Open The Books Save The Economy
It has never been more clear how much corporations depend on We, the People for their very existence. Corporations are given the right to exist through a public charter. For public corporations, shareholders are bestowed with limited liability, and they benefit from a public system of securities regulation that gives investors confidence to invest. In the best of times, corporations benefit both from public goods (public roads and infrastructure, public investment in R&D) and targeted benefits (tax subsidies, loan guarantees, and much more). In the worst of times, as we now see, the largest corporations can expect massive public support. Bloomberg reports that the United States has already committed an amazing $7.76 trillion — more than half of U.S. GDP — in funds for bailouts, guarantees, share purchases, insurance programs, swaps and more.
Don’t We, the People have the right to expect something in return?
How about starting with public release of the income tax returns of all corporations above a certain size (say, $10 million in assets)?
In October, a former Bush administration head of the Internal Revenue Service, Mark Everson, proposed exactly that in the Washington Post.
Wrote Everson, “Federal tax returns include important information about corporations beyond that available in financial statements. Making corporate returns available for public inspection would provide a powerful tool to analysts who follow companies and industries, and it would help others better evaluate counterparties and risk. It would assist other federal and state regulators, who currently are prohibited from reviewing the details of federal returns. (The IRS itself is precluded from sharing returns with the Securities and Exchange Commission and the Justice Department except in narrow circumstances.) Large corporations file their federal tax returns electronically, so the data can easily be shared. Information returns filed by not-for-profits are already available online.”
Disclosure of corporate income tax returns would help offset the intentional obscurity and complexity surrounding corporate records that has so directly contributed to the current financial crisis.
It would also lead to much better tax policy. President-elect Obama has stated that he and his administration will carefully review every budget expenditure, in order to save taxpayer dollars and eliminate or curtail programs that have outlived their usefulness or never should have been started. This is a welcome commitment. Aside from cutting wasteful Pentagon spending, however, the really big ways to improve the government’s balance sheet are in eliminating unfair, inefficient corporate tax loopholes, and escapes to tax havens abroad.
The complexity of the tax code — itself the product of long-term, persistent and intensive lobbying — invites esoteric gaming by large corporations, aided and abetted by lawyers and accountants.
Some tax provisions are included in the Code with almost no one other than the lobbyists who wrote them understanding what their implications will be.
And some tax provisions are muscled through by powerful interests, but impose public costs not fully understood at the time of enactment, while offering minimal public benefits.
If corporate tax returns were made public, citizen advocates and other monitors would be able to root out tax abuses, and rally to have them repealed. The government — that is, the taxpayers — would stand to recoup tens of billions of dollars, or more, to be more appropriately allocated.
Corporations, naturally, would object to mandatory disclosure of their tax returns. They would claim a right to privacy. But corporations are legal fictions, not people with legitimate privacy concerns. There should be no corporate right to privacy.
Corporations would also argue that disclosing tax returns would force them to reveal proprietary information. But that claim pales beside the broad public interest in gaining access to corporate returns, especially in this period of cascading mega bailouts. And, if corporations can identify some narrow and legitimate right to proprietary protection, let them do so. Then those specific areas can be excluded from disclosure.
Disclosure of corporate tax returns would be administratively simple. As Everson notes, the IRS already requires that corporations file their returns electronically. And there are precedents even from the pre-digital age. Wisconsin, for example, required corporate tax returns to be disclosed, before modifying its rules several decades ago.
In the first week of December, the auto industry CEOs will again appear before the Senate Banking and House Financial Services committees, to make the case for receiving billions in tax payer bailout monies. Hopefully, they will find a way to get to Washington other than by chartering their corporate jets. Chairman Chris Dodd and Chairman Barney Frank should instruct the CEOs that they should come with their corporate tax returns in hand, ready to share them with the American people. That will open the gates for a new standard of openness that should apply to all corporations.