Presidential Tax Disclosure Is Back — Are We Happy Now?

For the handful of Tax Notes readers who don’t already subscribe to Us Weekly, let me acquaint you with a regular feature of that magazine: “Stars — They’re Just Like Us!”

Using paparazzi photos, this column depicts celebrities performing mundane but relatable tasks. “They go to the post office!” the magazine trumpets with trademark enthusiasm. “They walk dogs!” “They dip chips!” “They pick up pizzas!”

I’m not sure what all the exclamation points are about. Excitement at the discovery that even stars can’t escape the tedium of modern life? An expression of the voyeuristic thrill that comes from watching a celebrity brand get degraded, however briefly, by an uncurated moment of quotidian authenticity?

Either way, I am always reminded of the Us Weekly feature when presidents release their tax returns. Whatever high-minded arguments can be made for such releases — and I have made them often and with enthusiasm — there’s an undeniable voyeuristic quality to the practice.

For the last four years, Americans had no presidential returns to scour for mundane, relatable details, given Donald Trump’s unwillingness to observe the tradition of voluntary return disclosure.

But with President Biden’s release last week of his 2020 return, we have fresh evidence that “Presidents — They’re Just Like Us!”

My 2020 nomination for presidential tax relatability can be found on Statement 6 from Biden’s Schedule B. On his way to reporting $5,930 of interest income, Biden indicated that he received the princely sum of $1 from the U.S. Senate Federal Credit Union.

Which leads me to suggest that Tax Notes should locate a suitable paparazzi photo of Biden at a teller window and caption it with “Presidents — They Forget to Close Old Bank Accounts and Have to Track Down Random Missing Tax Forms.”

Just like me.

A Tradition Revived

Of course, public disclosure of presidential tax returns was never intended to be a party game for tax nerds; it was established to help restore faith in the tax system.

In 1973 President Nixon imperiled that system by playing fast and loose with the tax laws.

His personal tax behavior — and the failure of the IRS to identify problems with Nixon’s returns during its initial audit — shook public faith in what the Joint Committee on Internal Revenue Taxation then called “the basic fairness of the collection system.” For a tax system that relied heavily on voluntary assessment, that loss of faith was an existential threat.

Nixon released his returns in an unsuccessful effort to clear his name. But later presidents chose to make tax disclosures as a form of public assurance.

Because presidential returns are audited by an agency of the executive branch, it was reasonable for Americans to harbor doubts about these audits — especially because the agency had failed during its initial Nixon audits.

Moreover, because all audits, presidential or otherwise, are shielded from public scrutiny, the public has no way of checking on the agency’s performance (short of another congressional investigation, such as the one undertaken by the joint committee in 1973-1974).

Given those facts, voluntary public disclosure emerged as a second-best alternative, allowing for a sort of crowdsourced audit of presidential returns once they were filed with the IRS.

Every president accepted that argument for public disclosure, at least implicitly, from 1977 until 2016. Trump declined to observe the tradition, but now Biden has revived it.

Indeed, the Biden White House took obvious delight in announcing the release of Biden’s tax return, tweaking Trump without naming him by hailing the resumption of “an almost uninterrupted tradition.”

Biden’s Return

Most news coverage of presidential tax returns tends to focus on things that might be embarrassing or at least inconvenient for a sitting president.

Typically, reporters look for aspects of a return that seem to run counter to a president’s stated policy positions, or at least the general thrust of a president’s tax and fiscal agenda.

For Biden, the point of maximal sensitivity has always been his use of an S corporation to shield speech and book income from self-employment tax — a maneuver he used extensively during his years in the private sector. 

Biden’s 2020 return shows a continuation of that practice, although at a much-reduced scale.

According to The Wall Street Journal, Biden’s financial disclosure documents indicate that his S corporation, CelticCapri Corp., will remain dormant throughout his term in office, receiving only royalties.

Reporters covering the presidential tax returns also tend to focus on charitable giving, and this year was no exception. The Bidens donated about 5% of their total income to various charities, according to the White House, with the largest gift of $10,000 going to the Beau Biden Foundation, a charity named for the president’s late son.

All in all, the Biden 2020 return is rather unremarkable, at least at first blush. To some degree, that probably reflects Biden’s rather modest income when compared with other recent American presidents (this comparison excludes Trump, for whom we have no tax returns and therefore no comparable figures).

In 2020 Biden’s adjusted gross income was $607,336. By comparison, Barack Obama’s income varied dramatically during his eight years in office.

But when adjusted for inflation, his average annual income over those two terms was $1,853,750. For George W. Bush, the comparable figure is $1,119,500; for Bill Clinton, $763,875.

Biden is hardly an everyday Joe, at least when measured by income. But he’s not an everyday president, either.

Hypocrisy Is Not the Point

Ultimately, this sort of tax tourism isn’t really the point of voluntary return disclosure.

The hunt for hypocrisy is understandable but misguided. It’s not terribly difficult to trip up a president on these grounds.

Many Democratic presidents, for instance, have been critical of the capital gains preference, but many have also been happy to make use of it. Similar examples can be found for Republicans.

Ultimately, that sort of “gotcha” moment has never had much staying power in American politics. For the most part, voters seem to take the same view of legal tax avoidance by American presidents that Learned Hand famously offered in Helvering v. Gregory, 293 U.S. 465 (1935):

“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

What goes for “any one” seems to go for presidents, too, at least as far as voters are concerned.

Which is not to say that presidential tax avoidance is immaterial to voters. Just that voters seem to have a high bar for actually engaging with the issue. The only president to have real trouble on the tax front was Nixon.

But of course, Nixon was also the last president (until Trump) to file tax returns without releasing them simultaneously to the public for a crowdsourced audit. Make of that what you will.

Still-Fragile Tradition

As a believer in presidential tax transparency, I am pleased but dissatisfied with the revival of the voluntary disclosure tradition.

I’m happy because the voluntary tradition is the best thing we have going to assuage public concerns about the president’s dual relationship to the federal tax system.

As both taxpayer in chief and tax collector in chief, the president has two roles to play, and tension between those roles is impossible to fully resolve.

Since the president is essentially the collector of his own taxes, albeit at some remove, public release of a president’s personal tax returns can help resolve nagging doubts about the fairness of that arrangement.

But the tradition suffers from any number of shortcomings. First, it remains fragile, regardless of Biden’s attempt to revive it. 

Trump’s intransigence underscored the voluntary nature of this disclosure regime, and it remains just one more refusal away from being imperiled all over again.

If public disclosure actually matters to the functioning of the tax system — if it is actually important to maintaining public faith in its fairness — then participation shouldn’t be optional.

The disclosure tradition is incomplete, with no standards for what constitutes a complete return and no standards for how disclosure should be conducted. 

Joshua D. Blank, a law professor at the University of California, Irvine, has argued that even complete returns are inadequate, because returns in isolation don’t tell the whole story of a president’s tax behavior. A full picture of presidential taxpaying would require much more comprehensive disclosure.

And finally, what really needs disclosure — and oversight — is not presidential tax returns but the audit process surrounding them. It is moderately important that American voters see firsthand what the president is telling the IRS.

It is very important, however, that Americans have faith in the IRS and its ability to enforce the tax law — even when the object of that enforcement is the president himself.

So no, I’m not satisfied with the revival of the voluntary disclosure tradition. Voluntary disclosure is better than nothing.

But mandatory, much more comprehensive disclosure would be better. And routine, legally mandated oversight of the presidential audit process, presumably by some congressional body like the Joint Committee on Taxation, would be the most valuable reform of all.