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Tuesday, March 8, 2011

GAO Report on Duplicative Government Programs Including Tax Expenditures

The GAO released a 300+ page report this week - Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue (GAO-11-318SP; March 2011). This is the first annual of a required report pointing out government programs with duplicative goals or activities. The report highlights 34 areas with No. 17 addressing duplicative tax expenditures.

One duplicative tax expenditure noted are multiple tax and spending programs helping taxpayers with higher education expenses. The GAO states:

"In the case of higher education, the federal government offers seven tax expenditures and nine spending programs—grant and loan programs authorized by Title IV of the Higher Education Act of 1965—to help students and their families pay for postsecondary education. In 2005, the number of tax filers claiming a higher education tax credit or tuition deduction surpassed the number of Title IV aid recipients. Perhaps due to the multiple, complex tax provisions, hundreds of thousands of taxpayers in 2005 failed to claim tax incentives or did not claim the most advantageous tax benefit. Simplifying the tax, grant, and loan programs may reduce complexities in higher education financing, including reducing the number of eligible taxpayers that do not claim tax benefits. However, GAO reported in 2008 that Congress had received little information about the roles and effectiveness of the tax and Title IV programs."

GAO recommendations dating back to 2005 are noted:

  • "Present tax expenditures in the budget together with related outlay programs.
  • Develop and implement a framework for conducting performance reviews of tax expenditures. This includes (1) outlining leadership responsibilities and coordination among agencies with related responsibilities; (2) setting a review schedule; (3) identifying review methods and ways to address the lack of credible tax expenditure performance information; and (4) identifying resources needed for tax expenditure reviews.
  • Develop guidance on incorporating tax expenditures in agencies’ strategic plans and performance reports.
  • Require that tax expenditures be included in Executive Branch budget and performance review processes."

These recommendations should improve transparency. One of many problems with the number and size of today's tax expenditures is that they are hidden. For example, if someone asked how much the federal government spends on higher education, a respondent would likely just look at the Department of Education budget. But, that budget would not note the 7+ tax benefits that are in essence government expenditures with the payments being made to taxpayers via lower tax bills. So the true cost is hidden. It is also hard to be accountable for the expenditures when people are not responsible for them. No one is really responsible if the expenditures are really helping students go to college or to graduate.

Not all budget problems can or should be addressed via tax increases, but sloppy spending as well as bleeding of budget dollars through many high cost and often poorly targeted tax expenditures needs to be addressed. Often, tax and budget problems are in the base, not the rate.

The GAO report also includes links to prior reports it issued on tax expenditures including a 1994 (!) one stating that tax expenditures need more scrutiny! And since 1994, there are a lot more unscrutinzed tax expenditures on the books!

What do you think?

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