Two rights, wrong policy
A push to publish people’s tax returns pits transparency against privacy. Which should win?
THE “Panama papers”, a vast data leak on the use of offshore tax havens by the rich and powerful, have already claimed the scalp of Iceland’s prime minister. Now they are seriously embarrassing Britain’s leader. David Cameron will not—and should not—lose his job over revelations that his family has made use of offshore tax arrangements. But the Panama papers have led to clamorous demands that politicians should be required to make their tax returns public. Mr Cameron revealed six years of tax data on April 10th, the first time a British prime minister has done such a thing.
Questions about how much information should be made available on people’s tax affairs stretch beyond Britain. In America, where presidential candidates are used to public scrutiny of their returns, Donald Trump has been batting away requests that he release his tax records.
The debate also extends beyond politicians: in Norway, Sweden and Finland, everyone’s tax returns are available online. Working out where the line should be drawn on requiring the publication of individuals’ returns is not easy, because it brings into conflict two basic principles: transparency and privacy.
Arguments for Scandinavian-style radical transparency fall into two categories. The first is that it will reduce bad behaviour. People who know that their details can be scrutinised by friends and associates will report their income more meticulously, and hesitate before using convoluted schemes to minimise the taxes they pay. One study found that business owners declared 3% more income when Norway made its returns searchable online in 2001. The second is that more information will mean better choices: by individuals as they decide which jobs to pursue or wages to push for, and by policymakers as they examine issues such as equal pay.
The opposing camp musters several responses. Bad behaviour simply changes its form, rather than being eliminated: even those nice Scandinavians are fond of using foundation-owned corporate structures to reduce tax bills, for example. And transparency is as likely to encourage nosiness as better policy choices: in full-frontal Norway, many complain that the exercise does little more than furnish “tax porn” for the idly curious. A trove of aggregate data on income distribution and gender pay gaps is publicly available in many countries.
In defence of privacy
What of a narrower disclosure requirement, for politicians and others in positions of authority?
People in public office have less entitlement to privacy, the argument goes. Those who make the laws should show that they are not subject to conflicts of interest. If today’s systems for preventing conflicts are not working (Britain’s register of MPs’ interests has clear gaps), the remedy is to strengthen them rather than to throw tax returns into the breach. When it is only public figures who see their tax affairs spread out for the delectation of the multitudes, many people with useful skills will refuse to enter the public arena. Some 68% of British respondents told YouGov pollsters this month that they think all senior MPs should publish their tax returns; a growing number will no doubt do just that. But it should be a choice, not an obligation. The case that transparency should trump privacy is not convincing.