Paul L. Caron

Thursday, October 19, 2023

Fleischer Presents Tax Optics: The Inflation Reduction Act Of 2022 Today At Columbia

Victor Fleischer (UC-Irvine; Google Scholar) presents Tax Optics: The Inflation Reduction Act of 2022 at Columbia today as part of its Davis Polk & Wardwell Tax Policy Colloquium hosted by Michael Love: 

Vic-fleischerThis Article argues that understanding optics—how legislation appears to average voters, as opposed to how it appears to experts—is critical to understanding how and why the tax legislation that makes it into law looks so different from the tax policy preferences of Congressional and Treasury staff, academics and other policy experts.

This Article evaluates the Inflation Reduction Act through the lens of tax optics. I argue that optics, not policy or politics alone, best explains why the final bill looks like it does.

To illustrate my argument, I start with one part of the Build Back Better agenda that did not make it into law—carried interest reform—before turning to the Inflation Reduction Act. Each section of the Inflation Reduction Act reflects, at least in part, the importance of optics in the modern tax legislative process. In concrete ways, the resulting legislation takes advantage of common errors in tax policy analysis, such as focusing on tax rates rather than the tax base, focusing on the nominal incidence of a tax rather than the economic incidence of a tax, and discounting the perceived cost of tax expenditures compared to direct spending.

If my descriptive claim is correct—that optics play an outsized role in the tax legislative process, at the expense of expert opinion—the implications may be important. First, optics may play a useful role in raising revenue to fund important public policy goals. Second, optics may have the unfortunate effect of distorting policy away from first best options. Third, optics may introduce unnecessary complexity into the tax system.

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