GAO: Tax Expenditures Deserve Greater Oversight

In a recent report, the Government Accountability Office (GAO) noted that tax expenditures deserve greater scrutiny and the federal budgeting process provides an opportunity to increase oversight.

Tax expenditures — special credits, deductions, and other tax provisions that reduce taxpayers’ tax liabilities — represent a substantial federal commitment. The credit union tax exemption is a tax expenditure.

U.S. Treasury estimates that $1.23 trillion in federal revenue was forgone from the 169 tax expenditures reported for fiscal year 2015. However, most federal agencies surveyed in the report could not identify how the tax expenditure furthered the mission of the agency.

The report points out that only proposed tax expenditures or those that expire are subject to review within congressional budget processes. Existing, non-expiring tax expenditures are not subject to such review. The credit union tax exemption is a non-expiring tax expenditure.

GAO identified various options to integrate tax expenditures into both the executive and congressional budgeting processes.

For example, GAO wrote that policymakers could require that all, or some subset of, tax expenditures expire after a finite period. This option would result in Congress periodically considering whether to allow tax expenditures to expire or to extend them, similar to the subset of tax expenditures that currently expire unless extended .

According to the report, if these options are implemented, they could increase transparency on how the federal government allocates resources, help policymakers identify how well tax expenditures are working, and create additional controls over spending through the tax code.

Read the report.