Tax Complexity, Tax Salience and Tax Politics
| Date | 01 June 2015 |
| DOI | 10.1177/0964663915575192 |
| Author | Ann Mumford |
| Published date | 01 June 2015 |
| Subject Matter | Articles |
Article
Social & Legal Studies
2015, Vol. 24(2) 185–201
Tax Complexity, Tax
ª The Author(s) 2015
Reprints and permission:
Salience and Tax Politics
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DOI: 10.1177/0964663915575192
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Ann Mumford
King’s College London, UK
Abstract
This article considers the implications of the tax salience literature for the United
Kingdom. First, the different categories, and definitions, of tax salience that have
developed in the literature are reviewed, and some of the prescriptive implications of
these terms are introduced. Tax salience refers, essentially, to the capacity of taxpayers
to understand legislation. Thus, the potential reasons behind tax complexity and the
potential beneficiaries of it are addressed. The article considers the contribution that the
tax salience literature may make to existing analyses in the United Kingdom, particularly,
in the (1) debate surrounding principles-based legislation and (2) context of newly
formed government offices devoted, to some extent, to considering the role and value of
salience. It is suggested that it is worth heeding the admonitions of Schenk, Gamage and
Shanske, and others, that ‘salience’ is a layered term that should be employed with
specific reference to political, economic and legal contexts. It is also acknowledged that
the conclusions of some portions of the tax salience literature that legislative clarity
should be included only within a list of priorities for legislative drafting, and not neces-
sarily at the top of that list, is evocative of existing analyses of ‘principles-based drafting’
in the United Kingdom, New Zealand and elsewhere. Neither salience nor principles-
based drafting have the potential, on their own, to ‘fix’ the problem of tax complexity.
The article, however, considers the implications of either raising or lowering salience on
the list of desirable factors in drafting, in the particular context of fostering trust between
taxpayers and the state.
Keywords
Tax, salience, complexity
Corresponding author:
Ann Mumford, King’s College London, Somerset House, East Wing, Room SW3.12, London WC2R 2LS, UK.
Email: ann.mumford@kcl.ac.uk
186
Social & Legal Studies 24(2)
Should it matter if taxpayers cannot understand tax law? It is perhaps instinctive that,
yes, it should matter. Indeed it should not be too difficult to make the case against com-
plexity in fiscal legislation in that perhaps the most significant problem with overly com-
plex tax legislation (according to traditional arguments) is that it has a negative impact
upon the ability of taxpayers to comply with their obligations (Cuccia and Carnes, 2001:
113). Additionally, complex legislation may cause a perception that the law is unfair
(2001: 113). It is somewhat surprising thus to learn that these arguments, however intui-
tively appealing, are not supported by a developed empirical literature; moreover, scien-
tific investigations into whether complexity significantly affects compliance largely has
produced ‘mixed’ results (Cuccia and Carnes, 2001).
The absence of developed research in the empirical effects of complex tax legisla-
tion has not prevented the emergence of a sophisticated body of theoretical work. This
article addresses one aspect of this literature, which may be referred to as the ‘tax sal-
ience’, an interdisciplinary branch of legal theory and behavioural economics.
Although this literature has been developed primarily in the United States to date, its
theoretical bases seem to be constructed in a way that is deliberately universal in poten-
tial application.
The term tax salience refers to the gap between a taxpayer’s perception of a tax obli-
gation and the amount that is actually owed. Two leading authors in this field, Gamage
and Shanske, have explained that, ultimately, ‘[t]ax salience refers to how the presenta-
tion of tax prices affects tax behaviour’ (2011: 19). They provide a wide review of the
differing definitions of salience, (Gamage and Shanske, 2011: 19, fn. 14–17) but, gener-
ally, explain that high tax salience indicates that taxpayers have an accurate understand-
ing of the law, whereas the description ‘low tax salience’ refers to a significant gap
between a taxpayer’s impression of legal obligations and those that actually exist,
whether or not the taxpayer is aware of this gap. This literature challenges the general
assumption of political discourse that a tax with low salience must be in need of reform.
The argument is not that low tax salience is in fact a positive aspect of legislation but,
rather, that it is one of a number of potential factors to be balanced when legislation
is being drafted, and, as such, it should not necessarily occupy a top position on this list
of factors.
This article will consider the implications of this literature for the United King-
dom in three parts. First, the different categories, and definitions, of tax salience that
have developed in the literature are reviewed and some of the prescriptive implica-
tions of these terms are introduced. The second section addresses the question of tax
complexity specifically and aims to consider the potential reasons for it, the poten-
tial beneficiaries of it and the contribution that the tax salience literature may make
to existing analyses. The final section will consider salience in the context of tax-
payer confidence in the system and perceptions of fairness. It will consider the
potential of the relatively new Office of Tax Simplification (OTS) (The Office of
Tax Simplification, 2013) for confidence, fairness and salience and the interaction
between politics and tax law. This article will explore a thesis that decisions about
the importance of tax salience involve value judgements and, as such, wider pre-
scriptions about the relative ranking of salience on a list of tax legislative desirables
should be avoided.
Mumford
187
What is Tax Salience? An Introduction to the Literature
The starting point for this article is Gamage and Shanske’s suggestion that the proble-
matics of tax complexity should be considered within the context of the interdisciplinary
tax salience literature, in part because this literature ‘measures how taxpayer [behaviour]
departs from key assumptions of neoclassical economic theory’ (2011: 19, 33). In this
sense, they challenge an existing orthodoxy. They advance the basic precept that the
complexity of tax legislation is inextricably linked with taxpayers’ perceptions of it, and,
thus, it is from the taxpayers’ perspective that calls to simplify or reform legislation must
be considered. The issue is thus entirely one of subjective perception, of which there
are two categories, namely, what tax legislation actually requires and what taxpayers
think that the law requires (Gamage and Shanske, 2011: 19, 33). In traditional, polit-
ical discourse, the gap between the two should be as small as possible (Gamage and
Shanske, 2011).
Gamage and Shanske suggest, however, that there are some problems with the tradi-
tional approach to tax complexity (2011: 33). First, focusing on narrowing the gap, and
on making tax legislation as clear and as simple as possible, necessarily places simplicity
at the top of a list of priorities. This prioritization may occur without sufficient consid-
eration, for example, of the role of taxpayer errors (Gamage and Shanske, 2011: 33). Per-
haps legislation is perceived to be complex by taxpayers because they have
misunderstood it or because they have applied it incorrectly to their circumstances. The
challenge is that it is not necessarily clear if every error should be dismissed as the prod-
uct of poor drafting. Second, the priority given to tax salience as a goal – or, in other
words, the assumption that it is important and valuable that taxpayers should be able
to understand the law – may be exaggerated when compared with other goals of tax leg-
islative drafting (Gamage and Shanske, 2011). Gamage and Shanske do not suggest that
salience does not belong on a list of priorities for tax legislation drafting but, rather, the
argument is that salience does not necessarily belong at the top of that list.
There are identifiable consequences for both high and low salience systems. In a tax
system with complete salience, taxpayers are aware of ‘actual’ taxes when they make
economic decisions, or political choices (see, inter alia, Auerbach, et al., 2010; Congdon,
et al., 2009; Finkelstein, 2009: 972). In a system with lower salience, taxpayers do not
realize the full costs of taxes but they do possess a ‘perception’ of them (Auerbach). Fur-
ther, one of the purported consequences of decreasing tax salience is growth in the size of
government, a concern that can be found in the writings of Mill (Finkelstein, 2009: 970,
citing Gamage and Shanske, 2011–2012: 19; Mill, 1848 [2004]). Indeed, Buchanan, in
particular, argued that ‘tax misperception’ is ‘exploited’ by governments in order to jus-
tify expansion of the state (Finkelstein, 2009). Within these arguments, governments tra-
ditionally are perceived as beneficiaries of low tax salience or, simply, of tax complexity.
Discernible within these assumptions is a lingering suspicion that, perhaps, governments
deliberately conspire to render tax legislation as complex as possible, such that taxpayers
will not be able to tell when they are overpaying.
As mentioned infra, there is not a great deal of empirical research considering
whether taxpayers struggle to comply with, or to protect themselves adequately from,
complex legislation. Perhaps the...
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