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  • Print publication year: 2010
  • Online publication date: December 2010

2 - What is tax policy?


Anyone who has studied a foreign language knows the difficulty of speaking words when she is not grounded in the culture that shapes them. This problem also arises in one's native language for children who frequently know words but take them literally, for example, giving the house a coat of paint.

It is not easy to define what is meant by the term ‘tax policy’. For the purposes of this book, tax policy is broadly defined, and addresses engagement with some forms of policy choices evident in fiscal legislation. A form of traditional ‘tax policy’ analysis, largely developed in the US literature, involves consideration of tax expenditures. They have been defined as ‘revenue losses arising from provisions of the federal tax laws that allow a special exclusion, exemption or deduction from gross income or that provide a special credit, a preferential rate of tax or a deferral of tax liability’. The reason why what is effectively tax relief has been characterised in this way is that a government, rather than simply giving money to a citizen, instead has elected to use the tax system to provide this economic support. Thus, the distinction is that ‘[t]hese special provisions are not necessary to implement the income tax structure itself but are instead government expenditures made through the tax system, hence the name “tax expenditures”’.

Traditionally tax policy involves consideration of choices about revenue collection and spending. A ‘good’ tax policy is often described as one that is equitable, efficient (or neutral) and simple.