In an era where many people are highly sensitive to what personal information is being collected about them, and how that information is being used, one sometimes hear the question: Why should the government have any power to know your income? In a US context, the question is often asked around April 15, when income tax returns are due.
Also in a US context, the answer to why the federal government has power to know your income is straightforward: It’s in the US constitution. Specifically, the Sixteenth Amendment ratified in 1913 reads: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” Before the amendment was passed, US Supreme Court in 1895 had struck down a federal income tax passed the previous year in the case of Pollock v. Farmers’ Loan & Trust Co.
But privacy can be expressed at different levels. The US government can require you to report your income, but your personal tax returns are supposed to be confidential. Joel Slemrod discusses “Tax Privacy” in the Winter 2025 issue of the Journal of Economic Perspectives (where I work as Managing Editor). Slemrod writes:
In several countries, at least some information from income tax returns of both individuals and companies is made available to the public as a policy choice. Public access to corporate tax information is provided in Australia, Iceland, Finland, Norway, Pakistan, and Sweden, and was once the law in Japan. Personal-level public disclosure is available on the internet in Norway, whereas Sweden, Finland and Iceland have systems where one can apply to the tax authorities for information about individuals, in Iceland for only a very limited time period. Pakistan introduced public disclosure for both corporate and personal tax information in 2012. Moreover, the issue is on the policy agenda in several countries, including almost half of the OECD countries. …
Even the United States has had public disclosure of income tax information, if only with occasional and brief experiments. The short-lived Civil War-era income tax provided that the public would be entitled to see the names and tax liabilities of taxpayers. The corporate excise tax of 1909 contained a publicity provision, which was soon after repealed. Information from tax year 1923 income tax returns was publicly released in 1924, although this lasted only to the provision’s repeal in 1926. This episode gave rise to one of the most vivid privacy-related objections to public disclosure. Senator Louis Murphy (D-IA) stated at the time that disclosing income tax data is equivalent to taking “the curtains and shades from the homes of our taxpayers and pull[ing] out the walls of the bathroom to assure that the Peeping Toms shall have full and unobstructed opportunity to feast their eyes on the [tax return]” (as quoted in Leff 1984, pp. 70–71). The Revenue Act of 1934 required all income tax filers to submit a pink-colored form that contained information from the return—name, address, gross income, deductions, taxable income, and tax liability—that would become public. This requirement was, though, abolished before it went fully into effect.
So, would greater public disclosure of income and tax data be a step toward transparency and accountability? Or just give free rein to nosiness and jealousy? Slemrod, writing as an economist, doesn’t seek to address this question directly. But he does point out:
Each November 1, the day the Finnish government publishes citizens’ income and tax payments, is known there as “National Jealousy Day.” Reck, Slemrod, and Vattø (2022) document who searches for whose tax information in Norway, and speculate on the motivations for these searches. Perez-Truglia (2020) argues, using survey data and Norwegian tax records, that the higher wage and salary transparency due to public tax disclosure increases the gap in happiness and life satisfaction between richer and poorer individuals. This finding is reminiscent of Varian’s (2009, p. 8) argument that neighbors may care about the assessment of my house not because they care about my assessment per se, but because they care about their assessment.
Slemrod digs into the trickier questions. When people say that prefer tax privacy, what are they worried about? Government tax enforcement efforts? Romantic interests, spouses, ex-spouses? Co-workers? Difficulties in future economic negotiations over, say, pay in new job, or how much one can afford to donate to an alumi group? A possibility of political or social retaliation? Might we be able to measure greater degrees of privacy or lesser degrees of privacy? For example, perhaps I worry less about my overall income being revealed than I worry about, say, specific charitable contributions being revealed or the size of deductions for medical care.
The value that people place on privacy is notoriously difficult to meaure. Economists measure “value” the value that people place on an object in two ways: what is your willingness-to-pay for an object, and what is your willingness-to-accept for selling the object? For many ordinary goods, these two values will be reasonably similar. But Slemrod points out that when you survey people about how much they would need to be paid for a willingness-to-accept less tax privacy, they tend to give large number, but when you ask them about their willingness-to-pay to protect their tax privacy, they give a much smaller number. He writes: “The average willingness-to-accept is 13.5 times larger than the average willingness-to-pay …” One can imagine a tax code that starts off with a list of what personal information you are willing to reveal–or not–but the kicker is that if you reveal less information, you will probably end up paying more in taxes.
When I’m re-reading Jane Austen and other 19th-century novels, I’m sometimes struck by the different attitudes toward financial privacy. In those novels, when a character enters the room, it’s common for other characters to talk about their economic situation: land owned, money “in the funds,” likely inheritances, future jobs, and so on. But characters in those books work hard to avoid talking about personal or romantic feelings. In the modern world, it seems to me that we have inverted this sense of what is private. Many people are quite open about their personal and romantic feelings, positive or negative, in a way that would have been alien to Austen. However, modern people are often quite reticent and find it hard to talk about money, even within the context of family and committed relationships.
This modern desire for economic and tax privacy is somewhat at war with informtion technology. The US economy is moving briskly toward less use of cash, and a number of countries are moving that direction even faster. But when economic transactions are done electronically–whether payrolls or purchases–they leave a record. In that sense, economic privacy is getting harder. If you happen to see my credit-card bills, you would know a great deal about my economic life.
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