressure on President Trump to be more forthcoming will only increase as his race for a second term heats up. So far, 10 of the 20 Democrats running for the White House, including U.S. Sen. Elizabeth Warren (D-Mass.), U.S. Sen. Bernie Sanders (D-Vt.), and Mayor Pete Buttigieg, have released multiple years of returns. Former Vice President Joe Biden gets the medal for most returns that are available – 18 in all.
According to the National Conference of State Legislatures, local lawmakers want this information. In 18 states, including Maryland, New York, and Illinois, lawmakers have introduced bills that would require candidates to release this information in order to be permitted onto the presidential primary ballot in their state.
According to CNN, Dylan Lynch, who works for the National Conference of State Legislators, has said, even if passed, this legislation would face a stiff legal challenge. As Lynch argues, the U.S. Constitution that clearly outlines the qualifications for the presidency and, as such, the “addition of a new criteria established by a state would surely face court battle.”
Which brings us back to where we started. The state legislatures can ask, and Congress can ask, but ultimately it likely will be the third branch of the federal government – the Supreme Court – that might decide whether Americans ever see the current president’s tax returns.
Steve Boms is the founder and President of Allon Advocacy, LLC, a Washington, D.C.-based public policy consulting firm. Steve has spent his career focused on complex financial services public policy issues, having worked in the United States Congress on the committee with jurisdiction over banking. He has led advocacy efforts and public policy teams globally for equity options exchanges, large U.S.-based financial institutions, and leading fintech firms. In addition to working directly with Allon's clients, he is a frequent conference panelist and his perspective is solicited by reporters on the technology, financial services, and regulatory beats.
The content and opinions expressed herein are provided by a third party, Allon Advocacy, LLC. This commentary is provided for informational purposes only and does not necessarily reflect the views of Envestnet. The information, analysis and opinions expressed herein reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. It is not intended to constitute legal, tax, securities or investment advice.