© Marjorie E. Kornhauser 2004. I would like to thank Adeno Addis, Jonathan Nash, Joe Thorndike and the participants at the Harvard Law School Tax Research Seminar for their helpful comments on previous drafts and Anitra Pavlico for her able research assistance.

1. See Smith, Daniel A., Tax Crusaders and the Politics of’Direct Democracy(New York, Routledge, 1998) at 18.Google Scholar

2. See, e.g., Madden, Mary & Lehnart, Amanda, “Music Downloading, File-sharing and Copyright Memo” (July 2003)Google Scholar, online: Pew Internet & American Life Project www.pewinternet.org. (survey showed that 67% of Internet users who download music don’t care that it is copyrighted, an increase from 61% in July-Aug. 2000). It is not just the young who ignore copyright laws. The Wall Street Journal carried a full-page ad about illegally downloading of movies. “You Can Click But You Can’t Hide” The Wall Street Journal (17 August 2004) A7 (“Illegal Downloading Inappropriate for All Ages”). In 2003 almost 20% of taxpayers thought cheating was acceptable, an increase since 1993. Message from the Board, IRS Oversight Committee, Annual Report, available at 2004 TNT 150-16 (August 4, 2004) (Cheating has gained acceptability especially among the young.).

3. Governments have three major sources of steady revenue—debt state ownership, and taxation. Debt is expensive and must eventually be repaid and government ownership of revenue producing assets has not had a great history of success, and regardless of success, is contradictory to the free market central to American democracy. Taxation is the best, provided it is voluntary. As an International Monetary Fund Report said, “voluntary compliance and self-assessment are the foundation of modern tax administrations.” Silvani, Carlos & Baer, Katherine, “Designing a Tax Administration Reform Strategy: Experiences and Guidelines” (Washington D.C.: 1997) IMF Working Paper WP/97/30 at para. 30.Google Scholar [97 TNI 149-31 at para. 30.]

4. See, e.g., Kenney, Allen, “IRS Oversight Board Calls for Tighter Enforcement, More Funds” (Aug. 4, 2004)Google Scholar 2004 TNT 150-1 (estimating a gap of $311 billion). The cost of abusive tax schemes alone has been estimated to be between $20 and $40 billion. GAO, Internal Revenue Service: Challenges Remain in Combating Abusive Tax Schemes 1, GAO-04-50 (November 2003) (estimating that approximately 740,000 taxpayers were engaged in some abusive tax scheme). Recently, IRS Commissioner Mark Everson refused to estimate the size of the tax gap, claiming there was not yet enough information, but that a study of taxpayer behavior was currently being conducted, with results available in early 2005. Kenney, Allen, “Senate Taxwriters Put Tax Gap Under Microscope” (July 26, 2004) 104 Tax Notes 338 at 340.Google Scholar

5. Kenney, ibid. at 339.

6. Wenzel, Michael, “Tax Compliance and the Psychology of Justice: Mapping the Field” in Braithwaite, Valerie, ed., Taxing Democracy: Understanding Tax Avoidance and Evasion (Burlington, VT: Ashgate, 2003) 41.Google Scholar

7. Kahan, Dan M., “The Logic of Reciprocity: Trust Collective Action, and Law” (2003) 102 Mich. L. Rev. 71 at 79-83.Google Scholar See, e.g., “Taxing Democracy: Understanding Tax Avoidance and Evasion” in Braithwaite, supra note 6; Murphy, Kristina, “The Role of Trust in Nurturing Compliance: A Study of Accused Tax Avoiders” (2004) 28 L. & Human Behavior 187 Google ScholarPubMed; Ledreman, Leandra, “The Interplay Between Norms and Enforcement in Tax Compliance” (2003) 64 Ohio St. L. J. 1453.Google Scholar See, also, Posner, Eric A., “Law and Social Norms: The Case of Tax Compliance” (2000) 86 Va. L. Rev. 1781 CrossRefGoogle Scholar and Scholz, John T. & Pinney, Neil, “Duty, Fear, and Tax Compliance: The Heuristic Basis of Citizenship Behavior” (1995) 39 Am. J. Pol. Sci. 490.CrossRefGoogle Scholar Recently behavioral economics has begun to incorporate non-rational behavior into its theory generally and in the field of tax compliance generally. See, e.g., McCaffery, Edward J. & Slemrod, Joel, “Toward an Agenda for Behavioral Public Finance,” online: SSRN http://ssrn.com/abstract=590201.CrossRefGoogle Scholar

8. Glenn, Heidi & Kenney, Allen, “Increased Enforcements Could Erode Taxpayer Trust Olson Says” (May 17, 2004) 103 Tax Notes 806 at 806Google Scholar (quoting Taxpayer Advocate Nina Olson). Also available at 2004 TNT 91-3 (May 11, 2004).

9. See, e.g., Kahan, supra note 7 at 79-83, and generally Braithwaite, supra note 6.

10. Publicity is a key tenet of the progressive movement in the United States, but is also supported by many philosophers as a basic democratic value, especially because of its relationship to accountability. See, e.g., “The Value of Publicity” (ch. 3) in Gutmann, Amy & Thompson, Dennis, Democracy and Disagreement (Cambridge, MA: Belknap Press, 1996) at 97.Google Scholar

11. 79 Cong. Rec. 4444 (March 26, 1935) (Sen. La Follette speaking) and 79 Cong. Rec. 4510 (March 27, 1935) (Sen. Norris stating, “Publicity is the greatest cure for evils which may exist in gov ernment. We should have publicity and more publicity.”). Accord, Sims, Theodore S., “Corporate Returns: Beyond Disclosure” (July 29, 2002) 96 Tax Notes 735 at 737Google Scholar and online at 2002 TNT 146-33 (July 30, 2002) (public corporate returns will help shut down corporate tax shelters because the “prospect of energetic private scrutiny and challenge will quickly put a very high premium on a documented reputation for … transparent and self-evidently clean.”); Guttman, George, “The Confidentiality Statute Needs Rethinking” (January 17, 2000) 86 Tax Notes 318 at 318-19Google Scholar and online at 2000 TNT 225-5 (February 7, 2000) (confidentiality “is often used more as a shield to protect the IRS from oversight and outside scrutiny rather than to protect taxpayer information or to advance good tax administration.”). Although the primary purpose of the first publicity provision in 1862 appeared to be a practical one of providing taxpayers notice of their assessment and collection, in 1863—after much vacillation, the Internal Revenue Commissioner ruled that the returns themselves would be open to public so as to provide “the amplest oppor tunity may be given for the detection of any fraudulent returns ….” Congressional Research Service, Report #74-211A 557/275, (1974) 5 “Legislative History of Tax Return Confidentiality: Section 6103 of the Internal Revenue Code of 1954 and Its Predecessors”. The Commissioner had first ruled that the returns would not be open to inspection.

The Corporate Excise Tax Act of 1909 (an excise tax based on income) was not concerned with tax fraud but with corporate fraud, specifically stockwatering, a mechanism by which incor-porators would over value the assets they contributed to the corporation to induce others to invest. President Taft, among others, saw the publicity feature as a means to regulate the corporations and cure the abusive problem of stock-watering. The tax returns would provide potential investors with accurate information that would lead them to invest only in soundly capitalized companies. See Kornhauser, Marjorie E., “Corporate Regulation and the Origins of the Corporate Income Tax” (1990) 66 Ind. L. J. 53.Google Scholar

12. See, e.g., 79 Cong. Rec. 4513 (March 27, 1935) (Sen. La Follette supporting publicity on the grounds that secrecy is “antagonistic” and “inimical” to democracy).

13. See, e.g., 65 CR 9405 (1924)(Sen. Caraway speaking). See, also, Guttman, supra note 11 at 320 (“doesn’t the public have a right to know if a taxpayer is not fulfilling his basic obligation and at least filing a return?”). Guttman suggests that as a minimum, the public has a right to know the names of taxpayers and the amount of taxes paid.

14. 79 Cong. Rec. 3403 (March 11, 1935) (Rep. Sauthoff quoting Pres. Harrison).

15. 79 Cong. Rec. 4451 (March 26, 1935) (Sen. Long speaking).

16. The objections are often stated more dramatically. See, e.g., 79 Cong. Rec. 4450 (March 26, 1935) (Sen. Tydings stating that the logic of publicity would also “permit a neighbor to come in another man’s house to see if that man was violating the law …. If we keep on whittling away what few liberties we have there will not be any use of having any Government, because we will all be automations, goose-stepping along.”).

17. See, e.g., Madison, Allen D., “Point: Don’t Publicize Corporate Tax Returns or Privatize Enforcement, 22 Section of Taxation” (Fall, 2002) 22 ABA Tax Section News Q. 15 at 16Google Scholar (tax returns can reveal trade secrets such as merchandising data, supply sources, payroll information, costs and pricing) 79 Cong. Rec. 2305-07 (February 20, 1935) (Rep. Bacon speaking) and 79 Cong. Rec. 3395-6 (March 11, 1935) (Reps. Bacon and Dondero stating that publicity exposed business affairs to competitors and humiliations because net income not show true economic picture and could cause bankruptcy if creditors saw information).

18. The response, of course, is that even if most taxpayers couldn’t understand it, some tax experts and scholars would analyze it and in that way help the IRS enforce the law fairly. Moreover, if it turns out that the returns are so complicated that no one will understand them, then the no harm, no foul rule applies. If no one can understand the returns, then there is no violation of privacy and no harm in publicizing them. See, e.g., 79 CR 4506 (March 1935) (Sen. Norris speaking).

19. §6103 mandates confidentiality. Some of these disclosures are for non-tax purposes, such as §§6013(i) and (l). Section 6104 opens non-profit returns to the public.

20. §6103(j).

21. The first period of publicity occurred during the Civil War, the origins of the income tax in the United States. While the Revenue Act of 1862 only required the publication of taxpayer names and amounts of taxes owed, the Internal Revenue Commissioner opened the returns to the public. See note 12 above. This continued until the income tax was repealed in 1870. The Corporate Excise Tax of 1909 was not an income tax per se, but measured the excise tax by income. Although the original Act made all corporate returns open to public inspection, it was amended in 1910 so that returns would be open to public inspection at the discretion of the president. 36 Stat. 11, 112 §38 (1909), amended by 36 Stat. 494 (1910). President Taft opened returns only of corporations whose stock was offered to the public. T.D. 1665, 13 Treas, Dec. Int. Rev, 117 (1910). The Revenue Act of 1924 opened to the public the names and addresses of taxpayers, the amounts of tax paid, and also provided for the publication of amounts of refunds. Revenue Act of 1924, §257(b), 43 Stat. 293, 1924). In 1926, the law was changed so that only the names and addresses of taxpayer were public, not their amount of tax. Revenue Act of 1926, §257(e), 44 Stat. 52. This remained the law until 1966, at which point the law was changed to require publishing only whether a taxpayer had filed a return. P.L. 89-713, §4, 80 Stat. 1109. The Revenue Act of 1934, 48 Stat. 680, 698, §55(b), was repealed in 1935, before it could take effect. It made public six pieces of tax return information, discussed in note 36 below with accompanying text.

22. T.D. 1165 in 13 T.D. (IR) 117 (1910).

23. See, e.g., “Chip Implants Arm Doctors with Data” The Wall Street Journal (14 October 2004) D2 (medical records) Google Scholar; Chu, Kathy, “Retailers Go Biometric for Cashless Purchases” The Wall Street Journal (1 September 2004) D7Google Scholar, and Aoki, Naomi, “Future Shop: It’s What’s in Store for Retail: Touch Screens, Radio Frequency ID Chips, Flashing Price Tags” Boston Globe (20 September 2004) C1.Google Scholar

24. Guttman, supra note 11 at 318 (stating that the number of disclosures is really much larger because disclosure to Social Security Administration and other parts of Treasury were not included in that number). The proposed privatization of tax collection would greatly increase the amount of tax information divulged to others. These exceptions to confidentiality are limited, that is, the law requires that when others receive this tax information they must keep it confidential. Nevertheless, clearly—due to human (and Internet) nature—more disclosures to the public will occur as more people have access to tax information.

25. Linder, Marc, for example, raised the possibility of full disclosure of the returns of millionaires. See Linder, Marc, “Tax Glasnost for Millionaires: Peeking Behind the Veil of Ignorance Along the Publicity-Privacy Continuum” (1990-91) 18 Rev. L. & Soc. Change 951 at 976Google Scholar and Guttman, supra note 11.

26. See, e.g., Webster’s Ninth New Collegiate Dictionary (Springfield, MA: Merriam-Webster, 1990) at 952.Google Scholar

27. See, e.g., Silvani & Baer, supra note 3 at paras. 85-86.

28. Information can change attitudes. See, e.g. supra note 7 and below. Changed attitudes, in turn, can change behavior. See, e.g., Wenzel, Michael, “Misperceptions of Social Norms About Tax Compliance (1): a Prestudy” Working Paper No. 7 (June 2001)Google Scholar, online: Centre for Tax System Integration http://ctsi.anu.edu.au/publications (experimental study corrected participants’ mis-perception of prevalence of tax non-compliance and increased compliance). See, also Fishkin, James S., The Voice of the People: Public Opinion and Democracy (New Haven, CN: Yale University Press, 1995) at 214–20 Google Scholar (information and deliberation reduced support for a flat tax from 44% to 30% and increased support for government spending on health and education). Of course, increased information from publicity will not always increase compliance. See, e.g., Blumenthal, Marsha, Christian, Charles & Slemrod, Joel, “Do Normative Appeals Affect Tax Compliance? Evidence from a Controlled Experiment in Minnesota” (2001) 54 Nat’l Tax J. 125 CrossRefGoogle Scholar (letter reminding taxpayers of duty to pay tax did not increase compliance). Even worse, increased information may sometimes decrease compliance, as discussed below.

29. Q12, NPR/Kaiser poll, Question 20, NPR/Kaiser/Kennedy School of Government, National Survey of Americans’ Views on Taxes 6 (April, 2003), online: National Public Radio www.npr. org/news/special/polls/taxes/soo3/20030415_taxes_survey.pdf at 4 [NPR/Kaiser poll]. (11% thought the rates were the same and 28% didn’t know enough to say).

30. Kornhauser, Marjorie E., “Educating Ourselves Towards a Progressive (and Happier) Tax” 45: 5 Boston C. L. Rev. [forthcoming 2004]Google Scholar.

31. Form SSA-7005-SM-S1.

32. See, e.g, Cuccia, Andrew D. & Carnes, Gregory A., “A closer look at the relation between tax complexity and tax equity perceptions” (2001) 22 J. Econ. Psych. 113.CrossRefGoogle Scholar

33. For example, a 2003 poll found that only 50% of respondents knew that there had been tax cuts in the past two years. Q1 1, NPR/Kaiser poll, supra note 27. Knowing that rates are decreasing rather than increasing or staying the same can change one’s attitude about the tax system.

34. See, e.g., Fishkin, James S. & Ackerman, Bruce, Deliberation Day (New Haven, CN: Yale University Press, 2004).Google Scholar

35. Sometimes withholding automatically adjusts, as when rates change, but not always.

36. See, Turnier, William J., “PAYE as an Alternative to an Alternative Tax System” (2003) 23 Va. Tax Rev. 205 (describing a more exact withholding system that would eliminate the need for most wage earners to file income tax returns, as is the case in many countries such as the U.K.).Google Scholar

37. Revenue Act of 1934, 73rd Cong., 2nd Sess., 48 Stat. 680, 698, §55(b). This form was called the pink slip because of the color of the paper on which it was printed.

38. See, e.g., Davis, Kenneth S., FDR, The New Deal Years 1933-1937: A History (New York: Random House, 1986) at 138–40 Google Scholar and Leff, Mark H., The Limits of Symbolic Reform: the New Deal and Taxation, 1933-1939 (Cambridge and New York: Cambridge University Press, 1984) at 61–62.Google Scholar These revelations occurred in the Senate Banking and Currency hearings on stock market failures.

39. Act of May 10, 1934 §55(b), 48 Stat. 680, 698 (1934).

40. The tradeoff in this context is that passengers will have a speedier security check-in if they have submitted detailed information in advance.

41. Such limitations would make it hard for many people, especially poorer people, to get access to the information and would also lessen the effectiveness of the publicity. In 1925, the Supreme Court permitted newspaper publication of lists of taxpayers and the amounts of tax paid, stating that such publication was within congressional intent when it made this information a public record. United States v. Dickey, 268 U.S. 378 (1925).Google ScholarPubMed

42. See, e.g., Field, Thomas F., “The Emperor Has No Clothes” (1 December 2003) 101 Tax Notes 1125 online at 2003 TNT 231-22Google Scholar (because people object to taxes, we should replace visible taxes such as the income tax with less visible taxes such as sales and consumption taxes).