The Legal Salience of Taxation

Abstract

The enforcement of tax laws affects the distribution of tax burdens. Many tax enforcement regimes incorporate taxpayer-initiated administrative procedures for adjusting tax liabilities. For these procedures, individual decisions to seek administrative relief are the first causal link in the chain of actions leading to tax adjustments, decisions that can be driven by factors that are arbitrary from the perspective of the tax law and vary across individuals, effectively resulting in heterogeneous enforcement. This effect can undermine the fairness and efficiency of the tax system, but has been largely ignored. Using a novel dataset, I study the property tax appeals process and find that the salience of the property tax has a large effect on the probability of appealing. Although tax scholars have studied market and political responses to tax salience, I report the first evidence of how salience affects individuals’ use of the legal system and introduce the concept of “legal salience.” I find that legal salience heterogeneity, unwittingly induced by government policy and private actors, effectively shifts the property tax burden in New York City toward certain mortgagors, who are more likely to be racial minorities, foreign-born, and working families with children. I argue that because enforcement effects can cause the actual assignment of tax liabilities to differ from the assignment stipulated under the law, tax laws should be evaluated in light of the pattern of enforcement that can reasonably be expected to arise rather than under an assumption of perfect enforcement.