New Law Requires Tax Breaks to Be Reviewed Alongside Other Programs

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As explained elsewhere in this Digest, House Republicans just significantly weakened Congress’ already loose control over tax code spending — or “tax expenditures.”  But there was also significant good news for those of us seeking to better scrutinize the bevy of giveaways contained in our tax code.  On Tuesday, President Obama signed a bipartisan bill that, among other things, requires the Executive Branch to finally incorporate tax expenditures into its evaluations of the government’s performance.

Specifically, the legislation signed by President Obama (HR 2142) updates the Government Performance and Results Act of 1993 (GPRA).  As CTJ has explained before, one of the most significant problems with GPRA was that it did not require roughly $1 trillion in federal tax breaks, or “tax expenditures,” to be evaluated in terms of their success in fulfilling their intended purposes.  The legislative history of GPRA made clear that Congress wanted these programs evaluated, but the lack of a legal requirement to do so allowed past Administrations to drag their feet for nearly two decades.

HR 2142 touches on a wide range of performance issues.  But the requirement that tax expenditures (an area of the budget that rivals or even exceeds discretionary spending in size) be included in government performance evaluations is doubtless one of the most significant reforms contained in the new law.  Much work remains to be done, however, to ensure that this new requirement is implemented properly.

Unlike the Washington State performance review system and the systems typically discussed in other states, HR 2142 does not require a systematic look at every tax expenditure.  Rather, the new federal framework starts by requiring that the OMB and relevant federal agencies identify what goals they want to accomplish.  From there, they are required to identify the various government functions (including tax expenditures, spending programs, regulations, etc) that are designed to contribute toward those ends, and assess how effectively they are contributing to those goals.  And for certain “high priority” performance goals at risk of not being met, the OMB and agency officials will also be required to identify changes to tax expenditures and other programs that could improve government performance.

The main downside of this design is that it does not guarantee every tax expenditure will be evaluated.  It’s not at all hard to imagine how many tax expenditures could slip through the cracks if OMB and/or agency officials do not consider them closely related to the performance goals they have identified. 

But, while it’s too early to tell, this downside may be outweighed by the fact that this goal-based model looks at tax expenditures not in isolation, but alongside other policies, regulations, and agency activities aimed at achieving the same goals.  If implemented well, this new reform has the potential to add some much needed rationality to debates over whether to pursue certain goals through spending programs or tax breaks.

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