Wednesday, April 20, 2011

April 14 Tax Policy Colloquium (with Josh Blank)

Last Thursday at the colloquium, Josh Blank presented his paper, In Defense of Tax Privacy. The main argument the paper makes is that individuals' tax return data shouldn't be publicized (i.e., present law in this regard should continue), not because privacy is an important value but rather because compliance would be undermined if it were easier for people to figure out how feeble the IRS's auditing resources are, and how easy it in fact is to cheat and get away with it.

As things stand, the IRS does the best it can to make a brave show of being on top of the game - e.g., celebrity prosecutions, triumphant enforcement announcements on the days leading to April 15, etcetera. My own view is that this approach is more likely to work with the general public than with the more hardcore types who actually are inclined to play the audit lottery. The sheep and the gamers, to borrow but revise Alex Raskolnikov's terminology, are different groups calling for different strategies.

Also, I'd say that the privacy issues actually matter with respect to individuals - but not public corporations, as to which there should definitely be MUCH more published tax return information. Suppose, however, that one isn't worried about individual taxpayers' privacy for its own sake, but shares the paper's concern that permitting the press to find and publicize instances of notorious tax avoidance or evasion would end up undermining compliance, without aiding IRS enforcement given the agency's limited resources. Then arguably the proper response is to give private parties strong financial incentives to find (and perhaps even participate in litigating) tax underpayments by others.

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