New York Bill May Give Access to Trump’s Tax Returns—and Open the Door to Target Others

(Bloomberg) -- New York is on the cusp of enacting a law that could help congressional Democrats gain access to President Donald Trump’s state tax returns, potentially opening the door for Congress to obtain tax records for any New York resident or business lawmakers want to investigate.

That has some tax and ethics experts worried that Republicans and Democrats alike could use the provision and a similar one at the federal level to target political opponents or others to advance policy goals.

The question of accessing the tax records of a public official started when Trump broke from decades of precedent by refusing to release his federal returns as a presidential candidate, despite promising to be an “open book” about them before he ran for office.

These tax-return disclosure laws should only apply to presidents and top-level government officials, not private citizens, said Ilya Somin, a law professor at George Mason University in Fairfax, Virginia.

While Somin said there’s nothing wrong with seeing a president’s tax returns, New York’s measure is “written to allow the same thing to happen to politically controversial people.”

Partisan Targets

As an example, he said, Republicans could demand billionaire Democratic donor George Soros’ tax returns, or Democrats could target Charles and David Koch, whose donor network gives millions of dollars to Republicans.

Democrats have targeted the chief executive officers of major banks like JP Morgan Chase & Co.’s Jamie Dimon and Citigroup Inc.’s Michael Corbat; Republicans have wanted to know more about the Clinton Foundation, run by former President Bill Clinton and his wife, former Secretary of State Hillary Clinton. Accessing their tax returns could become part of that process, experts said.

“New York and Democrats in Washington are setting a dangerous precedent where political parties go after their political enemies and try to release and embarrass and harass them,” said Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee.

The legislation, which the New York State Assembly could vote on this week, would give chairmen of the congressional tax committees access upon request to the state returns of any New York resident or business. The New York Senate passed the bill earlier this month and Governor Andrew Cuomo backs it.

Lawmakers introduced an amendment, which could be voted on Wednesday, that would let Congress request only state returns filed by federal, state and local elected officials and high-ranking government officials. The amendment would also allow lawmakers to seek the returns of business entities of which the official owns more than 10 percent or a controlling share.

Mnuchin’s Refusal

The congressional tax committee chairmen already can access federal tax returns using a 1924 law, even though Treasury Secretary Steven Mnuchin refused on Friday to comply with a subpoena for six years of Trump’s personal and business returns.

In the case of Trump, the Democratic-led state government is probably more sympathetic to House Democrats’ goal.

It’s not yet clear if House Ways and Means Chairman Richard Neal would avail himself of Trump’s state returns, because doing so could undercut his stated reason for needing the federal records -- that he wants to make sure the Internal Revenue Service is properly auditing presidents.

States could decide to allow requests for information that go beyond tax returns, said Andy Grewal, a tax law professor at the University of Iowa in Iowa City. Officials in Republican-led states could look to make medical or educational records public to embarrass Democrats, he said.

‘Ripple Effects’

“Just imagine Beto O’Rourke. Texas is a red state. What if you wanted to get all the student and disciplinary records?” Grewal said, referring to the 2020 Democratic presidential hopeful. “There are ripple effects that go beyond tax.”

But some legal experts say that the New York bill and the 1924 federal law have safeguards that prevent improper disclosure. The bill would require the New York State Department of Taxation and Finance to redact Social Security numbers, financial account numbers and home addresses before to handing over the documents to Congress.

The committees also need a legislative reason to see the state returns, something that isn’t specifically mentioned in the federal law, but that some courts have concluded is needed for federal returns. Congressional committees would have to keep the returns private, unless the committee votes to release them to the full House.

Charitable Giving

“We’ve spent time thinking about privacy and we are comfortable with this law,” said Robert Weissman, president of consumer advocacy group Public Citizen.

State and federal tax returns show much of the same information about income and tax breaks, although state filings don’t drill down on the specifics of out-of-state income. The New York returns also don’t show charitable giving, something Democrats have said they’re curious to see in Trump’s returns.

“This bill is a critical piece of legislation that would not only allow Congress to investigate President Trump and his various financial entanglements, but would also allow the American people to hold him accountable for his deeply troubling conflicts of interests,” a series of progressive groups, including Americans for Tax Fairness and Stand Up America, said in a letter to New York State Assembly Speaker Carl Heastie.

System’s Integrity

The fight over Trump’s tax returns is an unusual case because for four decades, presidential candidates have released their tax returns. But now that Trump hasn’t, the need to use these provisions to disclose presidential candidates tax information involuntarily could become more prevalent.

“It can’t be about politics. It has to be about the integrity of the tax system,” said Francine Lipman, a tax law professor at the University of Nevada Las Vegas. The tax return disclosure provisions “are not a fishing game for dirt. That’s not the charge of the committee.”

All the talk about tax privacy -- and how Congress uses the powers it currently has -- could ultimately lead to stronger rules, such as limiting the disclosure to public officials or implementing new restrictions on making the documents public.

“Tax privacy is an important norm to reinforce,” Ari Glogower, a law professor at the Ohio State University in Columbus. “It needs to be balanced with Congress’s need to do its job.”

--With assistance from Keshia Clukey.

To contact the reporter on this story: Laura Davison in Washington at ldavison4@bloomberg.net

To contact the editors responsible for this story: Wendy Benjaminson at wbenjaminson@bloomberg.net, Laurie Asséo

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