Did Somebody Change the Definition of “Revenue Neutral”?

by Joshua Tucker on January 6, 2013 · 6 comments

in Political Economy

The New York Times reports today:

Mr. McConnell did say he would favor reform if it was “revenue neutral,” meaning that any new tax revenue would be matched by spending cuts.

I can think of two ways to define “revenue neutral”, neither of which would be what McConnell is describing. Invertorwords.com defines revenue neutral as a “taxing procedure that allows the government to still receive the same amount of money despite changes in tax laws”; for what it is worth, you can find basically the same definition at the Tea Party Patriots website. This type of definition of course has nothing to say about spending.

The other way to think about “revenue neutral” would seem to me to be a set of policies that leaves the government’s balance sheets (i.e., the deficit or surplus) unchanged. This could encompass both tax and spending, but in this case “revenue neutral” would mean that any new spending increases need to be matched by increased tax revenue, or that tax cuts need to be matched by cuts in spending.

Raising tax revenue and cutting spending might be fiscally prudent (if you are worried about long-term debt) or fiscally irresponsible (if you are worried about stimulating the economy) but it isn’t “revenue neutral”. Perhaps McConnell meant to say “politically neutral”?

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