Heather Field’s new work introduces a taxonomy of different types of “tax loopholes,” to guide policymakers and the public, and to promote analytic rigor in the public discourse over tax policy.
Field first demonstrates that the term has no independent and consistent meaning, other than as a vague pejorative (except when used by some advisors and clients proud to “beat the system”). This nebulous terminology, Field argues, impedes meaningful tax policy analysis, and the prospects for tax reform. In order to bridge the gap between loophole rhetoric and substantive tax policy analysis, Field subsequently introduces a taxonomy of loopholes, divided along two axes. First, tax loopholes may be categorized by reference to their normative policy objections.
For example, a tax rule or planning opportunity may be characterized as a loophole because it reduces revenue, violates principles of horizontal equity or neutrality, or promotes undesirable social policies. Second, loopholes may be categorized by reference to the responsible actor. For example, the loophole may be attributable to Congress, the IRS, the judiciary, taxpayers, lobbyists, or advisors. Field argues that a public discourse on tax loopholes that consistently articulates these two considerations—the normative policy objection and the responsible actor—can allow for more effective debate and reform.
The work concludes with an empirical analysis of tax loophole rhetoric in major news outlets (CNN, the New York Times, Fox News, and the Wall Street Journal), and finds that the term is used differently among left-leaning, centrist, and right-leaning sources. For example, left-leaning sources generally reserve the term for violations of fairness principles, whereas right-leaning sources are more likely to use the term for impediments to efficiency and economic growth.
Field’s basic contention, that we can and should have a more substantive tax policy discourse, is undoubtedly true, and her works offers a direction forward. Rhetorical flourishes such as “loophole” may also serve a valuable framing function for voters and policymakers, however, particularly if wedded to more substantive policy discussions in the manner Field suggests. For example, studies by political scientists find that issue framing can have a powerful effect on public opinion and political outcomes. (See, for example, work by Paul M. Sniderman (Stanford) and Sean Theriault (Texas)). Whether issue framing is considered a devious manipulation of public opinion or a useful shorthand for voters short on time and information depends, naturally, on the framing of issue framing.
The work’s empirical component yields compelling insights into the different perceptions of the tax system—and its problems—among different groups. In this world, the label “loophole” seems less consequential than the different views of tax policy attending the term. It would be interesting in future works to extend these findings through further study of tax policy rhetoric, and to investigate correlations between contemporary rhetoric and outcomes.
Finally, this post concludes with a gratuitous (though not self-interested) plug. Field convincingly argues for a deeper public engagement with tax policy. Joel Slemrod (Michigan) and Jon Bakija’s (Williams) recently released 5th edition of Taxing Ourselves: A Citizen’s Guide to the Debate Over Taxes is an invaluable place to start. Public advisory for next holiday season: beware of tax geeks bearing gifts.