Fake News and the Tax Law

The public misunderstands many aspects of the tax system. For example, people frequently misunderstand how marginal tax rates work, misperceive their own average tax rates, and believe they benefit from tax deductions for which they are ineligible. Such confusion is understandable given the complexity of our tax laws. Unfortunately, research suggests these misconceptions shape voter preferences about tax policy which, in turn, impact the policies themselves.

That people are easily confused by taxes is nothing new. With the rise of social media platforms, however, the speed at which misinformation campaigns can now move to shape public opinion is far faster. The past five years have seen a dramatic shift in the landscape of false information and scholars in a variety of disciplines, from law to psychology to journalism, have explored the increasing influence of fake news. Building on this burgeoning literature, this Article is the first to examine the incidence and impact of fake news on tax law.

We analyze a unique dataset of tax stories flagged as “false” or “untrue” by reputable, third-party news sources. We use this dataset to explore common themes in fake tax news, as well as the ways tax laws’ complexity contributes to spreading false information. We then offer recommendations for how tax administrators and policymakers can combat these misinformation efforts. Specifically, we argue that insights from the literature on fake news can and should inform how administrators disseminate true tax information to the public.

Further, understanding what types of tax laws are easily misunderstood or subject to manipulation should inform substantive tax policy design.