TaxProf Blog: Weekly SSRN Tax Article Review And Roundup: Speck Reviews Claussen’s Tax Intelligence

The U.S. income tax system collects, alongside revenue, a vast trove of information about taxpayers’ assets, activities, and relationships. Kathleen Claussen, in a provocative essay, proposes that the federal government mobilize this wealth of tax information affirmatively to achieve foreign policy aims. Claussen differentiates her proposal from constructions of “tax policy as foreign policy,” such as those expertly explored by Ashley Deeks and Andrew Hayashi, by emphasizing “tax law for foreign policy” (165), in which tax reporting serves as intelligence gathering, and perhaps even explicitly as surveillance. Claussen situates her proposal within broader trends in foreign policy towards a “geoeconomics toolkit” of “unilateral economic tools” that align private actors with state-centric goals, and Claussen posits that tax may, in fact, help “normalize [this] otherwise exceptional toolkit” (160).

Policymakers’ use of taxation as a means for nontax goals, rather than as an end in itself, is both familiar to academic commentators and endemic to the U.S. tax system. The radicalism in Claussen’s proposal stems, in part, from how comprehensive this intelligence-oriented tax expenditure might be, or might potentially become. Information from any existing filing or communication conceivably could bolster foreign policy work, and, as Claussen argues, “additional tax requirements are likely to yield intelligence that enhances the work of clandestine operations” (159). At the extreme (and, to be fair, Claussen does not go this far), all the world’s a tax expenditure, and everyone has a role to play in the theater of foreign policy.

Also notable in Claussen’s proposal is the role of administrative agencies in collating and sifting the private-sector tax data that ultimately will inform foreign policy. At present, Claussen observes “little coordination from the top or bottom” in digesting the reams of “self-cultivated intelligence” across different segments of the Executive Branch (168–69). Some synchronization and centralization seems prudent—and probably cannot be accomplished by executive action alone, at least not without interminable hearings afterwards. Even setting aside the IRS’s statutory and historical barriers to inter-agency coordination, Congress seems somewhat unlikely to authorize this deepest of deep states. Republicans in Congress already want to disarm the IRS, and a bill that transforms the IRS into the CIA presumably would face substantial barriers to enactment. Moreover, I cannot imagine that the IRS would be thrilled to participate in (or be complicit in, or be accused of) open-ended intelligence-gathering, shielded from public inspection for reasons of national security.

Indeed, the integration of tax and foreign policy programs may strain administrative agencies in complex ways. One threshold is the conventional question, explicated by Weisbach and Nussim, of which agency (or agencies) should implement a given policy. Claussen highlights the general absence of public-sector infrastructure around geoeconomics, which perhaps presents an opportunity to rationalize the entire apparatus (with taxation, possibly, as the motive force). Another dynamic involves private-sector taxpayers, who may have trouble distinguishing inputs that advance run-of-the-mill tax administration from those that serve foreign policy aims. This might be good, according to Claussen, since the “ordinary, subtle, and quotidian” nature of tax information may fly under the radar with respect to skeptical foreign states or invidious foreign actors (172–73). But one also could envision a chilling effect among tax lawyers, accountants, and their clients. If returns and other communications face foreign policy scrutiny as well as regular tax audits, taxpayers may obscure, obfuscate, and lobby accordingly. At the end of the day, trading foreign policy benefits for tax administrative costs is a tricky proposition.

Finally, at the heart of Claussen’s paper are broader questions about information-gathering at a crucial juncture in the era of big data. No longer should we expect that the raw products of reporting will flow through the hands of human analysts arranged by Congress or the President in some sort of administrative structure. Instead, the default presumption should be that every large pool of records eventually will be used to train an artificial intelligence. And among the many redundancies and irrelevancies that these AIs produce will be counterintuitive but compelling readings that have genuine promise to affect foreign policy, both positively and negatively. Human decisionmakers will bear the burden of parsing these myriad results—a very different burden, I think, than that traditionally faced by foreign policy specialists. This additional layer warrants some weight when deciding whether to integrate latent bodies of tax and other data into intelligence networks, especially if integration decisions operate as a one-way ratchet. For these reasons, firewalling public sector data—and resisting the incorporation of tax intelligence—may have very particular virtues in the current technological moment.

Overall, Claussen’s insightful essay expands and deepens the connections between tax law and foreign policy. As Michael Graetz and others detail, lawmakers have deployed income taxation as foreign policy for more than a century. The role of tax information, however, has received less attention. For this reason, Claussen’s compelling essay should be of interest to policymakers and academics inside and outside of the traditional disciplinary boundaries of taxation.