Opportunity Washington has a good post on tax policy terminology that links to a new paper about getting past the loaded term “loophole.” The problem is that people often don’t mean the same thing when they say that a particular tax policy is a “loophole.” For example, some may use it to describe a case when a taxpayer abides by the letter but not the spirit of tax law. Others may use it to mean a benefit that other people get.
The paper, by law professor Heather M. Field, “provides a methodology for translating the rhetoric of ‘tax loopholes’ into meaningful tax policy discourse.” Basically, it’s impossible to come to a common definition of “tax loophole.” Instead, she suggests that rather than just saying something is a loophole, people should describe their tax policy objection (e.g., revenue or fairness) and who is to blame for its existence (e.g., Congress or the taxpayer).
Ideally, this taxonomy can overcome the empty name-calling inherent in the use of the term ‘loophole’ and can advance more policy-based and actionable debate about perceived flaws in the tax system.
Wouldn’t that be nice.
We should be careful with our policy terminology and not assume that others define terms the same way. A recent EconTalk episode gets at this too. Russ Roberts interviewed Vanessa Williamson of the Brookings Institution about her survey of how Americans feel about taxes and how they are spent. She explains that public policy types use terms in ways that may not match up with how they are used by normal people.
This includes the term “loophole”:
. . . when average people, and also when I use the word 'loopholes' I don't mean it in the technical sense of an accident to the tax code. You know, they are referring to all kinds of things that were done absolutely on purpose.
. . . politicians are sometimes unwittingly reinforcing misinformation. Every politician I've ever heard, on any part of the political spectrum, rails against loopholes. Right? Because it's popular to do so. Makes sense, right? But, what you are doing is reinforcing a fundamental misunderstanding about the impact of rates.
Probably the most interesting part for me, though, was the discussion about how the public tends to think that foreign aid and waste/fraud/abuse are large areas of federal spending, when they are actually very small parts of the budget. According to Williamson, this isn’t ignorance on the part of the public, but rather it is that the public defines the terms differently than policy types do. She found that when Americans talk about foreign aid, they are talking not just about stuff like food aid but also about military spending. And regarding waste/fraud/abuse, she found that "when you ask them about what they mean by waste, first of all, they talk a great deal about programs they don't like."