Paul L. Caron

Friday, February 25, 2022

Weekly SSRN Tax Article Review And Roundup: Saito Reviews Davis’s Taxing Choices

This week, Blaine Saito (Northeastern; Google Scholar) reviews a new work by Tessa Davis (South Carolina), Taxing Choices, 15 Fla. Int'l U. L. Rev. __ (2022).


Choice is often bandied about in tax discussion. Indeed, the very notion of marginal effects that taxation is based on the idea of either inducing or avoiding such inducement of choices. We also use choice as a proxy to determine what should count or not count as an item of income or deduction. But as Tessa Davis argues in her piece Taxing Choices, forthcoming in the Florida International University Law Review, there is a choice problem in taxation. Too often, we use choice and related concepts like neutrality, to hide our value judgments and normative frames. In pushing an idea called “choice as heuristic” and in drawing from some of the debates about choice in Contract Law, Davis forces us to rethink what we are doing when we use the concept of choice in our tax discussions.

Davis introduces a taxonomy of choice in tax. The first dominant strain is “choice as metric,” which is a view that seeks to reduce the distortionary effect tax has on choice. This view falls in line with those theorists who talk about a comprehensive tax base and seek to eliminate tax expenditures. The flip side is “choice as feature,” where the point is to create distortion to induce certain behavior. But the debate between these two views misses something.

Davis thus introduces the idea of “choice as heuristic.” That idea is when we use the rhetoric and perceptions of choice as if it were a tool that can aid us in finding what is truly income. But like the tool of language itself, the concept of choice often traps people into a double bind. Ultimately the heuristic of choice instead encodes certain normative values and allows for the introduction of bias.

Davis draws on Contract Law to develop this understanding. Contract Law has wrestled with the problem of choice as heuristic for far longer.  Some scholars view contracts as based on the concepts and morality of promising. Yet, there are others who take a more realist and relationalist viewpoint that contracts arise out of and are bounded by a social context. These two views conflict in the areas of defenses to contracts, mainly duress and unconscionability. Those who view promise and free will as sacrosanct will almost always construe these defenses narrowly; people are always free agents and have the choice unless there is literally a gun to their head. But relationalists and realists view these defenses more broadly, noting that choice is often contingent on circumstances.

What happens in these Contract Law debates is that choice here encodes certain assumptions and values. For classical contract as promise types, it encodes a certain order of free individuals acting in a laissez faire market view. Within relational/realist points, it encodes other ideas such as subjugation by market structures or other social hierarchies. In the end, while cloaked in a discussion about doctrine, what is really playing out is a debate about value systems.

Davis then returns to tax with many examples. Three examples, selected from the article, illustrate choice as heuristic. In United States v. Gotcher, the head of a Volkswagen dealership and his wife received a trip to Germany, ostensibly to visit VW facilities. In declaring that at least Mr. Gotcher’s trip was not income, both the district court and the Fifth Circuit say he was compelled to travel. But choice is not really the touchstone. Mr. Gotcher is, after all, not truly compelled. But the market requirements are what constrain choice. The courts here are using choice as a stand-in for the values of promoting free enterprise and business formation. As for Mrs. Gotcher, the district court found that her trip was not income, but the Fifth Circuit reversed. The district court reasoned that she too was compelled to go, because her husband may eventually need her counsel and advice. But the Fifth Circuit said she was not necessary on the trip. Rather, only if the sole purpose of her going on the trip was to provide counsel to her husband would it be excludible. The different arrangements of husband and wife further reveals then the choice as heuristic problem. Does the wife actually have choice here, and how is that concept of choice constructed? It is also not a far leap to begin to see here both value judgments and biases on the role of wives with a business-owner husband cloaked behind this objective search for choice and income.

Similar matters come up with the medical expense deduction under § 213. In Morrissey v. United States, the IRS and the courts agreed that taxpayer, a gay man, was exercising a choice to have a baby via surrogacy. There was no medical condition, because men cannot biologically have a baby. But that contrasts with the situation of an infertile woman, who can get a deduction. There she exercises no choice, because it is merely restoring the natural order of things. The use of choice here begs the question as to what values and biases are put into the analysis. Indeed, Davis notes that the frame of choice here is that Morrissey could just choose to procreate naturally with a woman. Such a view hides certain biases against LGBTQ people in a discourse of choice.

Finally, Davis reveals the level of bias in choice as heuristic when talking about the deductibility childcare expenses. Encoded in the language of choice here is the notion that a woman is making a choice to foist her traditional duties onto others by paying them. This view of choice has a significant bias regarding gender roles. The use of choice as heuristics, though, masks these biases. Furthermore, the use of choice here shows that certain values, that of the neutrality of tax in market decisions, trump the constraint of choice that many families face. Many do not have the choice, because of economic circumstances or other reasons to have a parent stay at home to rear the child; they may need to work to provide for their child.

Davis then forces those of us who talk about tax policy to take a pause. Tax will always have a technical component and we want to have technocratic decision making. But the piece points to a danger of that reification. When we do not address the values that underlie and bind us, then we dangerously allow for bias and other problems to creep into matters and come off with the patina of objectivity. That then obscures for the public what is actually at stake in many of these intricate tax policy questions and may well create policies and interpretations with embedded values that they would not support. The ideas also push us, as those involved in tax, to think more carefully about what values we are promoting when we talk about eliminating tax preferences or supporting some idealized income tax base. Ultimately, Davis should make us think what are our normative values and how our use or abuse of choice furthers, obscures, or hinders those goals.

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

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