Tax Law

The Myth of Revenue Neutrality

Somehow the concept of revenue neutrality has become a fundamental principle of tax reform. . . .

The principle of revenue neutrality says that you can change your tax system all you want as long as it collects the same amount of revenue. See? Then it's not a tax increase.

But what if one of the reasons you need to change your tax system is because it doesn’t meet its first purpose of collecting enough revenue to run the government? If that’s the case, how can revenue neutrality be a principle of tax reform? . . .

The principle of revenue neutrality is also used to insinuate that no one gets hurt in tax reform – that there are no winners and losers. Nonsense. The very essence of revenue neutrality allows you to raise taxes on one group and lower taxes on another group and claim you didn’t raise taxes.

. . . .

My point is that if we go down the road to tax reform now, we need to chuck the principle of revenue neutrality and replace it with a new principle; call it loser equality. Because if “winners” in tax reform are those who don’t see their taxes go up or actually see their taxes go down, and “losers” are the ones who see a tax increase, and we do the next round of tax reform responsibly, we are all going to need to be losers. We are all going to need to pay more taxes.

View TaxAnalysts' Christopher Bergin's opinion in its entirety on TAX.com.

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