Tax Disclosure

Did you know that in Scandinavia tax information has been public for over a century? In Sweden copies of the Taxation Calendar, which lists the earnings of those with middle to high incomes, can be requested. The Finnish tax administration publishes the tax list online, and searches on individuals cost about 36 cents per search. But no one trumps Norway that publishes what every single taxpayer paid in taxes along with their income and net worth. This list, or skatteliste, has been available online since 2001 and is searchable. Italy, believe it or not has also jumped on this band wagon, albeit momentarily. In 2008, the deputy finance minister made taxpayer income and taxes paid available online but the data was pulled down by Italy’s data protection agency less than 24 hours after it was made available.

Disclosure of this nature is foreign to us here in North America. Well, at least in modern times. The 1861 US federal income tax law made tax filings public information and newspapers regularly published this information. That said, back then, very few people actually paid taxes. The public nature of tax filings only lasted until 1894, except for a short lived experiment in 1923-24.

To us the release of information related to income and taxes paid would not pass our modern privacy laws. This might be a good thing since in Norway there seems to be a link between the release of the annual data and robberies at the homes of high income earners as well as related fraud cases. However, it might also be a bad thing as disclosure appears to aid with tax compliance.

How does disclosure aid with compliance? Well it: provides transparency, can be used to detect and prevent tax evasion, and maintain public confidence. After all, given that your neighbours can search your information and rat you out if you submit erroneous information, you are more likely be compliant with tax laws.

Recently Bo, Slemrod, and Thoresen put this theory to the test. These authors exploit the change in Norway where tax information was put online in 2001. They find that there was a 3% higher average increase in reported income among business owners once information was freely and easily available online. Slemrod has also argued that tax disclosure should be the norm for corporations. He rightfully argues that public financial statements provide no information about the corporations tax status. Instead, corporations tend to report high book income the public yet low income to the tax authorities, resulting in very low tax amounts being paid. However, when Paul O’Neill was Treasury secretary he opposed such disclosure as it would subject the corporations to “misinformed, inexpert analysis.”

Whatever your position, the notion of tax disclosure is an interesting one. For public sector workers whose income is already publicly available in most provinces it might even the playing field if everyone’s income is made public. In addition, making tax data freely available would be a gold mine for any academic working in the field of tax. That said, the individual costs might be high if it subjects you (and your children) to robberies, bullying, and other negative behaviours. What do you think?

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