Trump’s taxes: 1924 law gives Congress authority to see returns
If Democrats in Congress succeed in their quest to get Donald Trump to cough up his tax returns, they’ll have another Republican president to thank: Warren G. Harding.
A century ago, the Teapot Dome corruption scandal engulfed Harding’s administration, spurring Congress to pass legislation that finally reclaimed its right to review private tax returns. It was a solid law, and remains so today: The legislative branch has the power to tax and spend, and the review of personal tax returns falls well within its rights and obligations.
The battle over the privacy of returns is as old as the income tax itself. The nation’s first such levy originated during the Civil War, and anyone could get the information. In fact, newspapers regularly published the amounts paid by the wealthy — a radical form of transparency that critics said went too far.
Congress prohibited the practice in 1870, and the income tax itself was rolled back not long afterward. In 1894, as part of a drive to reinstate the tax, Congress made the unauthorized disclosure of tax returns a misdemeanor, further strengthening privacy protections. But the Supreme Court soon ruled the tax unconstitutional, making the point moot.
In 1910, Congress moved to protect the privacy of corporate tax returns on the grounds that their release could reveal trade secrets to competitors. Under the new law, only the president — via the secretary of the Treasury — could release corporate returns. When Congress passed a new income tax law in 1913, it quietly extended this protection to personal returns as well.
Lawmakers soon realized that this effectively deprived their own committees of the right to review tax returns — even in cases where they were considering legislation directly related to Congress’s authority to tax and spend. This struck legislators as absurd, and in 1920 Congress came close to restoring its authority to request tax returns — but the provision was inexplicably removed by the conference committee.
The matter would have rested there, but along came Harding, who presided over one of the more inept and corrupt administrations in U.S. history. He never really expected to be president, and described himself as “a man of limited talents,” who wasn’t “fit for the office and should never have been here.”
Harding surrounded himself with toadies and yes-men who swiftly began helping themselves to the spoils of office. The president abruptly died two years into his term, but the resulting scandals would keep Congress busy with investigations for several years afterward. The most famous of these, the Teapot Dome, involved oil interests that had bribed public officials in exchange for leases on public land.
Congress eventually asked Calvin Coolidge, Harding’s successor, to release the tax returns of some of the Teapot conspirators. Coolidge reluctantly complied after some delay, and the experience left many in Congress concerned that not all presidents might be forthcoming.
This provided the primary impetus for reform. A scholar of this episode, George K. Yin, has identified another reason for the shift in sentiment: a little-known controversy involving Secretary of the Treasury Andrew Mellon and Senator James Couzens.
The two men — both extremely rich — had been locked in a policy dispute over the appropriate rate of taxes on the wealthy. Couzens came to believe that his confidential tax information had been released by Mellon to prove a political point (namely, that Couzens was a hypocrite).
Representative Edward Browne of Wisconsin, an ally of Couzens, declared that Mellon “had access to all the income returns and he used the information and made it public. Why give him any more rights in making these facts public than the rest of the people of the United States?”
The accusation may or may not have been true, but the idea that the executive branch should have exclusive control over access to tax returns became increasingly untenable.
In 1924, Representative John Nance Garner shrewdly put the matter to his colleagues in the House. He asked them to imagine wanting to see his own (Garner’s) tax returns because of an ethics investigation — only to be rebuffed because they had no legal authority to obtain the returns.
In offering himself up as a hypothetical target of investigation, Garner underscored the impotence of Congress. Representative Ralph Lozier, a Missouri Democrat, made a more populist pitch, saying that “the country has the right to know whether or not the tax returns made by the idle rich and the gigantic corporations are fair and reasonable or based on evasion, fraud, and circumlocution.”
The final legislation established safeguards against the reckless dissemination of private tax information. As Yin has observed, Congress ultimately choose an evenhanded strategy, refusing to prohibit committees from sharing tax information, but also refusing to mandate that they must share whatever information they gathered.
Moreover, the threshold for determining what was suitable for release was set very low: The committee could share any information it deemed “relevant or useful.”
Since then, the balance of power has shifted to Congress. After Richard Nixon’s downfall, and in particular revelations that the president had used his access to income tax returns for political purposes, Congress drastically limited the executive’s ability to inspect and release tax returns.
At the same time, the words “relevant or useful” were removed from the statutory language, though Congress also restricted the ability of non-tax committees to make public disclosures of tax information.
Which brings us to now. The chairman of the House Tax Committee, Representative Richard Neal, invoked this law to demand six years of the president’s tax returns from the Internal Revenue Service by April 23.
The Trump administration can certainly fight the case in court. But the deep history of this particular provision in the tax code is unequivocal. Sooner or later, the president is going to have to surrender the returns.