Italians Know What Their Neighbors Make: Why Don’t You?
posted by Dave Hoffman
Sure, it was a leak, possibly politically motivated. But for 24 hours, every Italian’s tax information was publicly available on the web.
The finance ministry described the move as a bid to improve transparency.Deputy Economic Minister Vincenzo Visco said he could not understand what all the fuss was about.
“I can’t understand what the problem is,” he is quoted as telling Italy’s Corriere della Sera newspaper.
“This already exists all around the world, you just have to watch any American soap to see that. We had the system ready by January but we delayed publication to avoid arguments during the election campaign.”
I can’t imagine what Visco means by American soap opera’s treatment of tax law, but I myself would be perfectly happy in a world where folks’ tax filings were transparent. (In part, of course, the cost to me isn’t terribly low, as I’m sure that the public institution I work for will eventually be compelled to disclose salary data. Similarly, government officials, whose salaries are knowable, have small incentives to care about privacy). But even so, wouldn’t the privacy losses we’d all feel be balanced by the pro-social consequences of transparency? For example, I’d bet that you’d see a rise in competitive charitable giving, and more pressure on unequal pay for equal work.
May 6, 2008 at 5:54 pm
Posted in: Tax
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Responses (8)
William McGeveran - May 6, 2008 at 5:12 pm
Wow, Dave, I could hardly disagree more strongly. And the public institution where I work already releases salary data publicly. I’ve argued beforethat this kind of intrusive personal disclosure in the name of generalized transparency is all cost and almost no benefit.
Financial information, even basic facts like salary and charitable donations, is intensely private. That is reflected quite powerfully in surrounding norms. Even in our nosy modern society, asking people at a dinner party what they earn is the depth of rudeness. Heck, even asking your good friends is usually a no-no.
And while there may be some “pro-social benefits,” as you muse, there are also some very bad consequences. Remember that there are mechanisms to get financial information in circumstances of demonstrable need — say, credit applications. But it will be no time at all before the equivalent of Zillow for salaries makes all this information instantly searchable. At that point it probably appears high up on the Google search for your name.
In a world of Zillow for tax forms, anyone who inquires about you will know this information: blind dates, neighbors, job interviewers, potential legal adversaries, folks at your church/temple/mosque and your kids’ school, former classmates. Plus we’d see all sorts of rational ripple effects that are contrary to the ideals of an egalitarian society. I imagine we’d see rampant individualized discrimination by businesses on price and service, from higher fees for better-off customers to restaurants giving bad tables to less wealthy diners.
You want a soap opera? Wait until everyone on Wisteria Lane knows how much everyone else makes.
A.J. Sutter - May 6, 2008 at 11:26 pm
I second Bill’s comments. While I don’t think I’d be happy to have my salary data known, I can understand the rationale for public employees. But this is quite different from income tax data, which includes other sources of income, spouse information (if filing jointly), and other personal information.
More broadly, I think it’s worth considering why we have come to think “transparency” is a virtue that trumps everything.
Also, I’m struck by Dave’s notion that I should be happy to outsource to a bureaucrat the decision as to what my loss of privacy is worth. Shouldn’t I have the right to decide whether or not to give up my privacy for the same of a diffuse and speculative general benefit to society?
Reminds me a little of an abstract I read recently on SSRN, something like, “In the final part of the article, we offer predictions about the future development of law and economics, in light of its growing theoretical sophistication and the evidence of law-related preferences. The most likely outcomes are: (1) scholars advocating various forms of paternalism, whether by excluding citizens from participation in the legal system or by discounting some types of individual preferences from consideration in choosing policies ….” ( http://papers.ssrn.com/sol3/papers.cfm?abstract_id=579121 )
I think this prediction was right on the money.
dave hoffman - May 6, 2008 at 11:36 pm
AJ & Bill: Thanks for your comments. On the paternalism point, I certainly don’t think that the IRS should be making the relevant tradeoffs, but, instead, it should be a Congressional decision. As you suggest, and as I hoped my initial point made clear, federal bureaucrats are never going to way financial privacy high in a balance. (Good article you cited to, by the way.)
To Bill: I need to think more about the data mining aspects of the problem, and potential technical solutions. It doesn’t strike me as an impossible problem to make information available but not easily searchable or storable in bulk, but I’m not nearly as tech-savvy as you.
As for the bigger point, putting aside commercial exploitation, I still am not emotionally connecting with the idea that financial privacy is as important a value as others we might care about, like giving us a more concrete sense of what it means to be very rich – the kind of tax avoidance strategies available to, say, Bill Gates.
Lawrence Cunningham - May 7, 2008 at 9:35 am
A 1934 US law required certain income tax information to be made public; resulting agitation over privacy rights induced its repeal in 1935. An excellent history and analysis of these events, and the broader implications for the tensions between rights to know and rights to privacy, can be found in Marjorie Kornhauser’s paper at the following link:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=880383
sounds great - May 7, 2008 at 11:09 am
Dave – To get things started, please post your 2007 tax returns. I look forward to experiencing the pro-social benefits of this selfless act of transparency. Many thanks.
Maryland Conservatarian - May 7, 2008 at 1:30 pm
“I still am not emotionally connecting with the idea that financial privacy is as important a value as others we might care about, like giving us a more concrete sense of what it means to be very rich – the kind of tax avoidance strategies available to, say, Bill Gates.”
Maybe we’re just hanging out in different demographics but I’d be surprised if you could find even 1% of all filers who consider a “concrete sense of what it means to be very rich” (without actually being very rich)a more important “value” than financial privacy.
…and do you mean tax avoidance strategies like claiming Capital Gain treatment on stock sales? itemizing deductions? claiming your children as dependents? buying municipal bonds?
because the results of most so-called tax avoidance schemes are little more than line items on the tax return.
And as a follow up on ‘sounds great’s suggestion, the very rich don’t even do their own taxes; I’d much rather see a tax return of a liberal law professor using the Internal Revenue Code to do good rather than evil.
William McGeveran - May 7, 2008 at 3:58 pm
Dave:
Even if you solve the data-mining problem — and that is not easy — you still can’t have real transparency without searchability. The pro-social outcomes you seek will arise only if people have access to individualized tax data. So if I want to know about the finances of Bill Gates, or Bill McGeveran (or to bring it home for many readers, your professor or your student or your classmate), I can look him or her up.
A move to improve the search experience by third parties such as Zillow makes the privacy problem worse, but even if the data is just on the IRS web site it’s still pretty bad.
Now in general, intuitions about privacy are changing across generations, so maybe my intuition about the tradeoff is soon to become outdated and yours is on the rise. But I am skeptical about whether that shift in norms will extend to financial information. And I definitely think my view still represents a majority view as of right now.
A.J. Sutter - May 7, 2008 at 10:51 pm
Dave: I don’t think having Congress make the decision for me is much of an improvement over having a bureaucrat do it. Is your notion that because I’ve voted in a Congressional election I should be cool with delegating such a personal decision? That would be overly rosy about the realities of electoral democracy in the US, or about citizens’ naivete about that topic. I am “pro-choice” about disclosure of my financial information, to analogize to another well-known privacy issue.
As for the Bill Gates argument, (1) neither he nor his ilk are sufficiently important in my life that I care about their lifestyle more than my own, and (2) one can no more get a concrete sense of what it means to be very rich by reading tax returns, than one can get a concrete sense of what it means to be in a war by reading body counts.
On this issue you seem to have fallen into the economist’s trap of thinking in terms of aggregates of people (“pro-social benefits”), and of recommending policies based on syllogistic thinking about reified abstractions (e.g., the supposed concreteness of numbers or tax form data) — and not least of believing your “rational” preferences would be shared by others (e.g., “I myself would be perfectly happy …,” “I am still not emotionally connecting …”). Of course I was teasing you by citing your own paper against you, but more seriously I do hope that in the future you’ll be not only more vigilant about paternalism, but also more sensitive to others’ emotional connection to their most personal rights and liberties. I worry that the Law & Economics world-view will gradually erode these capabilities in a generation of lawyers.
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