Summary: Comments were presented on the proposal for better controls over tax expenditures in H.R. 4882. Four subjects were discussed: (1) the nature and economic effect of tax expenditures; (2) the relationship of tax expenditures to the congressional budget process; (3) the merits of setting annual ceilings in tax expenditures through budget resolutions; and (4) alternative approaches to the control of tax expenditures. Tax expenditures, which are sometimes referred to as tax subsidies, tax incentives, or tax preferences, are designed to grant tax relief to particular groups of taxpayers to promote or subsidize certain private or business activities. The cost of a tax expenditure is the revenue the Government does not collect because of the particular tax law provision. Deliberations in the early 1970's on the Congressional Budget Act considered whether to include tax expenditures in the congressional budgetary process, but the final legislation did not contain certain procedures for their control. Tax expenditures were regarded as legislative actions with relatively long-term effects and hence not appropriate for an intensive annual budget review. However, the Act does not require the President to submit tax expenditures information in his budget, and the Congressional Budget Office is also required to provide Congress with long-range estimates of tax expenditures. H.R. 4882 would have the effect of establishing binding ceilings on tax expenditures. Because of the inherent difficulties in estimating revenue losses, GAO is not convinced that such a requirement should be adopted at this time. GAO suggests that Congress take an evolutionary approach to strengthen its control over tax expenditures, starting with improvements in the information base and scorekeeping procedures, followed by the use of nonbinding targets. Congress successfully took such an evolutionary approach in gradually bringing Federal credit activities under more direct control through the budget process. While the technical problems are quite difficult, GAO believes the same gradual approach would be appropriate in the case of tax expenditures. In addition to considering the possibility of tax expenditures controls through the budget process, Congress could also develop oversight procedures to compare tax expenditures with spending programs of similar purpose.
