Heuristics and Biases in Thinking about Tax

An interesting article:

Heuristics and Biases in Thinking about Tax

EDWARD J. MCCAFFERY
University of Southern California Law School; California Institute of Technology
JONATHAN BARON
University of Pennsylvania - Department of Psychology

Abstract:

The principal findings of behavioral economics and cognitive psychology over the past several decades have been to show that human beings deviate from ideal precepts of rationality in many settings, showing inconsistent judgment in the face of framing and other formal manipulations of the presentation of problems. This paper summarizes the findings of original experiments about subjects' perceptions of various aspects of tax-law design. We show that in evaluating tax systems, subjects are vulnerable to a wide range of heuristics and biases, leading to inconsistent judgment and evaluation. The prevalence of these biases suggests that there is room for skillful politicians or facile political systems to manipulate public opinion, and that tax system design will reflect a certain volatility on account of the possibility of eliciting preference reversals through purely formal rhetorical means. More troubling, the findings suggest the possibility of a persistent wedge between observed and optimal public finance systems.

For example, they performed one experiment that found a framing effect in tax policy: People prefer a "bonus" for married taxpayers (i.e., lower taxes), but don't like a "penalty" for unmarried taxpayers, even though the bonus and penalty are just two sides of the same coin. Another example: People prefer more progressivity in the income tax structure if asked about percentages than if asked about dollar amounts (rich people pay more dollars even under a flat tax, and may look like progressivity to an untrained eye).

Here's another paper by the same scholars:

Masking Redistribution (or its Absence)

JONATHAN BARON
University of Pennsylvania - Department of Psychology
EDWARD J. MCCAFFERY
University of Southern California Law School; California Institute of Technology

Abstract:
Research has shown that people vary widely in their support or opposition to progressive taxation. We argue here that the perception of progressiveness itself is affected by the nature of the tax system and by the way it is framed, or presented. Experiments conducted over the World-Wide Web and using within-subject design demonstrate that subjects suffer from a range of heuristics and biases in understanding and supporting progressive or redistributive taxation. After reviewing some prior results, we report three new studies. Two of them indicate that people do not sufficiently appreciate the reduction of progressiveness that results from the use of tax deductions to partly reimburse private expenditures. The third indicates that people do not fully appreciate the reduction in progressiveness that results from cuts in government services.