The likelihood that Donald Trump would voluntarily release his own tax returns probably hit zero well before his 100th day in the presidency. But his resistance alone might not be enough to keep them out of public view: A bill now being considered by the New York State Legislature would require Trump’s state tax returns to be published online. Since those contain much of the same information that’s in his federal returns, we’d finally get a sense not only of how much he’s actually worth, but how much he’d potentially stand to benefit from his radical tax-slashing plans. The idea to leverage the state legislature to reveal Trump’s taxes was originally proposed by Daniel Hemel, a law professor at the University of Chicago, in a Washington Post op-ed. More recently, Hemel has also issued a legal paper arguing for why it would hold up in court. I caught up with him last week for a breakdown on how the plan would work.
How did the idea end up in the state legislature?
After I wrote the op-ed in the Washington Post, the office of Brad Hoylman, the state senator who represents lower Manhattan, contacted me to talk about it. Also, a constituent of David Buchwald, who represents Westchester County, went to the protest over Trump’s tax returns on April 15, saw her assemblyman there, and put us in touch. So this was grassroots democracy at its best. I also give a lot of credit to a New York lawyer named Andrea Weiss, who saw the op-ed and got together a group of lawyers in New York who are active in city and state politics. She worked on draft legislation and got state senators and assemblymen on board.
The law would apply to all politicians in a certain category, right? It wouldn’t be a one-off thing affecting only Donald Trump.
Yes. This isn’t just about President Trump. He triggered it because he violated a decades-old norm of tax transparency that we previously hadn’t needed a law to enforce. But the norm mattered before Trump, and it will matter after Trump.
The law would apply to any president, vice-president, or New York statewide elected official, which includes the governor and the two U.S. senators representing the state. It would require that when they take office, the state tax authority has to post on its website a statement saying whether these people have filed New York state tax returns in the last five years. If so, it requires the tax authority to actually post copies of those returns.
What’s an example of something we might find in Trump’s returns that would be valuable for the public to know about?
I can answer that question without speculating about anything involving the Kremlin. The leak of his 2005 returns revealed that the only reason he was paying taxes was because of the alternative minimum tax. I think he ended up paying about $38 million. Without that, he would have been paying zero taxes.
The issue is that Trump just proposed getting rid of the alternative minimum tax. We don’t know whether that’s his tax situation circa 2017, but if I were a member of Congress — in fact, even simply as a voter — I want to know before supporting his tax-reform plan whether it looks engineered to reduce the president’s own taxes.
Another feature of the proposal he recently put out was a plan to dramatically lower the tax rate on income that individuals get through pass-throughs. There are lots of small businesses that are set up as pass-throughs, but also lots of real-estate developers and giant privately held companies that are pass-throughs. You and I get wages as employees, so we wouldn’t benefit from that. Donald Trump probably gets a salary from the Trump Organization; he gets a salary as president; and he probably gets something from NBC for The Celebrity Apprentice. But he’s got a lot of income coming from pass-throughs as well. Most of us would expect that the vast majority of his income was coming from those. And here he wants to lower the top rate on pass-throughs from 39.6 percent to 15 percent. That’s a big tax cut. What does it mean for his own tax returns?
It seemed to be a late-in-the-day decision to extend the corporate tax cut to pass-throughs. We would know more from his tax returns how much of his income is going through corporations that are taxed as corporations, and how much is going through pass-throughs. It would help us evaluate that aspect of his tax plan. Does that look like good tax policy, or does it look like good personal tax minimization by the president?
Yeah, we are talking about someone who’s clearly not above using the presidency to enrich himself in the most petty ways. He’s famously cheap.
And we’ve demanded this from presidents who were not famously cheap. I don’t think that President Reagan supported the ’86 tax reform because it reduced his own taxes, but I think it was helpful for voters and members of Congress to be able to look at his tax returns and think, “Hey, does this seem like it’s being done in the public interest or for self-interest?”
What do you think would be most likely to derail your proposal? The New York legislature not passing it? Or a court challenge later on?
I think this should hold up in court, but I don’t know whether it will get through the New York State Legislature. I’m hopeful. As you know, both chambers of the legislature have majorities of Democrats, but in the State Senate, there’s a group of eight Democrats who caucus with Republicans, such that Republicans actually control the State Senate. I think that objectively speaking, the most likely roadblock is the State Senate.
But I don’t think that’s insurmountable, for a number of reasons. One, I think the Democrats who caucus with the Republican minority probably will be blue on this particular issue. It’s hard enough to explain to Democratic voters in your district why you are caucusing with the other party, but it’s a lot harder if the consequence of doing that is that we don’t see the president’s tax returns. The Independent Democrats in the state senate can say, “Look, this is about state politics, not about Donald Trump.” But once it becomes about Donald Trump, that argument loses.
Second, I think this is an issue where there’s bipartisan support. There was a poll from the Global Strategy Group from last month, suggesting that 64 percent of Republicans want Trump to release his tax returns. A bill in the House that would force disclosure has Republican co-sponsors. So I think this legislation could, quite plausibly, win votes from Republicans as well. Also, Governor Cuomo believes in tax transparency. He discloses his tax returns. I’m optimistic about his support.
And then there are the legal challenges that might come. There are really only two people who I think might challenge this: Donald Trump and Melania Trump. The paper I wrote is mostly focused on constitutional and statutory arguments. I’m trying to give the benefit of the doubt to the opposing side. I want supporters of this legislation to know what the best arguments against it are. But frankly, at the end of the day, I don’t think these arguments will hold up.
You said in the paper that there’s some prospect of the IRS “retaliating” against the state of New York, if the state were to do this. What would that look like?
Well, it hasn’t happened before, so it’s hard to say. And historically, the IRS has done an admirable job of separating itself from politics — even though it has withstood criticism during the last few years for its processing of tax-exemption applications from tea-party organizations. Hopefully that continues under President Trump.
But is it conceivable that the IRS would cut off information-sharing with New York state? It’s not impossible. There are a lot of ways in which states and the federal government share information about taxpayers and tax returns. The IRS is getting W-2s and 1099s from the people who pay you, and if that doesn’t correspond to what you file, it raises a red flag — and the IRS tells your state, too. That’s extraordinarily valuable to New York state. The IRS could say, “Hey, New York, we’re not going to tell you that anymore.” The state really depends on that.
But the IRS depends on the states, too. The federal government doesn’t know when you die. The state is the one that issues a death certificate. But the IRS wants to know, because it doesn’t want fraudulent refund claims on behalf of dead people. The state can also help the IRS identify which small businesses aren’t filing federal taxes. So for the IRS to cut off information-sharing with New York would be to cut off its nose to spite its face. The probability is very, very low, but I can’t say that it’s zero.
The state is also considering a bill that would require candidates to release their tax returns in order to be on the ballot in future elections.
Right. Those laws would say, “If you want to be on our ballot in 2020, you need to disclose your federal returns.” So they’re state laws concerning federal returns. New Jersey has passed this, but Chris Christie is widely expected to veto it [Ed. Christie vetoed the bill on May 1]. However, there are similar proposals in almost half the states, and it’s entirely conceivable that it will get through somewhere. So that’s great. But there are a few red flags, or drawbacks, to the plan, relative to the other plan New York is considering.
First, we should know what President Trump is paying in taxes now, not in 2020. We’re having a debate about tax reform now. It is little solace to say, to a member of Congress, or to a constituent deciding how they feel about that member’s vote, “We don’t know yet whether this hugely benefits President Trump, but we’ll know that by 2020.” Right? Congress will be voting on it in 2017, and it will affect how we cast our own votes in the 2018 midterms.
Second, if it gets passed in a state like Hawaii, California, Connecticut, maybe New York, President Trump may decide, “I’m not going to put my name on the ballot in that state.” Here we have a president who, every other day, reminds us that he won the Electoral College. He seems not to care a whit about the popular-vote outcome. He might say, “I’ll give up California, I’ll give up New York, if it means I don’t have to give up my tax returns.” That’s not a reason for states not to do this, but I do think it’s a reason for New York state to take this additional step.
Is there anything else that’s crucial to know about your argument or about the bill?
There’s one constitutional issue that I think is of interest to laypeople. There is not an unbroken tradition of taxpayer privacy in the United States. In fact, there have been times in American history when we have had tax transparency, not just for the president, but for everyone. For the first federal income tax, we had named tax liabilities for individual taxpayers posted on courthouse doors. After the Revenue Act of 1924, we had people’s tax liabilities published in the newspaper.
So I think it would be hard for a judge who subscribes to originalism to say there’s a constitutional right to taxpayer privacy. I mean, people didn’t think that in 1862. Generally when you bring a constitutional claim against the state, you rely on the 14th Amendment, which says that all states must provide people with equal protection and due process of law. And at the time the 14th Amendment was passed, everyone’s tax returns were public! So it’s a lot harder for an originalist to say the 14th Amendment creates a right to tax privacy.
So even if you were a Scalia —
Or a Gorsuch.
Yeah, or a Gorsuch, it would be hard to justify voting against it on that basis.