TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Tuesday, May 9, 2017

Field:  A Taxonomy For Tax Loopholes

Heather M. Field (UC-Hastings), A Taxonomy for Tax Loopholes, 55 Hous. L. Rev. ___ (2018):

Democrats, Republicans, media commentators and even academics denounce “tax loopholes.” Speakers may think that they are talking about the same things, but this article demonstrates that people have widely divergent views about what tax loopholes are. Thus, people criticizing loopholes often talk past each other and engage in the tax equivalent of schoolyard name-calling. The response to this problem is not, however, to try to define the concept of “tax loopholes” with precision. Such an endeavor is pointless. Instead, this article provides a taxonomy for translating the rhetoric of “tax loopholes” into meaningful tax policy discourse. This taxonomy posits that any reference to a “tax loophole” should be understood in two dimensions — the tax policy objection and the target of the criticism. Using numerous examples from the popular/political discourse and the academic literature, this article catalogs alternatives on each dimension. Categorizing any purported “tax loophole” using this taxonomy provides a more productive framing of whatever critique is implied by any use of the “loophole” label, thereby enabling the elevation of the quality of the conversation about the individual tax preference. This taxonomy may be particularly useful now, as our political leaders embark on efforts to reform the tax law, because the taxonomy can help us better understand and advance the debate that will certainly surround those reform efforts.

In addition, the taxonomy can be used in the aggregate to provide insight into how groups of people perceive the tax system. As an example, this article applies the taxonomy to media references to tax loopholes (from CNN, Fox, the Wall Street Journal and the New York Times) during the eighteen months preceding the 2016 presidential election, thereby revealing how narratives about tax loopholes varied by media source and ideological perspective.

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Sir, you realize we no use the vulgar term "tax loopholes." The proper syntax is "public policy tax expenditures."

Posted by: Dale Spradling | May 9, 2017 5:27:20 AM

Actually, in the Senate, we use "tax preference."

Posted by: TheTurk | May 10, 2017 7:38:10 AM

There is only one "income tax loophole" and it can be comprehensively depicted on a graph where points appearing opposite a vertical "Y" axis show the percentage of the income taxed at ascending income levels shown on an "X" axis stretching to the right.

Under a system of progressive income taxation such as ours these, points ascend as they connect to create a line rising in a northeasterly direction as income rises. .

The roughly triangular shaped area below the 100% level of taxation but above the existing level of taxation shows the "tax loophole" area. Contrary to the general wisdom, these loopholes favor the poor who are making out like bandits because they are allowed to keep so much of their incomes.

Closing this loophole will allow us to switch to a 3 line postcard sized income tax return which can electively be filed using an envelope for those who are concerned about their privacy. It would read:

Line 1. Income (include all of it) $___________

Line 2. Taxes already paid $___________

Line 3. Pay it now! (subtract line 2 from line 1) $___________

Posted by: Joseph W. Mooney III | May 11, 2017 8:43:18 AM