Trump’s Tax Withholding Is a Signal

By JOSHUA D. BLANK

Aug. 29, 2016

Of all Donald Trump ’s portrayals of his tax returns, including “extremely complex,” “beautiful” and “very big,” no phrase has ignited more passion or dismay than “none of your business.” Hillary Clinton has posted to her campaign website full copies of her tax returns since 2007, as well as returns for her running mate, Sen. Tim Kaine. Yet Mr. Trump refuses to follow suit.

Although Mr. Trump is breaking with precedent—every Republican presidential nominee since 1980 has released personal tax returns—he is not breaking the law. The Internal Revenue Code clearly provides that Mr. Trump’s “returns and return information shall be confidential” unless he consents to disclosure. There’s no exception for taxpayers who happen to be running for president.

Sen. Ron Wyden (D., Ore.) has been trying to change that since May, when he introduced the Presidential Tax Transparency Act. If signed into law, it would require the presidential nominees of major parties to make their three most recent years of tax returns public by filing them with the Federal Election Commission. In a statement announcing the bill, Sen. Wyden argued that “tax returns deliver honest answers to key questions,” including whether the candidate pays taxes, donates to charity or keeps money offshore.

While tax returns can answer those questions, it would be misguided to mandate their disclosure. As the law stands, candidates must disclose voluntarily, which provides voters with a valuable signal. The same way that wearing a suit to a job interview at a law firm suggests professionalism, a presidential candidate’s choosing to post personal tax returns indicates a willingness to be transparent and forthcoming.

Since the role of president often involves candidly communicating the government’s actions and decisions to the public, many voters see openness as a prerequisite. Consequently, they may not trust or support a candidate who decides to break with tradition and withhold tax returns. They might even speculate that this indicates the candidate isn’t serious about wanting the job.

If Sen. Wyden’s bill became law, and presidential nominees were legally required to publish their tax returns, voters would lose this signal. If every applicant for the law firm position were legally required to wear a business suit to the interview, the partners could no longer easily weed out the people who otherwise would have showed up in a T-shirt.

Moreover, candidates’ tax returns are less revealing than advocates of mandatory disclosure suggest. A motivated accountant could pass dubious income—from Russia, say—through other legal entities such as limited liability companies to prevent its true source from appearing on the candidate’s personal tax return.

Similar tricks can be played to minimize the appearance of income and wealth. For instance, in the year of disclosure a candidate could overpay the IRS and file a return showing significant tax liability. Then he could request a refund in a future year not subject to disclosure.

As the law stands, presidential candidates must choose whether or not to disclose their personal tax returns—and for good reason. If Donald Trump continues to refuse calls to publicly post his returns, it’s up to voters to decide what that says about him.