Pew-Peterson Commission Agrees with CTJ on Tax Expenditure Reform

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Last month, Citizens for Tax Justice (CTJ) released a report explaining how and why the budget process must be reformed in order to temper lawmakers’ obsession with “tax expenditures” — that is, government spending programs that happen to be administered via the tax code.  The Pew-Peterson Commission — a group of nearly forty former lawmakers, CBO directors, OMB directors, and other prominent officials — echoed that sentiment this week in a new report proposing a variety of reforms to the federal budget process.

While some groups have expressed serious concerns over the Commission’s debt reduction target, their attempt to put tax expenditures on a more even footing with other types of government programs should be applauded.  The Commission accurately identified tax expenditures as one of the “major drivers of long-term debt growth,” and lamented that they constitute “the largest single omission of fiscal resources from the budget.”

The Commission goes on to offer a variety of sensible recommendations designed to bring tax expenditure spending under control, and end the “invisibility” of these programs in the budget process.  Among the reforms recommended by the Commission are:

• “Display tax expenditures and spending programs together in the budget so that resources allocated to one purpose by alternative means can be compared with total amounts allocated to other uses.”

• “Include tax expenditures in the budget resolution allocations and in reconciliation instructions to committees of jurisdiction.” (This is meant to erode the tax-writing committees' monopoly on this area of policy, and to allow the committees with actual expertise in program areas to weigh the relative merits of tax expenditure and traditional spending programs.)

• “Require the executive branch and CBO to provide information and analysis on the use, incidence, and efficiency of every major tax expenditure (preference) in comparison with alternative policy instruments.” (This is similar to the tax expenditure performance reviews recommended by CTJ late last year.)

Additionally, once tax expenditures have been reduced as part of dealing with the nation’s current fiscal imbalance, the Commission recommends a system of “caps and triggers” designed to ensure that tax expenditure growth will not continue at an unsustainable rate.  Under this system, Congress would be required to keep tax expenditure spending below the specified “cap” level.  If they failed to do so, pro rata adjustments to specific tax expenditures would be made automatically to bring their overall size under the cap.

Ultimately, it must be substantive policy decisions — not budget process reforms — that will bring the nation back into fiscal balance.  Nonetheless, reforming the budget process as it relates to tax expenditures would help pave the way for vital, and lasting, reductions in tax expenditure spending.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog,

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