Could Tax Transparency Lead to Greater Equality?

Could Tax Transparency Lead to Greater Equality?

Why you should care

Because inequity breeds contempt, and change.

Rae Ellen Bichell is a freelance journalist based in Colorado.

When Rachel Sherman asked a wealthy New Yorker how much she had in assets, the woman replied that it was like asking whether she masturbated.

Sherman, a sociologist at the New School for Social Research, studies affluent New Yorkers. “Some people wouldn’t tell me the specific number of their income or how much their house had cost or how much their rent cost. There’s something about saying the number that’s really deeply taboo,” she says.

At the same time, the gap between rich and poor has consistently widened, according to the Stanford Center on Poverty and Inequality, with families at the higher end of the income level seeing bigger gains between 2013 and 2016 than any others.

“What we need to do is have more conversations about why so many people end up with these really high levels of wealth at the same time that so many people have essentially nothing,” says Sherman.

Secrecy is of the greatest aid to corruption.

Robert Howell, 1920s politician

Could a solution be as simple as everyone having to own up to their wealth? In some countries, this already happens.

Each November in Finland, for example, journalists comb through the tax returns of celebrities, public figures and about 10,000 of the country’s top earners. For a small fee, anyone can call a tax office to find out another person’s income tax. And in Norway, says Erlend Eide Bø, a researcher with Statistics Norway, sports teams used to go door to door hawking neighbors’ tax returns like Girl Scouts selling cookies.

“It was pretty strange, even to us,” says Bø, noting how posting people’s taxes online led to a measurable reduction in tax evasion by businesspeople.

Ricardo Perez-Truglia, an economist at the UCLA Anderson School of Management who has studied the Norwegian system, says there used to be apps that would rank a person’s Facebook friends by income. Such extreme transparency, he found, didn’t make people happier. But it gave them a much clearer look at their relative wealth.

“Poor Norwegians found out that they were poorer than they thought,” Perez-Truglia says. “Rich Norwegians found out that they were richer than they thought.” Today Norwegians can still access one another’s tax info, though people receive notification that you’re snooping on them.

“It seems to me that the optimal transparency policy would look a lot like this, where the data is available but at some cost, to prevent individuals from using it in unintended ways,” says Perez-Truglia.

Iimay Ho, executive director of Resource Generation, a U.S.-based nonprofit aimed in part at getting wealthy millennials to come out about their class and privilege, agrees. She says it’s damaging that Americans all seem to think they’re part of the middle class. “That both obscures intense poverty, which is actually a very common and predominant experience in the U.S., and intense wealth accumulation,” says Ho.

Researchers with Harvard Business School and Duke University surveyed thousands of Americans and found that, for one, Americans vastly underestimate the extent of inequality. More important, the researchers write, “[a]ll demographic groups — even those not usually associated with wealth redistribution such as Republicans and the wealthy — desired a more equal distribution of wealth than the status quo.” Furthermore, as a group of prominent economists recently wrote, patchy information on how much money people have and where it came from makes it tricky to tease out how forces like government redistribution or gender inequality affect income distribution in this country.

So while many have argued over whether President Donald Trump should divulge his tax returns, there should really be even greater transparency about all of America’s top earners: Perhaps opening up the tax records of the wealthy and powerful would help clear a path to greater equality. In fact, that’s how things used to be in the U.S. for much of the 1800s and 1900s.

In the 1920s, researchers write, “The New York Times filled pages with lists showing the amounts of tax paid by thousands of people, and ran stories listing the names of prominent New Yorkers who had paid no income tax.”

“Secrecy is of the greatest aid to corruption,” said Robert Howell, a Republican senator at the time. And transparency? “The price of liberty.”

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