Wednesday, November 7, 2012
Leigh Osofsky (Miami), Hypersalience and and Why Understanding Behavorial Tax Law and Economics Means Understanding Tax (Jotwell) (reviewing Lilian V. Faulhaber (Boston University), The Hidden Limits of the Charitable Deduction: An Introduction to Hypersalience, 92 B.U. L. Rev. 1307 (2012)):
[S]alience recently has become a hot topic in tax scholarship. This increasing focus on salience arises out of the behavioral economics school. No longer are taxpayers assumed to be rationally maximizing their utility in the manner that economic models might predict. Rather, behavioral economics suggests that they often rely on mental shortcuts, or heuristics, to make decisions. As a result, scholars have suggested and, to some extent, documented how the salience, or prominence, of a tax provision may determine taxpayer responsiveness to the provision. Scholars have identified two types of salience: market salience (the impact of salience on market, or economic, activity) and political salience (the impact of salience on political outcomes). Faulhaber’s article addresses the scholarship regarding market salience. As Faulhaber describes, the primary focus of such scholarship has been on whether and how low salience taxes (sometimes referred to as “hidden taxes”) may cause taxpayers to underestimate the true cost of taxation and thereby potentially reduce behavioral distortions from taxation, which many view as the Holy Grail of tax policy. ...
At bottom, Faulhaber’s article provides important contributions to both the specific salience scholarship and to tax scholarship employing behavioral economics generally. Her article underscores a lesson any tax lawyer would love: Understanding behavioral economics in tax means more than just understanding behavioral economics; it also means deeply understanding tax law and its administration.