Politicians must be more open about their tax affairs

POLITICIANS have begun lining up to declare their willingness to publicly reveal their personal tax details.

The practice will never result in true financial “transparency,” and the word shouldn’t even be used when talking about political leaders’ tax statements. Still, it’s a step in the right direction.

Both established office holders and candidates for office have long held that taxes are a personal matter. Many are changing their rhetoric now, saying they have no problem with public disclosure in principle.

Why the new openness? Part of the reason is that when one leader says he or she is willing to make personal finances public, it becomes very hard for others to continue to maintain that they won’t.

Disclosure takes on a momentum of its own. Nobody who wants the public’s trust can risk appearing as if they have something to hide, and that certainly extends to details on how much one earns and where that money comes from.

Another part of the reason, however, may be that tax statements often don’t reveal individuals’ real income. If you want to avoid taxes, the first thing you do is hide income or make it someone else’s. Wealthy people – including, one must assume, wealthy political leaders – learn to get good at this.

Spouses who fall into lower tax brackets get assets put into their name. Income is moved to other countries or put in trusts. Properties are put into joint ownership.

Still, public disclosure of tax statements is a good start. Some in the UK have protested that disclosure practices in the United States, where it’s routine for politicians to make their tax statements public, haven’t accomplished anything positive. I’d argue otherwise.

It may be true that US politicians see little or no benefit by revealing personal financial details, but politicians aren’t the ones who are supposed to benefit. People who vote are supposed to benefit.

Politicians make decisions that affect industries and market sectors, and sometimes politicians have a stake in those same sectors.

Disclosure is sometimes a matter of, if nothing else, making it clear whether leaders stand to personally gain from their own political positions. Nowhere is this more true than in the matter of tax policy itself. Take the cut in the UK’s top tax rate, from 50 per cent to 45 per cent. Many politicians obviously fall into that top bracket, as David Cameron has already said he does.

Does taking a political stance that benefits oneself always indicate a conflict of interest?

No, it doesn’t. Wealthy politicians who support trimming the top tax rate may very well have taken that stance because they genuinely believe it’s the best policy for spurring the economy.

They may even be right. But when that top tax rate happens to be their own, wouldn’t you rather know it?

Ted Kemp is senior news editor for CNBC.com