Before we shared our highly personal details with technology companies across the world — before tech platforms analyzed your late-night internet searches, aggregated and sold your likes, and before you gave the phone numbers and addresses of your loved ones to the trendiest apps of the day — the U.S. Internal Revenue Service was the biggest warehouse of personal data about Americans’ lives.
Much of the information we report on our tax returns today can easily be gleaned from an internet search. Tax data doesn’t feel as personal as the really personal information that is collected about us by tech companies, such as our locations, email and text content, internet search terms, and social connections. However, for most of the 20th century, the single activity in which Americans regularly disclosed the most personal information was to file their tax returns with the IRS. This information collected by the IRS was considered personal and confidential by most Americans.
Today, tech companies stand in the footsteps of the IRS as the newest collectors of Americans’ personal information. The issues that we are grappling with today about data privacy mirror the issues Congress debated more than 40 years ago in the regulation of tax data. Congress noted in 1976:
“... the IRS has more information about more people than any other agency in this country. Consequently, almost every other agency has a need for information about U.S. citizens, therefore, logically seeks it from the IRS. However, in many cases the Congress has not specifically considered whether the agencies which have access to tax information should have that access.”
One could make the same statement today by substituting “IRS” with “Facebook and Google” and “other agency” with “data brokers.”
The IRS has been the custodian of taxpayers’ confidential data since 1862, and its experience offers a useful lens to analyze today’s data privacy debates. To understand where we should go, it helps to understand where we’ve been.
Explosion of data on Americans’ lives
Throughout the 20th century, income tax laws became more detailed, developing from a simple income tax on the wealthiest Americans into the complex Internal Revenue Code we see today with its myriad deductions, credits and exemptions. The increasingly complicated tax system meant Americans were required to disclose to the IRS more detailed information about not just their income, but their marital and family status, household members, sources of income, losses, debts, investments, gifts, and on and on. As a result, tax forms could reveal ever more intricate details about Americans’ lives, and the IRS found itself with an enormous trove of data about Americans.
Other government agencies coveted access to that data for their own programs and use, and the IRS was free to share that information with other agencies. As such, from the 1930s to the 1970s, there was unrestrained sharing of tax returns across the government in which the IRS served as a “lending library of confidential tax information” for other parts of the government. To illustrate that point, during the first half of 1974, more than 20 million tax returns were provided to federal agencies outside the IRS.
Political use of data
The lack of guardrails around the use of tax data meant that government agencies weren’t just accessing and reusing Americans’ data to implement their own programs, it also meant Americans’ tax data was open to political abuse.
Various controversies made headlines throughout the 20th century as government officials used IRS data for political purposes. Andrew Mellon, as treasury secretary under President Calvin Coolidge, used the IRS to target a senator who launched a congressional probe of tax rebates given to Mellon companies during World War I. Not only did Mellon’s efforts backfire, but Franklin D. Roosevelt used his playbook to launch a notorious 14-month tax trial against Mellon. (Interestingly, Mellon offered a compromise to build the National Gallery of Art and endow it with his art collection, which Roosevelt accepted but made no change in the investigation.)
It wasn’t until the Watergate investigations revealed that White House Counsel John Dean had sought from the IRS tax information about political “enemies” of the Nixon administration that concerns about the rampant disclosure of tax data reached greater intensity. Richard Nixon is heard in his White House tapes as saying of his rivals, “Are we going after their tax returns? I … you know what I mean? There’s a lot of gold in them thar hills.” Nixon’s abuse of the IRS was included in the House articles of impeachment as violating “the constitutional rights of citizens, confidential information contained in income tax returns for purposes not authorized by law.”
Public distrust
This increasing awareness of the amount of personal tax data being shared across the government on an unrestrained and sometimes corrupt basis sparked profound public distrust in the government. This groundswell of outrage led Congress to enact landmark sector-specific privacy laws that are still largely our data privacy legal platform today. One of those historic laws addressed tax data privacy, and it remains in full force today.
Congressional action on tax data privacy
Congress included considerations of the appropriate disclosure of federal income tax information as part of the Privacy Protection Study Commission that was created by the Privacy Act of 1974. Following multiple hearings on federal tax return privacy throughout the 93rd and 94th Congress, tax confidentiality rules were codified as section 6103 of the Internal Revenue Code, within the Tax Reform Act of 1976. (Prior to 1976, Section 6103 stated tax returns were public records open to inspection by presidential discretion.) The basic principle established by Congress within Section 6103 was that taxpayers have a reasonable expectation of privacy, and IRS abuse of that expectation of privacy would lead to loss of public confidence and impairment of the tax system.
Tech sector today: Atmosphere ripe for regulation
We can draw direct connections between the atmosphere that led to the regulation and protection of tax data in the 20th century to today’s calls for the regulation of Big Tech’s use of Americans’ data. Commentators make ample comparisons between the current political climate and the Watergate era. In the wake of Watergate, Congress established separate and comprehensive privacy protections for individuals’ personal data held by the government. Today, the same concerns about the collection, use, disclosure and sharing of personal information have extended to the commercial space.
In the same way the U.S. government established the Privacy Act and Section 6103 in response to public distrust, private companies of today should prepare for regulatory scrutiny and, at the very least, adopt rigorous privacy policies, sound governance, privacy and ethics by design, and ethical practices that go beyond minimal compliance.
To paraphrase Nixon on tax data, tech companies and data brokers know there’s a lot of gold in them thar hills of the internet. The unregulated mining of the gold of personal data, lack of transparency and growing public distrust in tech companies set the stage, yet again, for comprehensive regulation.
Photo by Kelly Sikkema on Unsplash
