How the IRS could help close the wealth gap in the United States

Income inequality is on people’s minds. If you hadn’t heard of the junior senator from Vermont two years ago, you certainly have now. You may even be using his phrase “billionaire class” to refer to those who have been siphoning wealth from less prosperous Americans.

That the country has a yawning wealth gap is tough to deny. One obvious way to close that gap is through comprehensive tax reform, but it doesn’t seem like Washington is seriously attempting to tackle that issue. Another, less perfect, solution is for the Internal Revenue Service to make everyone’s tax returns public.

To protect privacy, those data should mask individual taxpayer identities—telling you, for instance, the gender and demographic characteristics of individuals, along with where they work, their earnings and how much they paid in taxes, without providing names. Even that amount of information could stir up enough outrage to inspire policy change.

There is some history to this idea. Sweden, Norway, Finland and Pakistan publish everyone’s tax records publicly, with varying restrictions and caveats. Let’s take a look at what happened in one of those countries as a roadmap for how the U.S. might approach it.

In Norway, tax records have been publicly available since the mid-1800s, but the impact on most people’s lives was negligible until 2001. At that point, the government digitized tax records, and Norwegians became fascinated with looking up data for their friends, family members, bosses and neighbors online. It turned an old legal quirk into an epidemic of financial voyeurism. Newspapers began creating databases and search tools, and it wasn’t long before a Norwegian could generate a list of Facebook friends’ incomes or a house-by-house map of a neighborhood’s net worth.

To back up for a second, Norway is by its very nature a far more equal society than the United States: a comprehensive welfare state, high taxes and a fondness for organized labor undergird its system, as does a culture that celebrates equality. The “Law of Jante” is a common term for the Nordic tendency to frown on individuals’ accumulation of power and wealth. And, economically speaking, the top 10% of Norwegians earn 6.2 times more than the bottom 10%. In the U.S., that ratio is 18.8. Inequality is rising in both countries, but less quickly in Norway.

However, from a privacy perspective, Norway’s tax transparency has turned into a national nightmare. October, when the Skattelister (“tax lists”) come out, is the cruelest month. Jon Stordrange, director of the Norwegian Taxpayers Association, told the Associated Press in 2009 that children from poor families were being taunted at school, while their parents received much the same treatment at the grocery store.

People began to lose patience with the policy. A 2007 survey by Synovate showed that 32% of the public was in favor of the list, while 46% opposed it. Authorities eventually responded by allowing taxpayers to find out who was looking them up. Tax record searches dropped 88% over the following year. (Visits to the database didn’t drop nearly as much, however, since people still logged in to see who’d searched for them, and some clever entrepreneurs sold the right to search under their names.)

Even though Norway is quite different from the United States, and its transparency effort turned into a debacle, it still offers valuable lessons as Americans search for ways to blunt the edges of capitalism.

Since publishing names-and-all tax records proved to be problematic, publishing data anonymously, or pseudonymously, could be a better option. Americans would have little hope of snooping around on family and friends, but they’d have a reasonable chance of finding out what kind of bargain Uncle Sam gives, say, Mark Zuckerberg or Warren Buffett.

Buffett, despite being one of the wealthiest people on Earth, has also been one of the most vocal advocates for tax reform. In 2011, he penned a New York Times op-ed encouraging lawmakers to “stop coddling the super-rich.” Therein he shared a startling anecdote: the prior year, he paid 17.4% in federal income and payroll taxes, lower than anyone else in his office.

Buffett’s revelation made quite a splash. A month later, he lent his name to the Obama administration’s “Buffett Rule,” a proposal to tax all households making over $1 million a year at a minimum rate of 30%. The rule made its way into a 2012 Senate bill before ultimately falling victim to a GOP filibuster. Sadly, a year later, Buffett said he was still paying a lower tax rate than his secretary.

Buffett is just one person, who voluntarily disclosed his information to make a political point. He’s also the kind of guy who wants to give away all his wealth before he dies, and the kind of guy who doesn’t want his secretary to be burdened with a higher tax rate than his. But not all rich Americans are like him.

Armed with information about individual U.S. taxpayers across all income levels, researchers could perform data dives and journalists could get a footing to discover more Buffett-like stories.

The IRS is able to do this—in fact, it already publishes a small sliver of data about the 400 top earners, after a long delay. The most recent data available, for 2012, show that those Americans, representing 0.0001% of the population, paid an average effective tax rate of just 16.72%. Only 30 of them paid the average American worker’s tax rate of 30-35%.

We could do more to foster transparency, and we should. We should publish tax data for everyone, not just 400 people, and incorporate social markers such as gender, race, language, geographic location and level of education, to see how they affect economic opportunity. There is an inevitable privacy tradeoff, but concealing individual identities can alleviate that.

Citizens deserve the information they need to change the system. Show us the data.

David Floyd is an Atlanta native, Kenyon alum and NYC resident. His work has also appeared in Investopedia.