How A Spat Between Two Rich People Gave Congress The Power To Get Trump’s Tax Returns

Congress needed the documents to provide oversight of tax evasion and revenue collection.

President Donald Trump doesn’t want to release his tax returns to Congress, but thanks to progressives, two of the biggest scandals in U.S. history and a fight between two millionaires, he doesn’t have a choice.

Congress has had the power to request individuals’ tax returns since 1924. Now, House Democrats are using that law to request Trump’s returns in order to provide oversight into the alleged audit the president said is keeping him from sharing the info ― which could reveal how much he evades paying his taxes ― with the public.

In a letter to Congress, Treasury Secretary Steve Mnuchin asked for more time to fulfill the request for Trump’s tax returns as he consults with the Justice Department. Democrats view this maneuver as a stalling tactic. The law is clear that the Treasury Department “shall” provide anyone’s tax returns to the House Ways & Means Committee upon request.

The power of Congress to request those returns came about through a series of legislative compromises over the publicity of tax returns and congressional oversight of the executive branch and fueled by two of the biggest political scandals in U.S. history. Now, the scandal-plagued Trump administration finds itself in a fight with Congress over keeping those returns private.

Progressive Push For Publicity

For much of the early years of the United States, there was no income tax.

The government first implemented income taxes during and immediately after the Civil War. At the time, personal income tax returns were not treated as confidential documents. In fact, certain tax information was generally made available to the public by the government and printed in newspapers. After an outcry, the government banned republication of tax return information in newspapers in 1870. Then, the year after that, the income tax was abolished until 1913. But a provision making it illegal to disclose tax returns remains in place.

In the years after the end of the income tax, the United States underwent a radical change as the Industrial Revolution rampaged through the country and corporations came to dominate American life and politics, along with their wealthy owners and financiers. The complete upending of the American world in the late 19th century created a populist and progressive backlash. Progressives supported the establishment of corporate taxes, a progressive income tax and the full publicity of individual and corporate tax returns to level the political power of the people with the dominating monopolists.

The first fight over the publicity of tax returns occurred in 1909, when President William Taft backed legislation to implement new corporate taxes and demanded they be treated as open records. After the Commissioner of Internal Revenue tried to prevent disclosure by citing a lack of funds, Congress gave him the money but added the stipulation that returns could only be made public “upon order of the President.” The president was given the same authority after President Woodrow Wilson’s administration brought back income taxes.

After these legal changes, the executive branch found itself as the chokepoint for public disclosure of all tax returns. Congress had no legal right to the information. Efforts to mandate the executive branch hand over tax returns requested by Congress were scuttled in 1910 and 1921. But then Congress entered into “investigation hysteria” during the greatest corruption scandal up until that point in U.S. history.

Trading Oil Leases For Cows

Interior Secretary Albert Fall became the first cabinet official to go to jail for corruption because of the Teapot Dome scandal.
Interior Secretary Albert Fall became the first cabinet official to go to jail for corruption because of the Teapot Dome scandal.

Before every political scandal carried a -gate suffix, all political corruption was compared to Teapot Dome. Like Watergate, the Teapot Dome scandal was named after a physical place. It was a U.S. Navy-owned oil field in Wyoming named after a nearby rock formation that at one point resembled a teapot.

President Warren Harding’s Interior Secretary Albert Fall sold the rights to Teapot Dome’s oil, and other government-owned oil fields, in exchange for literal bags of money and some cows. Fall’s New Mexico neighbors raised their suspicions of the Interior secretary’s new cows and construction on his ranch with members of Congress. That launched a first-of-its-kind investigation that rewrote the terms of congressional oversight and scandal politics in Washington.

Congressional investigators pressed President Calvin Coolidge, who had taken over after Harding died, for tax return information for Fall, the oilmen who bribed him and the companies that stood to benefit. Coolidge and his Treasury Secretary Andrew Mellon, one of the three wealthiest Americans, opposed public disclosure of tax returns, but they acceded to the demands of congressional investigators and handed over the returns.

The Teapot Dome scandal spurred other investigations into the executive branch, including the attorney general and Treasury Secretary Mellon. It was this latter investigation into Mellon that finally pushed Congress to give itself the right to obtain anyone’s tax returns.

Two Millionaires Fight About Each Other’s Taxes

The tax policies of Treasury Secretary Andrew Mellon (left) were a major factor leading Congress to give itself the authority to review tax returns.
The tax policies of Treasury Secretary Andrew Mellon (left) were a major factor leading Congress to give itself the authority to review tax returns.

The investigation into Mellon began like many important historic events do: as a petty feud between two rich people. Sen. James Couzens, a Republican from Michigan, had recently been appointed to the Senate after Truman Newberry, another extremely wealthy Republican, was kicked out for receiving illegal campaign contributions in his race against Henry Ford, the wealthiest American at the time. Couzens allied himself with the Progressive Republican bloc in the Senate and opposed Mellon’s plan to cut taxes for corporations and the rich.

Couzens made an unflattering revelation in stating his opposition. He disclosed that he had a personal financial stake in the policy debate: a heavy investment in tax-exempt government securities, which Mellon was seeking to discourage.

Mellon immediately seized on Couzens’ error. In response, he implied that Couzens was not paying taxes (“Must a system of taxation which permits a man with an income of over $1,000,000 a year to pay not one cent to the support of his Government remain unaltered?” Mellon said.)

Couzens took the question to be an admission that Mellon, who as Treasury secretary was in charge of the Bureau of Internal Revenue, had spied on his tax returns and demanded to see Mellon’s. He then called for an investigation into the Bureau and Mellon’s oversight of tax collection. Couzens’ push for an investigation may have been ignored at other times, but it came just as Congress was furious over the Teapot Dome scandal.

This spat fueled progressive calls for Congress to finally enact a provision to give itself the right to tax returns. The most progressive lawmakers called for full publicity tax returns, as had been the case during the Civil War. The administration, as represented by Mellon, opposed any provision allowing congressional access. Others were more concerned with Congress obtaining the right to get tax returns for oversight purposes. The debates over Congress getting access to tax returns centered on which committees could get them and what they could do with them.

“I know the Ways and Means Committee is a great and a powerful committee, but even so the Ways and Means Committee ought not to try to hog the whole show,” Rep. Lamar Jeffers, an Alabama Democrat, argued.

Congress ultimately passed a provision giving access to the tax committees and special committees. The provision also allowed the committee to submit “any relevant or useful” information learned from the tax returns to the full House or Senate.

Two years later, Congress amended the provision limiting the special committees that could receive tax returns to those approved by resolution to investigate returns and to require committees to sit in a closed session to receive the returns. The president could still approve the transmission of tax returns to other committees.

And that was the way the disclosure of tax returns were handled for the next fifty years.

‘What’s he trying to do, say that we can’t play politics with IRS?’

President Richard Nixon ordered his cabinet and aides to access tax returns of his political opponents.
President Richard Nixon ordered his cabinet and aides to access tax returns of his political opponents.

Then Richard Nixon became president. As the Watergate investigation revealed, Nixon used the IRS as a tool to attack his political opponents.

Nixon ordered investigations into his 1972 presidential opponent George McGovern and suggested looking into income tax returns for donors to the Democratic National Committee. The president complained about Treasury Secretary George Schultz’s reluctance.

“What’s he trying to do, say that we can’t play politics with IRS?” Nixon complained about Treasury Secretary George Schultz’s reluctance. “Just tell George he should do it.”

After Nixon resigned, President Gerald Ford issued an executive order preventing the president from obtaining or ordering the disclosure of tax returns. And Congress decided to enshrine these restrictions into law.

In a 1976 tax reform law, Congress declared that tax returns and return information should be treated as confidential. This meant that only tax administrators and entities approved by Congress, which includes Congress, were allowed to obtain and review tax returns. The law also required presidents to inform the Joint Committee on Taxation if they sought to obtain a tax return. As for Congress’ ability to obtain the tax returns, the 1976 changes restricted how non-tax committees could receive tax returns, but did not change the rules for the tax committees.

In the end, Nixon’s abuses led to a restriction on executive branch access to tax returns, but not congressional access, which was much more limited to begin with.

Trump’s Returns

Mnuchin is not yet complying with the Democrats’ request for Trump’s tax return partially because he does not see “the legitimacy of the asserted legislative purpose.”

The history of the provision shows, however, that Congress enacted this measure to enable investigations into private individuals and the highest-ranking government officials to ensure that they are not getting favorable treatment or evading their taxes.

Maryanne Trump Barry, the president’s sister, resigned her seat as a federal appeals court judge on Thursday to avoid an investigation into her ― and her brother’s ― alleged tax fraud.

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