There’s little doubt that disclosure—ample disclosure—of government finances and activities makes a lot of sense. Now, however, a few groups on the political left are calling for many public disclosures from private businesses—including their tax returns. This would be bad for American business and even worse for the nonprofit sector.
On its surface, the proposal has a certain plausibility. All nonprofits, including R Street, already have to make their 990 forms public. Furthermore, all publicly traded companies—and some nontraded companies that do big debt issues—face lots of requirements to disclose financial information (here is Walmart’s). In fact, figures like total corporate tax liability and top executives’ compensation are already public for most large companies. Making whole tax returns public, from some perspectives, would not be a sea change.
But that doesn’t mean it’s a good idea. In fact, it’s likely to blunt American competitiveness. So long as we have a tax code larded with special set-asides, credits and deductions, all companies will try to use these credits to increase profitability. Sometimes, these preferences are distortionary enough to get companies to do things that would not make sense at all without them. Hotel chain Marriott, for example, invested in synthetic fuel interests in the early 2000s as a tax management strategy. More tax preferences, however, work as designed and do encourage investments in things that might well be socially beneficial, like employee training, capital investment and alternative energy. In many cases, specific uses of these preferences and credits can give significant information to competitors regarding intentions. If American companies were required to make these decisions public, they would face a big disadvantage in strategic planning relative to companies in places without these requirements. The best tax policy, as I’ve argued elsewhere, would eliminate the corporate income tax altogether. Absent this, however, there’s ample reason for businesses to oppose any mandatory disclosure of what are, after all, key strategic decisions.
But even if these very real business objections could somehow be overcome, mandatory corporate disclosure would still be a disaster for nonprofits, particularly those like R Street, which sometimes take controversial positions. Although corporate giving is a much smaller percentage of nonprofit budgets than many assume, it’s still vital. While some corporations may actually find support for wholly noncontroversial causes (e.g., research on diseases) to be an effective way to build their brands, many more nonprofits do things that not everyone will agree with. In fact, the very principle that allowed nonprofit supporters to be anonymous was established by a U.S. Supreme Court decision regarding the state of Alabama’s efforts to get the NAACP’s membership lists in order to stop the group’s fight against Jim Crow. It’s hard to imagine, likewise, that some corporate interests would have supported the early LGBT rights movement as enthusiastically as they did without the shield of confidentiality. Support for many other causes—pro-life, pro-choice, transgender rights, many religious issues—would also see their corporate funding dry up if all tax returns were suddenly made public. The result would be a disaster for civil society organizations across the political spectrum.
Mandatory disclosure of corporate tax returns wouldn’t just hurt businesses; it would hurt any nonprofit that raises money from the corporate world.