Lately, we have developed a fascination with other people’s tax returns.
It’s no surprise. Already, many Americans post the most mundane details on Facebook and share unfiltered thoughts on Twitter. There are still others who are not shy about watching pornography on a tablet or laptop screen – the picture clarity is amazing these days – even while sitting in an airliner’s middle seat.
But personal finances, and especially income tax returns, were a last bastion of modesty. We Baby Boomers were raised to avoid needlessly talking about our own net worth or idly inquiring about anyone else’s. We heard the phrase “mind your own business” a lot.
Unauthorized disclosure of confidential tax return information is still a felony under the Internal Revenue Code. At the same time, the law doesn’t stop any of us from voluntarily publishing our own tax returns, and neither law nor social etiquette prevents some people from feeling entitled to our private information.
Consider the demand by President Obama’s re-election campaign that his opponent, Mitt Romney, “come clean” by releasing to the public his tax returns going back more than a decade. The very deliberate implication in this phrasing is that there is something dirty in Romney’s returns or in his insistence on keeping them private, or both.
Romney has already released his tax information for 2010. He has also promised to disclose his 2011 tax data when his returns are complete. Like many people who own interests in partnerships and other closely held businesses, Romney’s 2011 returns are on extension until Oct. 15. He may not have the information needed to finish his returns until mid-September, when businesses must complete their own tax filings. I have an extension of my own for the same reason. So do many people for whom my firm prepares returns.
The Obama campaign’s demands are designed to put Romney in a corner. If he releases his old returns, even if his tax compliance is flawless, the data can at least be milked for variations on a favorite theme: that Romney is a very rich man. If Romney does not release the returns, Democrats can accuse him of withholding data to which the public believes it is entitled, and they also will imply that he has something to hide.
Even some Republicans believe that Romney should release the returns and put the matter to rest. Politically, they may be right. But there are some sound ethical and business reasons why Romney might refuse to placate his critics, regardless of the campaign consequences.
One reason involves Romney’s business partners. Business partners usually share profits proportionately. To an extent, any disclosure by Romney is a disclosure of his partners’ finances. If I were Romney, I would be entitled to reveal my own information, but I would feel an obligation to avoid needlessly disclosing personal information about my partners. Clearly, Romney has already considered this; he decided to disclose his taxes for 2010 and thereafter. But the excessive demands for Romney’s previous tax returns are even more excessive from his associates’ point of view. Romney probably does not want to put them in the uncomfortable position of having to choose between objecting to the release and thus hindering his campaign, or otherwise assenting to the disclosure of their private business affairs.
Romney’s stance can also be traced to a basic principle of the private equity business: that it is private. Romney is no longer directly affiliated with Bain Capital, but many colleagues who helped him build the firm are still active as partners and employees. Disclosing details about past transactions potentially puts the business at a disadvantage. If you were to buy a company and later managed to turn a large profit upon sale, the seller from whom you bought it may be reluctant to engage in another business deal with you. Romney seems unprepared, unlike other politicians, to throw his former colleagues and their livelihoods under the bus.
The practice of disclosing presidential tax returns dates back to Richard Nixon. Nixon released his tax returns during his years in the White House to try to quell suspicions which arose due to his ability to acquire impressive properties in California and Florida despite a long, modestly paid career in public service. It didn’t help matters that the properties were refurbished at considerable taxpayer expense. Nixon’s tax returns revealed an aggressive and opportunistic taxpayer who pushed the limits of credibility. Then again, Nixon pushed the limits of credibility in a lot of other ways.
The routine release of presidential tax returns did not begin until Jimmy Carter took office. Recently that custom has been extended to presidential candidates. But, to my knowledge, nobody has ever faced the kind of demands directed at Romney. Unlike the questions surrounding Nixon’s finances, the source of Romney’s wealth is well documented, self-generated and entirely from the private sector.
Some of the most strident calls for disclosure of Romney’s tax returns have come from congressional Democrats, including both House Democratic leader Nancy Pelosi and her Senate counterpart, Harry Reid. Yet McClatchy Newspapers recently pointed out that like most other members of Congress, Pelosi and Reid keep their own returns confidential. Want to see Sen. Jay Rockefeller’s return? Tough luck, his flacks told McClatchy. How about Joseph Kennedy III, who is currently a candidate for retiring Rep. Barney Frank’s seat in Massachusetts? No dice, even though a Kennedy family member’s returns might be of public interest. I don’t know whether anyone has even asked for Kennedy’s returns.
Strangers sometimes ask for mine, though I have never sought or held public office. I just offer my opinions in public. That seems to be enough to make some people want to know my private business.
Last week, the Scarsdale, N.Y., Patch site picked up my column on Obama’s “you didn’t build that” comment. This sparked a long-running online debate. By late this week there were more than 200 comments on the site.
One reader, identifying himself only as Glenn, wrote: “Larry, as the founder and President of Palisades Hudson Financial Group, LLC, I have to wonder what your actual taxes paid are, and those of your clients. We need tax equity in this country.”
Glenn went on to guess that Romney paid less than 15 percent overall in taxes on his “tens of millions in earnings.” Glenn can only guess because the pre-2010 Romney tax returns are not public. But it is an educated guess and probably reasonably accurate, which is another reason why neither Romney’s returns nor mine are relevant to the public debate over tax rates. The tax law is a matter of public record. If Romney paid a low overall rate, it is because of provisions within the law that grant preferential treatment to capital gains and allow deductions for large gifts to charity. There are many people who disagree with these provisions, but we don’t need to see Romney’s tax return to know what the law is or what we think about it.
My situation is different. I’m not in the private equity business. Virtually all of the income my wife and I receive is taxed at ordinary income rates. We don’t contribute nearly as high a proportion of our income to charity as the Romneys do. We do have significant mortgage debt, but this is one itemized deduction which the Romneys probably don’t rely upon.
In 2010 my wife and I paid 37 percent of our adjusted gross income in federal and state income taxes, and the payroll and self-employment taxes that fund Social Security and Medicare.
Does my disclosure of this information change anything? I can’t see how. I’m still a business owner and high-bracket taxpayer. The tax law still says what it says. What else do you need to know, about my taxes or Romney’s?
One reason our parents taught us to mind our own business is that it is not productive to do otherwise. The other reason is that nosiness is just rude. When demands for disclosure move beyond ensuring the integrity of public servants and become a tool of idle gossip and calculated political attack, it’s time to remember what our parents told us.