The Agenda

Quick Thought on Privacy

Josh Green of Bloomberg Businessweek and Josh Barro of Bloomberg View have been writing about why Mitt Romney is so reluctant to release his tax returns. Though I understand the view that Romney should release his tax returns, invite scrutiny, and then move on with the campaign, I should cop to my idiosyncratic views on the larger subject of taxes and privacy.

In many of the Nordic countries, the tax data on all individuals and households are publicly available. In the United States, in contrast, they are private. One potential implication of the Nordic pattern is that conspicuous consumption might be somewhat less pervasive among the ultra-rich, as how well you fared in the last year is public information and so ostentatious displays are superfluous. This might have salutary consequences for society at large, particularly if you find Robert H. Frank’s theory of “expenditure cascades” as a driver of economic distress persuasive. 

But what if we moved in the opposite direction? Undoing the personal income tax is, at this point, virtually impossible. The best case scenario is that we might move to something like a progressive consumption tax, which would require an account of income sources no less detailed than what we have under the status quo. In my ideal world, however, the state would rely exclusively on something like a VAT and excise taxes, etc., coupled with a demogrant, i.e., a flat payment to all citizens designed to alleviate poverty. It would be extremely difficult to set a VAT rate high enough to fund a demogrant generous enough to replace virtually all present-day transfers. Moreover, the distributional consequences would raise (legitimate) concerns across the political spectrum.

Yet this arrangement would allow the economic relationships of most people, apart from the substantial minority of people who own and operate firms that would be subject to the reporting requirements of the VAT, to be conducted privately. And as an ideal, that appeals to my libertarian instincts. 


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