TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, November 17, 2017

Weekly SSRN Tax Article Review And Roundup

This week, Sloan Speck (Colorado) reviews a new work by Kitty Richards, An Expressive Theory of Tax, 27 Cornell J.L. & Pub. Pol’y ___ (2018).

Speck (2017)In the early twentieth century, Joseph Schumpeter wrote that “[t]he spirit of a people, its cultural level, its social structure, the deeds its policy may prepare—all this and more is written in its fiscal history.” Following the money tells us more than just who has what; it yields insights into who we are, and what we want to be. Kitty Richard’s interesting and provocative article, An Expressive Theory of Tax, gives a framework for understanding these types of connections between tax law and society, as well as a number of examples “where what the tax code says is explicitly preferenced over what the code does.”

A significant accomplishment of Richards’s project is positive: thick description of “the values and desires that animate policy debates and legal opinions” in taxation. Richards analyzes the expressive aspects of public debates over the taxation of legal brothels in Nevada, the marriage penalties and bonuses doled out by the federal income tax, and the public policy exception for the deductibility of certain expenses. Furthermore, Richards claims that “cheap” talk of (frequently ineffective) incentives obscures the expressive inflection of debates over tax benefits for retirement savings, among other areas.

Richards also takes a normative perspective, indicating that policymakers should consider the expressive nature of tax law as an independent primary value, alongside more conventional norms such as equity, efficiency, and simplicity. A culturally informed perspective can align legal reforms with prevailing understandings of what tax law should and should not valorize. Sometimes, this approach will yield beneficial results (in the estate tax area, for example); in other situations, Richards advises policymakers to acknowledge expressive ends while minimizing the damage they cause (she cites the home mortgage interest deduction). Richards states that “[s]ocial meaning matters,” and it’s hard to argue with her.

One wonders, however, whether political economy stories might adequately explain the expressive phenomena that Richards observes. According to Richards, brothel owners in Nevada seek the “legitimacy” that comes with paying state sales and business taxes, while politicians work to keep brothels out of the “respectable” economy, even in a revenue-constrained environment. But taxation often operates as a one-way ratchet, and government may struggle to concede a revenue stream, once that stream is established—a sort of institutional loss aversion. (This effect intensifies if tax revenue is nominally dedicated to particularly worthy causes. No politician wants to cut school funding to give tax relief to brothels.) Taxing now may preclude regulation later, and, for politicians, this concern may have particular salience in a state that derives substantial revenue from gambling.

Another tenet of expressive theory is the notion of expressive harms, which encompasses the detriment to individuals from laws that denigrate people like them. State-mandated racial segregation is a paradigmatic example, as Richards notes. Specifying these expressive harms seems critical to a fuller understanding of how expressive theory applies to tax law. By enshrining joint filing in the tax law, are working women harmed in a way that dollar transfers cannot remedy? Similarly, in the debate over whether Nevada should tax brothels, Richards gives voice to (almost entirely male) brothel owners but not to (presumably largely female) prostitutes. These workers, however, seem the most likely to suffer when the state relegates their industry to the margins. Expressive theory provides a lens to explore issues of race, class, and gender in society, and Richards draws taxation into this conversation—and also shows the need for further work in this area.

Finally, Richards argues that lawmakers sometimes should “choose policies with otherwise sub-optional instrumental effects if they express the right thing about our society’s values.” Trading first-best policies against socially constructed norms is tricky business, however, and the conditions in which expressive values control should be specified carefully. If society’s values are wrong, then tax law’s expressive function could serve as a reasonable counterweight—assuming that no other area of law could serve this purpose more effectively. The expressive benefits may be worth the equity, efficiency, or behavioral costs. More complicated is the situation in which society’s values are right (or respected) but implicate bad policy choices, and a framework for making these types of decisions is sorely needed.

Overall, Richards provides a much-needed explication of expressive theory as applied to taxation, and her paper makes a valuable contribution to scholarship on tax law and society.

Here’s the rest of this week’s SSRN Tax Roundup:

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