The Hidden Limits of the Charitable Deduction: An Introduction to Hypersalience

INTRODUCTIONIn the last several years, the concept of salience, which originated in cognitive psychology literature and made its way into behavioral economics, has been mentioned in almost every conceivable field of study. Salience refers to the prominence of an item: the more salient something is, the more aware individuals are of its effect. Budget-conscious shoppers are advised to pay with cash because it makes their purchases more salient to them;1 stores have taken to printing customer savings on receipts to make the benefits of shopping with them more salient to those same shoppers.2 Economists have discussed salience in a variety of areas, ranging from highway tolls that become less salient as more drivers enroll in EZ-Pass programs3 to sales taxes that become more salient when posted prices are rewritten to include them.4In the area of income tax policy, salience has become an increasingly popular topic. Starting with McCaffery in the 1990s and continuing today, many tax scholars have discussed the prominence of specific tax provisions and the tax system as a whole in the mind of taxpayers. Underlying these discussions is the idea that, as a tax becomes less salient, taxpayers become less conscious of the effect of that tax. In response, they oftentimes become more willing to pay that tax, and there is less behavioral distortion to avoid that particular tax.This general introduction to low salience - or "hidden" - taxes ignores the normative implications of taxpayers becoming more willing (or less opposed) to pay a tax when they are less aware of it. Some commentators argue that this lack of awareness is inherently a problem: taxpayer confusion or misguidance is objectively wrong, and policymakers should never take advantage of this confusion.5 Others argue that this confusion creates an opportunity for policymakers to raise revenue for needed policies without facing the wrath of the taxpaying citizenry.6This Article argues that, to date, the literature has essentially ignored a significant aspect of salience. The vast majority of articles addressing taxpayer awareness focus on provisions that increase the tax burden of taxpayers - what this Article refers to as "revenue-raising tax provisions." They debate whether or not taxes should be hidden, the implications of hidden taxes, how taxes become hidden, and how to respond to the consequences of hidden taxes.7 What they generally do not discuss is the salience of provisions that decrease the tax burden of taxpayers - deductions, exclusions, and credits. In the following discussion, this Article will refer to these provisions collectively as "revenue-reducing tax provisions."This Article begins to fill that gap and argues that revenue-reducing tax provisions raise new issues to consider when discussing salience. Because deductions, exclusions, and credits are in many ways the mirror image of revenue-raising tax provisions, taxpayer awareness of these provisions often acts in the reverse direction of provisions that increase tax payments. While taxpayers arguably underestimate their tax liability as provisions that increase that liability become less salient, the opposite is true for many revenuereducing tax provisions. For taxpayers to underestimate their tax burden - or overestimate the reduction in their tax burden - as a result of the effect of deductions, exclusions, and credits, those tax provisions must become more salient. Although commentators have alluded to the high salience of certain revenue-reducing tax provisions,8 they have not discussed the market salience of these provisions in detail. This Article expands on that aspect of salience and discusses its implications.As a way of explaining the salience of certain revenue-reducing tax provisions, this Article introduces the concept of hypersalience. Hypersalience occurs when a tax provision is fully - or almost fully - salient, but the limits restricting that provision's application are hidden, or less salient. …