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The Two Faces of Tax Neutrality: Do They Interact or are They Mutually Exclusive?

19 Pages Posted: 8 Jun 2007  

Douglas A. Kahn

University of Michigan Law School


The term "tax neutrality" refers to at least two different concepts. In its most common usage, tax neutrality refers to tax provisions that conform to an ideal tax system. A tax provision that is consistent with such an ideal system is described as neutral.

Tax neutrality is sometimes used to describe a tax system that does not create a bias that could influence a taxpayer to choose one investment or course of action over another. As used in this context, a neutral tax provision is one that permits the choice of investment or action to be made on the basis of market or personal considerations without influence from the tax laws. The question arises whether there is a conflict between seeking this type of neutrality and the type of neutrality used to describe conformity with an ideal tax system.

This article also addressed the use of the Haig-Simons definition of income. One these of the paper is that the Haig-Simons definition of income has been used for purposes which it cannot properly serve. The definition is a useful tool, but it does more harm than good when its evaluative attributes are exaggerated.

Keywords: Neutral, Neutraility, Tax, Haig-Simons, Income

JEL Classification: H20

Suggested Citation

Kahn, Douglas A., The Two Faces of Tax Neutrality: Do They Interact or are They Mutually Exclusive?. Northern Kentucky Law Review, Vol. 18, p. 1, 1990. Available at SSRN:

Douglas A. Kahn (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4043 (Phone)

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