TAX EXPENDITURES

Opportunities Exist to 

Use Budgeting and 

Agency Performance 

Processes to Increase 

Oversight 

Report to Congressional Requesters

July 2016

GAO-16-622

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-622, a report to 

congressional requesters

July 2016 

TAX EXPENDITURES

Opportunities Exist to Use Budgeting and Agency 

Performance Processes to Increase Oversight

Why GAO Did This Study

Tax expenditures—special credits, 

deductions, and other tax provisions 

that reduce taxpayers’ tax liabilities—

represent a substantial federal 

commitment. If Treasury’s estimates 

are summed, an estimated $1.23

trillion in federal revenue was forgone 

from the 169 tax expenditures reported 

for fiscal year 2015, an amount 

comparable to discretionary spending.

Tax expenditures are often aimed at 

policy goals similar to those of federal 

spending programs.

GAO was asked to identify the extent 

to which tax expenditures are 

incorporated into federal budget 

processes. This report (1) compares 

the treatment of tax expenditures and

other spending in federal budgeting

processes; (2) evaluates the extent to 

which OMB and agencies have 

identified tax expenditures’ 

contributions to agency goals; and 

(3) examines options to further 

incorporate tax expenditures in federal 

budgeting processes. To address 

these objectives, GAO reviewed 

agency budget documents, OMB 

guidance, prior GAO reports, and

performance plans and reports

available as of January 2016 for all 24 

CFO Act agencies. GAO also held a 

roundtable discussion with budget and 

tax experts to examine options for 

further incorporating tax expenditures 

into budgeting processes.

What GAO Recommends

GAO recommends that OMB, in 

collaboration with Treasury, work with 

agencies to identify which tax 

expenditures contribute to agency

goals. OMB generally agreed with 

GAO’s recommendation.

What GAO Found

Federal budget formulation processes include fewer controls and reviews, and 

provide less information on tax expenditures—which represented an estimated 

$1.23 trillion in forgone revenues in fiscal year 2015—than for discretionary or 

mandatory spending. For example, in the President’s budget, tax expenditure

revenue loss estimates are presented separately from related spending, making 

their relative contributions toward national priorities less visible than spending 

programs. Likewise, only proposed tax expenditures or those that expire are 

subject to review within congressional budget processes, similar to mandatory 

spending. Existing, non-expiring tax expenditures are not subject to such review.

The Office and Management and Budget (OMB) and agencies have made limited 

progress identifying tax expenditures’ contribution to agency goals. As of January 

2016, 7 of the 24 Chief Financial Officer (CFO) Act agencies identified tax 

expenditures as contributors to their agency goals—as directed in OMB 

guidance—or agency missions. The tax expenditures they identified accounted 

for only 11 of the 169 tax expenditures included in the President’s Budget for 

Fiscal Year 2017, representing an estimated $31.9 billion of $1.23 trillion in

forgone revenues for fiscal year 2015. Based on interviews with agencies and 

reviewing past GAO work, GAO found that a lack of clarity about agencies’ roles 

leads to inaction in identifying tax expenditures that contribute to agency goals. 

To address this, OMB guidance previously stated that it would work with the 

Department of the Treasury (Treasury) and other agencies to identify where tax 

expenditures align with agency goals. OMB removed that language in June 2015, 

citing capacity constraints. Without additional OMB and Treasury assistance, 

agencies may continue to have difficulty identifying whether, or which of, the 

remaining 158 tax expenditures—representing $1.20 trillion in forgone 

revenues—contribute to their goals.

Tax Expenditures Identified by Agencies As Contributing to Agency Goals or Missions, As of 

January 2016

Based on an assessment of budget and tax experts’ input and prior GAO work,

GAO found that options to further incorporate tax expenditures into budgeting

processes could help achieve various benefits; but policymakers would need to 

consider challenges and tradeoffs in deciding whether or how to implement them. 

For example, one option is to require that all, or some subset of, tax expenditures 

expire after a finite period. This option could result in greater oversight, requiring 

policymakers to explicitly decide whether to extend more or all tax expenditures. 

However, this option could lead to frequent changes in the tax code, such as 

from extended or expired tax expenditures, which can create uncertainty and 

make tax planning more difficult, as GAO has reported previously.

View GAO-16-622. For more information, 

contact Heather Krause at (202) 512-6806 or 

krauseh@gao.gov.
Page i GAO-16-622 Tax Expenditures

Letter 1

Background 5

Federal Budget Processes Include Fewer Budgetary Controls, 

Fewer Reviews, and Less Information for Tax Expenditures 

Than Other Types of Spending 15

OMB and Agencies Have Made Limited Progress Identifying Tax 

Expenditures’ Contributions to Agency Goals 23

Options to Further Incorporate Tax Expenditures into Federal 

Budgeting Processes Have Various Potential Benefits and 

Challenges 30

Conclusions 46

Recommendation for Executive Action 47

Agency Comments 48

Appendix I GAO Contact and Staff Acknowledgments 50

Table

Table 1: Agencies That Identified Tax Expenditures Contributing 

to Agency Missions, Goals, and Related Performance 

Measures in Their Performance Documents as of January 

2016 25

Figures

Figure 1: Examples of Six Types of Tax Expenditures 7

Figure 2: Estimated Revenue Losses from Tax Expenditures 

Compared to Mandatory and Discretionary Spending 9

Figure 3: Key Steps in Federal Budgeting Processes 12

Figure 4: Tax Expenditures Compared to Spending in the 

Executive Budgeting Process 16

Figure 5: Tax Expenditures Compared to Spending in the 

Congressional Budget Process 20

Figure 6: Tax Expenditures Identified by Agencies as Contributing 

to Agency Goals or Missions, as of January 2016 24

Figure 7: Examples of Broad Benefits to Further Incorporating Tax 

Expenditures into Budgeting Processes 31

Contents
Page ii GAO-16-622 Tax Expenditures

Abbreviations

APG Agency Priority Goal 

CAP Cross-Agency Priority 

CDFI Community Development Financial Institution 

CFO Chief Financial Officer 

DATA Act Digital Accountability and Transparency Act of 2014 

DOE Department of Energy

EZ Empowerment Zone 

GPRA Government Performance and Results Act 

GPRAMA GPRA Modernization Act of 2010 

HFA Housing Finance Agency 

HUD Department of Housing and Urban Development 

IRS Internal Revenue Service 

JCT Joint Committee on Taxation 

OMB Office of Management and Budget 

OTA Office of Tax Analysis 

PAYGO Pay-As-You-Go 

PIC Performance Improvement Council 

Treasury Department of the Treasury 

USDA United States Department of Agriculture 

This is a work of the U.S. government and is not subject to copyright protection in the 

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without further permission from GAO. However, because this work may contain 

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Page 1 GAO-16-622 Tax Expenditures

441 G St. N.W.

Washington, DC 20548

July 7, 2016

The Honorable Bernard Sanders

Ranking Member

Committee on the Budget

United States Senate

The Honorable Patty Murray

Ranking Member

Committee on Health, Education, Labor and Pensions

United States Senate

Tax expenditures—special credits, deductions, and other tax provisions 

that reduce taxpayers’ tax liabilities—represent a substantial federal 

commitment. According to the Department of the Treasury (Treasury), in 

fiscal year 2015 there were 169 tax expenditures. These tax expenditures 

represented an estimated total of $1.23 trillion in forgone revenue, an 

amount similar to total discretionary spending.1 Tax expenditures often 

aim to achieve policy goals similar to those of federal spending programs. 

For example, some tax expenditures are intended to encourage economic 

development in disadvantaged areas, finance postsecondary education, 

or stimulate research and development. If well designed and effectively 

implemented, tax expenditures can be an effective tool to further national 

priorities.

Our prior work has shown that tax expenditures deserve greater scrutiny. 

In 1994, we reported that policymakers have few opportunities to make 

explicit comparisons or trade-offs between tax expenditures and federal 

spending programs.2 In 2005, we reported that the entire set of tools the 

federal government can use to address national objectives—including tax 

expenditures—should be subject to periodic reviews and reexamination to 

 1

Aggregate tax expenditure estimates must be interpreted carefully because of inherent 

limitations in the meaning of the summed estimates. The sum of the specific tax 

expenditure estimates is useful for gauging the general magnitude of revenue forgone 

through provisions of the tax code, but does not take into account interactions between 

individual provisions.

2

GAO, Tax Policy: Tax Expenditures Deserve More Scrutiny, GAO/GGD/AIMD-94-122 

(Washington, D.C.: June 3, 1994).

Letter
Page 2 GAO-16-622 Tax Expenditures

ensure they are achieving their intended purposes, and are designed in 

the most efficient and effective manner.3 In that report, we recommended 

that the Office of Management and Budget (OMB) take several actions to 

help ensure that policymakers and the public have the necessary 

information to make informed decisions, and to improve the progress

made toward exercising greater scrutiny of tax expenditures; OMB has 

implemented one recommendation from the report, but has made limited 

progress on the others.4

More recently, the GPRA Modernization Act of 2010 (GPRAMA)

enhanced the framework to help inform congressional and executive 

branch decision making in addressing challenges the federal government 

faces, including the allocation of scarce resources across spending 

programs and tax expenditures.5 Key to implementing GPRAMA are the 

goals that OMB and agencies are to establish to reflect the outcomes or 

management impact they are trying to achieve. Once established, under 

GPRAMA or OMB guidance, agencies are also to identify the various 

federal programs and activities—including tax expenditures—that 

contribute to these goals.

 3

GAO, Government Performance and Accountability: Tax Expenditures Represent a 

Substantial Federal Commitment and Need to Be Reexamined, GAO-05-690 

(Washington, D.C.: Sept. 23, 2005).

4

Specifically, we recommended that OMB, in consultation with Treasury, (1) resume 

presenting tax expenditures in the budget alongside other spending to show a truer picture 

of spending within a mission area; (2) develop and implement a framework for conducting 

performance reviews of tax expenditures; (3) require that tax expenditures be included in 

any current or future budget and performance review processes so that tax expenditures 

are considered along with related outlay programs in determining the adequacy of federal 

efforts to achieve national objectives; and (4) develop clear and consistent guidance to 

agencies on how to incorporate tax expenditures in strategic plans, annual performance 

plans, and performance and accountability reports. Only the final recommendation was 

implemented. OMB has told us that presenting information on tax expenditures together 

with related outlay programs is not useful for budgeting, and such a presentation is not 

part of the congressional budget process. In the President’s fiscal year 2012 budget, the 

administration noted that it planned to focus on addressing some challenges with data 

availability and analytical constraints so it can work toward crosscutting analyses that 

examine tax expenditures alongside related spending programs, but subsequent budgets 

have not provided an update on these efforts.

5

Pub. L. No. 111-352, 124 Stat. 3866 (Jan. 4, 2011).
Page 3 GAO-16-622 Tax Expenditures

You asked us to examine how federal budgeting processes can be 

improved to provide better information on the fiscal effects of tax 

expenditures, and to further incorporate tax expenditures into controls 

over federal budgeting processes. This report (1) describes the extent to 

which tax expenditures have been incorporated into federal budgeting 

processes, as compared to discretionary and mandatory spending 

programs; (2) evaluates the extent to which OMB and agencies have 

identified the contributions of tax expenditures toward progress made on 

agency goals; and (3) examines options for further incorporating tax 

expenditures into federal budgeting processes.

To accomplish our first objective, we reviewed OMB budget guidance, the 

President’s budget for fiscal year 2017, agency and congressional budget 

documents, and our past work to assess the requirements and treatment 

of tax expenditures in federal budgeting processes relative to 

discretionary and mandatory spending. We interviewed OMB staff and 

Treasury officials about the extent to which tax expenditures are included 

in federal budget processes. We also conducted interviews with budget 

officials from three Chief Financial Officer (CFO) Act agencies—the

United States Department of Agriculture (USDA), the Department of 

Energy (DOE), and the Department of Housing and Urban Development 

(HUD)—that we selected based on the agencies’ mission areas aligning 

with the purposes of selected tax expenditures, and based on our past 

work. These agency interviews are not generalizable to all 24 CFO Act 

agencies.

6

To accomplish our second objective, we analyzed 2014-2018 strategic 

plans, 2014 performance reports, 2016 performance plans, and 2013 

program inventories for all 24 CFO Act agencies. These 80 documents 

were the most recent available in January 2016, when we conducted this 

analysis. We used qualitative analysis software to identify whether tax 

 6

The 24 CFO Act agencies, generally the largest federal agencies, are the Departments of 

Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, 

Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, State, 

Transportation, the Treasury, and Veterans Affairs, as well as the Agency for International 

Development, Environmental Protection Agency, General Services Administration, 

National Aeronautics and Space Administration, National Science Foundation, Nuclear 

Regulatory Commission, Office of Personnel Management, Small Business 

Administration, and Social Security Administration. These agencies are subject to the 

strategic planning and reporting requirements under the GPRA Modernization Act of 2010.
Page 4 GAO-16-622 Tax Expenditures

expenditures were discussed in each of the 80 documents, and coded 

whether the agencies identified contributions of tax expenditures to 

strategic objectives or agency priority goals (APGs) described in their 

most recent strategic plan, or to their overall mission.7 We also coded the 

extent to which agencies measured the impact of tax expenditures on 

their strategic objectives, APGs, or overall mission. Our coding process 

for the review involved one coder and an independent reviewer who 

verified the material coded regarding tax expenditures. Further, we 

interviewed performance officials at USDA, DOE, and HUD to serve as 

illustrative examples of agencies’ efforts to identify the contributions of tax 

expenditures toward progress made on agency goals.

To accomplish our third objective, we reviewed our past work and other 

literature identifying relevant options to further incorporate tax 

expenditures into budget processes.8 We also interviewed budget and tax 

experts, including current Treasury officials and OMB staff, former 

congressional and OMB staff, former congressional budget directors, and 

other experts from a range of policy research organizations that 

represented a wide range of political views. We selected experts for our 

interviews based on their published literature or having testified to 

Congress on tax expenditures and federal budgeting, as well as referrals 

from other experts. We considered options for further incorporating tax 

expenditures into federal budgeting processes to be within scope if they 

resulted in greater information or controls over tax expenditures in 

processes related to executive budget formulation, congressional budget 

processes, or federal evaluations that inform budget decisions. Based on 

our review of the literature and interviews, as well as our previous work, 

we identified five executive and five congressional budgeting options for 

further review.

To obtain greater insights into these and other options, we conducted a 

one-day roundtable discussion with eleven experts on the broad benefits 

and challenges of further incorporating tax expenditures into federal 

 7

APGs are to reflect agencies’ highest priorities. The keywords used were credit, 

deduction, deferral, exclusion, exemption, expenditure, and preferential, as well as the 

names of specific tax expenditures.

8

For our literature review, we conducted keyword searches of academic and government 

literature and other scholarly materials using databases such as ProQuest and ABI/Inform.
Page 5 GAO-16-622 Tax Expenditures

budgeting processes, as well as the benefits and limitations of specific 

options and issues that members of Congress would need to consider 

when evaluating their merits. We selected experts for the roundtable 

discussion based on their professional experiences with budget and tax 

issues in various capacities, as well as on their knowledge on budget and 

tax issues, as demonstrated through published articles, congressional 

testimonies, and referrals from other experts. Experts voted on which of 

the ten options they wanted to discuss, and also identified other potential 

options during the discussion. We conducted a thematic analysis of the 

transcript of the roundtable discussion and summaries of our expert 

interviews to identify common patterns and ideas. Although these results 

are not generalizable to all experts with relevant expertise, and do not 

necessarily represent the views of all the experts that attended our 

roundtable, this discussion provided greater insight on the potential 

benefits, challenges, and design considerations of each option. Based on 

this analysis, our prior work, and agency interviews, we identified six 

options and related design considerations that we discuss in this report.

We conducted this performance audit from August 2015 to July 2016 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Tax expenditures are tax provisions that are exceptions to the normal 

structure of individual and corporate income tax necessary to collect 

federal revenue.9 They represent revenue losses—the amount of revenue 

that the government forgoes—resulting from federal tax provisions that 

grant special tax relief for certain kinds of behavior by taxpayers or for 

taxpayers in special circumstances. For example, some tax expenditures 

 9

The concept of tax expenditures extends beyond the income tax. Tax expenditures also 

exist for other types of taxes, such as excise and payroll taxes.

Background

Definition and Objectives 

of Tax Expenditures
Page 6 GAO-16-622 Tax Expenditures

are used to provide economic relief to selected groups of taxpayers, such 

as the elderly, the blind, and parents or guardians of children. 

Policymakers have also long used tax expenditures as a tool to 

accomplish national social and economic goals, such as encouraging 

people to save for retirement, promoting home ownership or investments, 

and funding certain research and development. Such goals are often 

similar to those of mandatory and discretionary spending programs, and 

tax expenditures may be used in combination with these types of 

spending to achieve national objectives.

The Congressional Budget and Impoundment Control Act of 1974 

identified six types of tax provisions that are considered tax expenditures 

when they are exceptions to the normal tax structure, as described in 

figure 1.10

 10Pub. L. No. 93-344, § 3, 88 Stat. 297, 299 (July 12, 1974) at 2 U.S.C. § 622(3).
Page 7 GAO-16-622 Tax Expenditures

Figure 1: Examples of Six Types of Tax Expenditures

Note: These are the six types of tax expenditures identified in the Congressional Budget and 

Impoundment Control Act of 1974.

The term tax expenditure has been used in the federal budget for four 

decades, and the tax expenditure concept is a tool that the federal 
Page 8 GAO-16-622 Tax Expenditures

government uses to allocate resources and achieve national priorities. In 

effect, many tax expenditures can be viewed as spending channeled 

through the tax code in that the federal government “spends” some of its 

revenue by forgoing taxation on some income. Many tax expenditures are 

comparable to mandatory spending programs, for which spending is 

determined by rules for eligibility, benefit formulas, and other 

parameters.11 Other tax expenditures, such as the low-income housing 

tax credit, resemble discretionary spending programs, for which Congress 

appropriates specific funding each year.12 Nonetheless, deciding whether 

a specific tax provision should be characterized as a tax expenditure is a 

matter of judgment, and disagreements about classification stem from 

different views about what should be included in the normal income tax 

structure. For example, some argue that the distinction between tax 

provisions labeled as tax expenditures, and provisions that are not, is 

arbitrary; thus, labeling some provisions as tax expenditures implies that 

all income inherently belongs to the government and could be taxed.13

Tax expenditures have a significant effect on overall tax rates as well as 

the budget outlook. The revenue the federal government forgoes from tax 

expenditures reduces the tax base and requires higher tax rates to raise 

any given amount of revenue.14 In addition, tax expenditures, like any 

federal program spending, reduce the amount of funding available for 

other federal activities, increase the budget deficit, or reduce any budget 

surplus. In recent fiscal years, revenue losses from tax expenditures have 

been similar to discretionary spending levels (see figure 2).

 11Examples of mandatory spending programs include Medicaid, Medicare, Social 

Security, and the Supplemental Nutrition Assistance Program. 

12The low-income housing tax credit was created by the Tax Reform Act of 1986 (Pub. L. 

No. 99-514) to provide an incentive for the development or rehabilitation of affordable 

rental housing.

13See, for example, Joint Economic Committee, Tax Expenditures: A Review and Analysis

(Washington, D.C.: August 1999).

14The broader the tax base, the lower that tax rates need to be to raise a given amount of 

revenue.

Fiscal Effect of Tax 

Expenditures
Page 9 GAO-16-622 Tax Expenditures

Figure 2: Estimated Revenue Losses from Tax Expenditures Compared to 

Mandatory and Discretionary Spending

Note: While summing tax expenditure estimates may provide a sense of the overall magnitude, the 

total change in tax liability from repeal of all tax expenditure provisions could be smaller or larger than 

the sum of the amounts shown for each item separately as a result of interactions among the tax 

expenditure provisions and interactions with other provisions of the tax law.

Treasury’s Office of Tax Analysis and the congressional Joint Committee 

on Taxation (JCT) each annually compile their own lists of tax 

expenditures and estimates of their revenue losses.15 They estimate 

revenue losses for a specific tax expenditure by comparing the revenue 

 15Treasury’s tax expenditure estimates are included as an informational supplement to the 

President’s budget and JCT’s estimates are prepared for the Senate Committee on 

Finance and the House Committee on Ways and Means. The Congressional Research 

Service also compiles a compendium of tax expenditures that includes, among other 

things, a description of every tax expenditure, the rationale for the tax expenditure at the 

time it was enacted, and major issues surrounding the tax expenditure. 
Page 10 GAO-16-622 Tax Expenditures

raised under current law with the revenue that would have been raised if 

that provision did not exist, assuming all other parts of the tax code 

remain constant and taxpayer behavior is unchanged.16 However, tax 

expenditures’ revenue loss estimates do not necessarily represent the 

exact amount of revenue that would be gained if a specific tax 

expenditure was repealed, since repeal of the tax expenditure could 

change taxpayer behavior in some way that would affect revenue.17

While, in general, the tax expenditures lists Treasury and JCT publish 

annually are similar, Treasury and JCT also have different methods for 

estimating tax expenditures, which can result in differing estimates.18

Federal budgeting processes provide the means for the government to 

make informed decisions about priorities across competing national 

needs and policies, and to allocate resources to those priorities. For the 

purposes of this report, federal budgeting processes can be broken down 

into three major phases: executive budget formulation, congressional 

budgeting processes (during which Congress adopts its budget and 

enacts laws appropriating funds for the fiscal year), and evaluation.19

 16For more detailed descriptions of how Treasury and JCT measure and report tax 

expenditures, see OMB, Analytical Perspectives, Budget of the U.S. Government, Fiscal 

Year 2017 (Washington, D.C.: February 2016), JCT, Estimates of Federal Tax 

Expenditures for Fiscal Years 2015-2019, JCX-141R-15 (Washington, D.C.: Dec. 7, 

2015), respectively, and appendix III of GAO-05-690. 

17Treasury and JCT take potential changes in taxpayer behavior into account when 

evaluating proposed changes to tax expenditures. 

18The Treasury and JCT lists differ somewhat in the number of tax expenditures reported 

and the estimated revenue loss for particular expenditures because the organizations use 

different (1) income tax baselines; (2) de minimis amounts, which are the minimum 

amount of revenue loss thresholds for Treasury and JCT to report a tax expenditure; and 

(3) economic and technical assumptions. For example, for the fiscal year 2016 budget, 

Treasury identified the exclusion of imputed rental income from taxation as a tax 

expenditure and estimated revenue losses of around $956 billion over 10 years. In 

contrast, JCT did not classify imputed rental income to be a tax expenditure because the 

exclusion may be an administrative necessity given measurement challenges.

19As part of federal budgeting processes, we also generally include a budget execution 

and control phase—during which time the budget authority made available by 

appropriations remains available for obligation—and an auditing phase (see GAO, A 

Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP (Washington, 

D.C.: Sept. 2005)). However, we did not review those phases, or aspects of phases, as 

part of our audit work. Thus, we do not describe them here.

Federal Budgeting 

Processes
Page 11 GAO-16-622 Tax Expenditures

Executive budget formulation. Every year, the President is required to 

compile and submit a budget to Congress for consideration, a process 

which OMB manages with the assistance of agencies. During the 

formulation of the President’s budget, discretionary spending is reviewed 

in detail and funding levels are proposed for existing and new 

discretionary programs. In addition, mandatory spending or new revenue 

provisions may be proposed.

Congressional budgeting processes. Once Congress receives the 

President’s budget request, it begins its own process to enact a budget 

for the U.S. government. This process includes developing appropriations 

legislation for discretionary spending; proposing authorizing legislation to 

establish or continue the operation of federal programs or agencies; and 

proposing revenue measures, including tax expenditures, which can be 

either permanent or temporary.

Two of the major phases of federal budgeting—executive budget 

formulation and congressional budgeting processes—are further 

described in figure 3.
Page 12 GAO-16-622 Tax Expenditures

Figure 3: Key Steps in Federal Budgeting Processes

Note: This figure represents the key steps taken by different actors in federal budget processes, but 

not the time frames of those steps or interactions of those steps between committees or the executive 

branch.

Evaluation. GPRA and subsequently GPRAMA established a 

performance planning and reporting framework for the federal 

government. This framework provides important tools that can help inform 

congressional and executive branch decision making to address 

challenges the federal government faces, including the allocation of 
Page 13 GAO-16-622 Tax Expenditures

scarce resources across different policy tools.20 GPRAMA requires that 

OMB and agencies establish different types of government-wide and 

agency goals, including:

• Cross-agency priority (CAP) goals. These are government-wide, 

outcome-oriented goals—for example, improving science, technology, 

engineering and math education—that cover a limited number of 

policy areas, as well as goals for management improvements needed 

across the government, such as delivering world-class customer 

service. OMB develops these goals in coordination with agencies.

• Strategic objectives. These are long-term agency goals that reflect the 

outcome or management impact an agency is trying to achieve, and 

express the results or direction the agency will work toward. To 

illustrate, one of the strategic objectives identified in HUD’s 2014-2018 

strategic plan is to ensure sustainable investments in affordable rental 

housing.

• Agency priority goals (APG). These are near-term goals to reflect 

agencies’ highest priorities and represent an achievement that agency 

leaders want to accomplish within 2 years through focused leadership 

attention. They are to have clear completion dates, targets, and 

indicators that can be measured or marked by a milestone to gauge 

process. GPRAMA requires that agencies identify how their 

respective APGs contribute to their long-term strategic goals. To 

illustrate, one of HUD’s APGs is to preserve and expand affordable 

rental housing to serve around 135,000 more households in fiscal 

years 2016 and 2017 than the baseline 5.5 million households already 

served.

Under GPRAMA, OMB is to develop a federal government performance 

plan that sets the level of performance needed to achieve the CAP goals. 

In doing so, OMB is to identify the organizations, programs, and 

activities—including tax expenditures—that contribute to those goals.21 In 

 20In addition to evaluation processes conducted by agencies in adherence with GPRAMA, 

agencies also conduct evaluations at the request of committees to assess the effect of 

legislative changes or demonstration projects to inform the design of a new program. 

Other agencies may also evaluate government programs to help inform budget decisions.

21GPRAMA requires that OMB coordinate with agencies to identify the agencies, 

organizations, program activities, regulations, tax expenditures, policies, and other 

activities contributing to each CAP goal. 31 U.S.C. § 1115(a)(2). 
Page 14 GAO-16-622 Tax Expenditures

addition, OMB is to periodically review and report on progress toward 

these goals. As part of these reviews, OMB is to assess whether the 

programs and activities—including tax expenditures—are contributing to 

the goals as planned. We have previously reported on OMB’s 

implementation of these requirements.22 OMB has tasked agencies with 

responsibility for identifying applicable tax expenditures for reporting 

progress on agencies’ priority goals and strategic objectives in GPRAMA 

guidance.23

 22See GAO, Managing for Results: OMB Should Strengthen Reviews of Cross-Agency 

Goals, GAO-14-526 (Washington, D.C.: June 10, 2014) and OMB Improved 

Implementation of Cross-Agency Priority Goals, But Could Be More Transparent About 

Measuring Progress, GAO-16-509 (Washington, D.C.: May 20, 2016).

23OMB guidance states that agencies are to identify, as appropriate, tax expenditures 

among the various federal programs and activities that contribute to their agency goals—

specifically strategic objectives and APGs—for the purposes of public reporting.
Page 15 GAO-16-622 Tax Expenditures

While tax expenditures are included in the development of the President’s 

Budget, they are subject to fewer reviews, and less information is 

required to be provided on them. See figure 4 for a summary of key steps 

and how tax expenditures compare to spending in the executive budget 

formulation process.

Federal Budget 

Processes Include 

Fewer Budgetary 

Controls, Fewer 

Reviews, and Less 

Information for Tax 

Expenditures Than 

Other Types of 

Spending

OMB and Agencies 

Conduct Fewer Reviews 

and Provide Less 

Information on Tax 

Expenditures Than Other 

Spending in Formulating 

the President’s Budget
Page 16 GAO-16-622 Tax Expenditures

Figure 4: Tax Expenditures Compared to Spending in the Executive Budgeting 

Process

Tax expenditures and spending are treated differently in the first key step 

of the executive budget formulation process, where agencies prepare 

budget proposals to submit to OMB.

OMB Circular No. A-11 requires that agencies provide written 

justifications for all discretionary and mandatory spending programs and 

activities of an agency, but does not require such written justification for 

existing tax expenditures.24 Further, under OMB Circular No. A-11, 

 24OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget 

(Washington, D.C.: June 2015).

Agency Budget Proposals
Page 17 GAO-16-622 Tax Expenditures

agencies are directed to submit less detailed information to justify new or 

modified tax expenditures than when they propose new spending 

programs to OMB. For example, OMB Circular No. A-11 directs agencies 

to provide, among other things, an analysis of financial and personnel 

resources required to enact a program, a comparison of total program 

benefits and costs, and supporting information from outside evaluation 

and analyses for spending programs. In contrast, for tax expenditure 

proposals, agencies are not directed to provide such detailed analyses in 

their written justifications. Instead, they are directed to generally justify 

why a tax expenditure is needed and why it is preferable to a spending 

program.

After agencies submit their budget proposals, OMB and the President 

review them and decide what proposals and programs will be submitted 

to Congress. Because agencies are not directed to include a written 

justification of existing tax expenditures in their budget proposals, such 

information is not included in this step.

OMB staff told us that tax expenditures are one of several policy tools 

considered when discussing new legislative proposals for the President’s 

budget. Treasury officials reported that an extensive process is conducted 

with OMB annually to develop the President’s revenue proposals, 

including tax expenditures, with a particular focus on expiring provisions. 

We asked OMB staff the extent to which tax expenditures are included in 

its budget-related discussions with Treasury officials, but staff declined to 

respond, stating that such information was predecisional.

OMB then prepares the President’s budget, which presents aggregate 

spending and revenue levels and contains the President’s spending and 

revenue proposals. The President then approves the budget and submits 

it to Congress. Although tax expenditures contribute to budget functions, 

the tax expenditure estimates are not presented alongside summaries of

other spending levels by functional category in the budget. Instead, tax 

expenditure revenue loss estimates are presented separately from other 

types of spending in the budget’s Analytical Perspectives. We have 

reported in the past that this presentation makes their relative 

OMB Review of Budget 

Proposals

Approval and Submission of 

the President’s Budget
Page 18 GAO-16-622 Tax Expenditures

contributions toward achieving national priorities less visible than 

spending programs.25

Tax expenditure proposals, which include both new tax expenditures and 

amendments to existing tax expenditures, are included in a separate 

chapter alongside other revenue proposals, though the budget does not 

identify which proposals are tax expenditures. The budget includes a 

short description of the proposal, along with a revenue estimate of each 

particular proposal. Descriptions of discretionary and mandatory spending 

and the President’s requests for those funds are also included in the 

budget Appendix, along with the outlays from refundable tax credits.26

Agencies also submit agency budget justifications and revenue 

proposals, including tax expenditure extensions or proposals, to 

Congress. Treasury submits the “General Explanations of the 

Administration’s Revenue Proposals” report to Congress, and the 

information required for those proposals is different than the information 

provided on spending programs in their congressional budget 

justifications. For all revenue proposals, including tax expenditures, the 

report generally provides a description of the current law related to each 

proposal, the reason the administration is proposing that law be changed, 

and a description of the proposal. It also includes a table of revenue 

estimates for each proposal, which is also included in the President’s 

Budget. Agency congressional budget justifications also provide 

information on their programs. While the form and content of budget 

justifications may vary by agency and appropriations subcommittee, these 

justifications may contain specific outputs of the spending program, 

agency performance measures that the spending supports, and the 

number of people taking advantage of a particular program.

 25GAO-05-690.

26A nonrefundable tax credit can be used to reduce current-year tax liability to zero, and a 

refundable credit in excess of tax liability results in a cash refund. The cash refund portion 

of a refundable tax credit is not reported as a revenue loss, but as an outlay.

Agency Budget Justifications
Page 19 GAO-16-622 Tax Expenditures

As part of the congressional budget process, tax expenditures are treated 

similarly to mandatory spending in that expiring tax expenditures being 

considered for extension and new proposals are subject to standard 

congressional controls for new legislation; but existing, non-expiring tax 

expenditures are not subject to annual congressional budget processes. 

In addition, while discretionary and mandatory spending are included in 

the Concurrent Resolution on the Budget (budget resolution), existing tax 

expenditures are not explicitly included, though the budget resolution may 

propose changes to tax expenditures or mandatory spending at 

Congress’s discretion. See figure 5 for a summary of key steps and how 

tax expenditures compare to spending in the congressional budget 

process.

Similar to Mandatory 

Spending, the 

Congressional Budget 

Process Does Not Require 

Annual Reapproval or 

Review of Non-expiring 

Tax Expenditures
Page 20 GAO-16-622 Tax Expenditures

Figure 5: Tax Expenditures Compared to Spending in the Congressional Budget 

Process

Note: The Congressional Budget Act establishes the steps of the budget process but Congress can 

and does make exceptions to this process.
Page 21 GAO-16-622 Tax Expenditures

As part of the annual budget process, House and Senate Budget 

committees develop a budget resolution, which sets budget authority in 

aggregate and by functional category, as well as target aggregate 

revenues.27 Unlike with mandatory and discretionary spending, tax 

expenditures’ fiscal effects are not explicitly included in the budget 

resolution. Rather, the aggregate revenue targets takes into account that 

revenue will be forgone because of tax expenditures.28 Through 

reconciliation instructions, the resolution may direct committees to 

propose legislation to meet the spending and revenue targets set by the 

budget resolution.29 The resolution is not required to propose adjustments 

to tax expenditures or mandatory spending through these instructions to 

meet those targets, though it may do so. The proposal is voted on by both 

budget committees and the full House and Senate. As a plan for 

Congress, the resolution is not presented to the President for signature 

and does not have the force of law, but guides the work of the 

appropriations, authorizing, and tax-writing committees, whose legislation 

is evaluated against the resolution’s targets.

After a budget resolution is passed, appropriations subcommittees in the 

House and Senate review the budget requests from their related 

executive agencies and develop appropriations acts that provide 

agencies the legal authority to incur obligations to fund discretionary 

spending programs. Appropriations acts do not apply to tax expenditures 

 27While a budget resolution is required by law to establish enforceable budget levels, 

Congress does not always choose to pass a budget resolution. Instead, at times Congress 

has chosen other resolutions or legislation to act in place of a budget resolution. These 

resolutions or bills are referred to informally as deeming resolutions, and at minimum 

provide spending allocations to appropriations committees. They may also enact 

aggregate budget levels, revenue levels, or provide for other related purposes.

28The Congressional Budget Office is required to produce a detailed list of tax 

expenditures for Congress annually, and relies on JCT for the production of that 

publication. These estimates are not included in any specific budget step.

29Reconciliation instructions are provisions in the budget resolution directing one or more 

committees to report (or submit to the House and Senate Budget Committees) legislation 

changing existing laws or pending legislation to bring spending, revenues, or debt limit into 

conformity with the budget resolution.

Budget Committees

Appropriations Committees
Page 22 GAO-16-622 Tax Expenditures

or, generally, to mandatory spending, and are considered by Congress on 

an annual basis.30

Separate from the annual appropriations process, the House and Senate 

authorizing committees develop authorizing legislation that establishes 

and continues the operation of federal programs or agencies. Authorizing 

committees have jurisdiction over specific policy areas, and both 

discretionary and mandatory spending programs must be authorized. For 

mandatory spending programs, authorizing legislation can define program 

eligibility and set benefit or payment rules, which then are paid 

automatically without the need for an annual appropriation.

Also separate from the annual appropriations process, tax-writing 

committee legislation includes tax expenditure extensions and proposals.

Revenue legislation may establish a tax expenditure indefinitely or for 

specific periods. Tax expenditures are not required to be reapproved 

unless they are set to expire, though changes may be proposed in any 

year.

Currently, there are budget controls both in statute and in congressional 

rules that apply to spending and tax expenditure legislation. Pay-as-yougo (PAYGO) rules generally require that any law that would increase 

mandatory spending or decrease revenues make an additional change in 

spending or revenues so that the new law does not increase the deficit. 

For example, the Statutory PAYGO Act of 2010 requires OMB to record 

the budget effects of all of the revenue and direct spending legislation on 

scorecards to project budgetary effects of the legislation over 5- and 10-

year periods.31 Sometimes this control is exempted by law, as was done 

in the Protecting Americans from Tax Hikes Act of 2015, which made 

various tax expenditures permanent.32 Both the House and the Senate 

have PAYGO rules. While the House’s PAYGO rule addresses only direct 

spending, the Senate PAYGO rule prohibits consideration of direct 

 30Mandatory (or direct) spending refers to budget authority provided in laws other than 

appropriation acts.

31Pub. L. No. 111–139, § 4(d), 124 Stat. 8 (Feb. 12, 2010). 

32Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, Div. Q, § 601, 129 Stat. 

2242, 3127 (Dec. 18, 2015). 

Authorizing Committees

Tax-writing Committees
Page 23 GAO-16-622 Tax Expenditures

spending or revenue legislation that could increase the deficit in current 

and future years.33

OMB Circular No. A-11 directs agencies to identify tax expenditures, as 

appropriate, among the various federal programs and activities that 

contribute to their agency goals, specifically strategic objectives and 

agency priority goals (APG).34 Agencies are also required to review 

progress toward their goals. For strategic objectives, reviews are to occur 

annually in order to inform annual planning and budget formulation, 

among other things. For APGs, agency leaders are required to review 

APG progress in quarterly, data-driven performance reviews. In its 

guidance, OMB states that tax expenditures should be subject to the 

same level of review as spending programs, and often complement or 

substitute for agencies’ spending programs that contribute to their 

strategic objectives. OMB also directs agencies to work with Treasury’s 

Office of Tax Analysis (OTA) to develop data and methods to evaluate the 

effects of tax expenditures that affect, or are directed toward, the same 

goals as agency programs.

Our review of agencies’ performance planning and reporting documents 

found that most agencies did not identify tax expenditures as contributors 

to agency goals, consistent with what we have reported previously.35 We 

found that 7 of the 24 CFO Act agencies identified tax expenditures as 

contributors to their missions (two instances) or to specific goals (five 

instances). The tax expenditures these seven agencies identified 

accounted for 11 of the 169 tax expenditures included in the President’s 

Budget for Fiscal Year 2017, representing an estimated $31.9 billion of 

 33S. Con. Res. 11, 114th Congress.

34OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget 

(Washington, D.C.: June 2015).

35GAO, Managing for Results: Enhanced Goal Leader Accountability and Collaboration 

Could Further Improve Agency Performance, GAO-14-639 (Washington, D.C: July 22, 

2014) and Managing for Results: Agencies Should More Fully Develop Priority Goals 

under the GPRA Modernization Act, GAO-13-174 (Washington D.C.: Apr. 19, 2013).

OMB and Agencies 

Have Made Limited 

Progress Identifying 

Tax Expenditures’

Contributions to 

Agency Goals
Page 24 GAO-16-622 Tax Expenditures

$1.23 trillion in forgone revenues for fiscal year 2015.36 In addition, three 

of these seven agencies developed performance measures to gauge the 

contributions of tax expenditures towards progress on agency goals. See 

figure 6 for a summary of the tax expenditures identified as contributing to 

agency goals or missions.

Figure 6: Tax Expenditures Identified by Agencies as Contributing to Agency Goals 

or Missions, as of January 2016

One commonality among agencies that linked tax expenditures to 

performance measures is that many of these agencies have a defined 

role in administering the related tax expenditures, and therefore collect 

data on the tax expenditures. See table 1 for a summary of the agencies 

that identified tax expenditures contributing to agency missions and goals 

in their performance documents as of January 2016.

 36We did not assess which of the 169 tax expenditures in the President’s Budget for Fiscal 

Year 2017 appear to relate to agency goals. Our prior work has shown that agencies have 

not always identified tax expenditures that we found to be related to agency goals in their 

performance reporting. See GAO-14-639.
Page 25 GAO-16-622 Tax Expenditures

Table 1: Agencies That Identified Tax Expenditures Contributing to Agency Missions, Goals, and Related Performance 

Measures in Their Performance Documents as of January 2016

Agency Agency goal

Tax expenditures 

identified Performance measure 

Department of 

Housing and Urban 

Development (HUD) 

Preserve quality affordable rental housing, where it 

is needed most, by simplifying and aligning the 

delivery of rental housing programs (strategic 

objective) and increase the health and safety of 

homes and embed comprehensive energy

efficiency and healthy housing criteria across HUD 

programs (strategic objective)

Low-income housing 

tax credit

Exclusion of interest 

on rental housing 

bonds

Number of units using lowincome housing tax credits 

and/or tax exempt rental 

housing bonds

Department of the 

Treasury

Promote savings and increased access to credit 

and affordable housing options (strategic objective)

New markets tax credit Number of affordable housing 

units created by Community 

Development Financial 

Institutions (CDFI) Fund 

programsa

Department of the 

Interior

Protect America’s cultural and heritage resources 

(strategic objective)

Historic rehabilitation 

tax credit

Number of completed historic 

rehabilitation tax credit projects

Department of 

Education

Increase college degree attainment (agency 

priority goal)

American opportunity 

tax credit

None identified

Department of Health 

and Human Services

Make coverage more secure for those who have 

insurance, and extend affordable coverage to the 

uninsured (strategic objective)

Premium tax credit

Small business health 

care tax credit

None identified

None identified

Promote economic and social well-being for 

individuals, families, and communities (strategic 

objective)

Earned income tax 

credit

None identified

Department of Labor Provide marketable skills and knowledge to 

increase workers’ incomes and help them 

overcome barriers to the middle class through 

partnerships among business, education, labor, 

community organizations, and the workforce 

system (strategic objective)

Work opportunity tax 

credit

None identified

Department of 

Energy

No specific goal identified; tax expenditures

contribute to agency mission

Production tax credit None identified

Renewable energy None identified

efficient property credit

Source: GAO analysis of agency performance documents. | GAO-16-622

a

CDFIs are financial institutions that provide credit and financial services to underserved 

communities.
Page 26 GAO-16-622 Tax Expenditures

As we have previously reported, one key impediment to including tax 

expenditures in agency performance reviews is the continuing lack of 

clarity about the roles of different federal agencies in conducting reviews 

of tax expenditures.37 This lack of clarity can lead to inaction in identifying

tax expenditures’ contributions to agency goals.

• Office of Tax Analysis (OTA). Treasury’s OTA provides economic 

and policy analyses leading to development of the President’s tax 

proposals. It also assesses major congressional tax proposals, which 

can include tax expenditures. OTA prepares Treasury’s revenue and 

revenue loss estimates for tax proposals and tax expenditures, 

respectively. According to OTA officials, OTA does not conduct 

systematic reviews of tax expenditures, but may conduct them when 

policymakers are considering changes to tax policy.

• Internal Revenue Service (IRS). As Treasury’s bureau responsible 

for determining, assessing, and collecting taxes, IRS administers and 

supervises the execution and application of internal revenue laws or 

related statutes, including for tax expenditures. However, IRS is not 

responsible for managing federal housing, energy, or any of the many 

other policies to which tax expenditures may contribute. At times, this 

can lead to insufficient oversight of tax expenditures. For example, in 

July 2015, we reported that IRS conducted minimal oversight of state 

housing finance agencies (HFA), on which IRS relies to administer 

and oversee the low-income housing tax credit.38 We found that IRS 

conducted minimal oversight in part because the tax credit is a 

peripheral program for IRS, in terms of its compliance responsibilities, 

mission, and priorities for resources and staffing. As part of that 

report, we suggested Congress consider designating HUD as a joint 

administrator of the program, including responsibilities for HFA 

oversight.

• Other agencies. If agencies do not have a defined role in 

administering a tax expenditure, they may choose not to identify the 

tax expenditure’s contributions to agency goals. At the three agencies 

 37GAO-05-690.

38IRS oversight responsibilities for the program include monitoring state housing finance 

agencies and taxpayer compliance. See GAO, Low-Income Housing Tax Credit: Joint 

IRS-HUD Administration Could Help Address Weaknesses in Oversight, GAO-15-330 

(Washington, D.C.: July 15, 2015).

A Lack of Clarity about 

Agencies’ Roles Leads to 

Inaction in Identifying Tax 

Expenditures That 

Contribute to Agency 

Goals
Page 27 GAO-16-622 Tax Expenditures

we selected to interview—USDA, DOE, and HUD—officials reported 

that they sometimes do not include tax expenditures as contributors to 

goals in their performance processes or reporting, because the 

agencies do not have a defined role in administering the tax 

expenditures. For example, in HUD’s fiscal year 2016 Performance 

Plan and fiscal year 2014 Performance Report, the agency describes 

a strategic objective involving “green and healthy homes.” Though 

HUD does not identify related tax expenditures, agency officials told 

us they understood that many homeowners and residential property 

owners who undertake energy efficiency retrofits or install solar 

panels take advantage of, or benefit from, energy-related tax credits, 

particularly for solar investment. Agency officials explained that HUD 

publishes resources on its web portal on renewable energy to help 

owners walk through the steps of financing options, some of which 

include tax credits. Officials at all three agencies we spoke to said that 

their performance conversations focused on programs they 

administer, which was why tax expenditures were not always 

included.

OMB staff told us they give agencies flexibility to determine the 

appropriate programs and tax expenditures that should be identified as 

contributors to agency goals. They also said that it is the agencies’

responsibility to incorporate tax expenditures, as appropriate, in their 

progress updates for agency goals, and that they do not provide any 

further clarity on agencies’ roles. Further, OMB staff told us that they do 

not track agencies’ identification of tax expenditures that contribute to 

agency goals. As a consequence, OMB does not have a process in place 

to determine the extent to which agencies are capturing the contributions 

of all federal commitments, including tax expenditures, toward agency 

goals.

Given OMB’s government-wide purview and Treasury’s familiarity with 

administering the tax code, these agencies are well positioned to assist

other agencies in identifying tax expenditures that contribute to their 

goals. To assist agencies, OMB’s 2013 and 2014 Circular No. A-11 

guidance noted that OMB would work with Treasury and agencies to 

identify where tax expenditures align with their goals, and that this 

information was to be published on Performance.gov and included in 

relevant agency plans, beginning in February 2014. However, OMB 

subsequently removed the language about working with Treasury and 

agencies to align tax expenditures with agency goals in the June 2015 

update to its guidance. OMB staff told us they removed the language 

because the agency had no immediate plans for focusing on this effort, 

nor did they have the capacity to consider it, despite seeing the benefit of 
Page 28 GAO-16-622 Tax Expenditures

such an effort. Without additional OMB and Treasury assistance, 

agencies may continue to have difficulty identifying whether, or which, tax 

expenditures contribute to their goals.

We have reported previously that challenges with performance 

measurement limit agencies’ ability to identify the contributions of tax 

expenditures to agency goals, and our work found that those challenges 

for agencies continue to exist.

• In September 2005, we found that a lack of performance information 

was a challenge in assessing the performance of tax expenditures.39

We recommended that OMB, in consultation with Treasury, identify 

ways to address the lack of credible tax expenditure performance 

information. The President’s fiscal year 2012 budget stated that the 

administration planned to focus on addressing some of these dataavailability challenges and analytical constraints so it can work toward 

crosscutting analyses that examine tax expenditures alongside related 

spending programs; however, as of February 2016, OMB had not 

provided an update on these efforts.

• In June 2013, we found that agencies face difficulties in measuring 

performance across various program types, including tax 

expenditures.40 We recommended that OMB work with the 

Performance Improvement Council (PIC) to develop a detailed

approach to examine difficulties agencies face in measuring the 

performance of these various types of federal programs and activities, 

including identifying and sharing any promising practices from 

agencies that have overcome difficulties in measuring the

performance of these program types.41 While OMB and PIC officials 

reported that they have taken some steps to address this 

recommendation in a few areas, as of June 2016, they have not yet 

 39GAO-05-690.

40GAO, Managing for Results: Executive Branch Should More Fully Implement the GPRA 

Modernization Act to Address Pressing Governance Challenges, GAO-13-518 

(Washington, D.C.: June 26, 2013). 

41The PIC is a council made up of agency performance improvement officers of federal 

agencies and chaired by OMB. It is designed to improve the performance of federal 

programs through facilitating information exchange among agencies. GAO-13-518. 

OMB Has Not Addressed 

Long-Standing 

Performance 

Measurement Challenges 

That Affect Agencies’

Ability to Evaluate How 

Tax Expenditures 

Contribute to Agency 

Goals
Page 29 GAO-16-622 Tax Expenditures

developed a comprehensive and detailed approach to address these 

issues as envisioned in our report, and these efforts have not included 

tax expenditures.

We continue to believe that implementing these recommendations would 

help agencies evaluate how tax expenditures contribute to agency goals.

One factor that continues to impede agencies’ abilities to assess the 

contributions of tax expenditures to their goals is the limited availability of 

tax expenditure data.

• Officials from Treasury and the three agencies—USDA, DOE, and 

HUD—that we selected to interview told us that limited tax data can 

be a barrier to conducting performance reviews or analyzing tax 

expenditures.

• We reported in April 2013 that tax forms did not capture who claimed 

a tax expenditure and how much they claimed for 63 percent of tax 

expenditures in 2011.42 Likewise, we have reported that tax 

expenditure data that are collected on tax forms are not always 

sufficiently detailed to assess or describe tax expenditure results. For 

example, in April 2015, we found that IRS data did not include key 

project-level information on the Investment Tax Credit and Production 

Tax Credit, which is necessary to describe how many projects these 

credits supported and to evaluate the credits’ effectiveness.43

We reported in April 2013 that these data challenges can be remedied to 

some extent by data from other agencies or other sources, such as public 

records, state agency records, and surveys.44 However, these solutions 

do not completely overcome the data challenges associated with 

evaluating tax expenditures. For example, we reported that HUD 

community level data can be used to partially remedy limited IRS tax data 

on Empowerment Zone (EZ) employment tax credits, which did not 

identify which specific communities received EZ tax credits. However, 

HUD only tracks a portion of EZ employment tax credits, and thus its data 

 42GAO, Tax Expenditures: IRS Data Available for Evaluations Are Limited, GAO-13-479 

(Washington, D.C.: Apr. 30, 2013). 

43GAO, Electricity Generation Projects: Additional Data Could Improve Understanding of 

the Effectiveness of Tax Expenditures, GAO-15-302 (Washington, D.C.: Apr. 28, 2015). 

44GAO-13-479.
Page 30 GAO-16-622 Tax Expenditures

do not completely mitigate the limitations of tax form data in identifying 

which communities benefit from EZ tax credits.

For some tax expenditures, evaluating performance may require 

collecting additional tax form data. For example, in April 2015, we 

reported that because basic information on the Investment Tax Credit and 

Production Tax Credit is unavailable, it will be difficult for Congress to 

evaluate the effectiveness of these tax credits or compare them with 

spending or loan programs as it considers reauthorizing or extending 

them.45 We suggested that Congress consider directing IRS to collect 

additional tax form data to help evaluate the effectiveness of the credits.

Further incorporating tax expenditures into federal budgeting processes 

could help achieve various broad benefits, based on our assessment of 

the roundtable discussion we held with budget and tax experts and on our 

prior work (see figure 7).

 45GAO-15-302.

Options to Further 

Incorporate Tax 

Expenditures into 

Federal Budgeting 

Processes Have 

Various Potential 

Benefits and 

Challenges
Page 31 GAO-16-622 Tax Expenditures

Figure 7: Examples of Broad Benefits to Further Incorporating Tax Expenditures into Budgeting Processes

Note: To identify these examples of broad benefits to further incorporating tax expenditures into 

budgeting processes, GAO assessed a transcript of the roundtable discussion with budget and tax 

experts and prior GAO work.

a

Federal spending is generally classified by budget function; these are 17 broad areas—for example, 

national defense, agriculture, transportation, community and regional development—that align with 

national priorities.

Below we discuss options that may help achieve these broad benefits. 

We identified the options based on insights from experts during our 

roundtable discussion and interviews—as well as related literature—and 

our prior work.46 For each option, we indicate the broad benefit—

 46The roundtable discussion was not designed to reach a consensus and all options were 

not necessarily supported by all roundtable participants. The potential benefits, 

challenges, and design considerations of the options are described in this section. See our 

earlier description of our methodology for details on how we analyzed themes from the 

roundtable discussion.
Page 32 GAO-16-622 Tax Expenditures

additional transparency, opportunity for review, or greater control—that 

could be achieved, and issues that policymakers would need to consider 

when evaluating the merits of each option (which we present below as 

design considerations). We do not assess the relative feasibility of these 

options, nor do we recommend implementing any of these options in this 

report. Finally, these options are not exhaustive, nor are they mutually 

exclusive, as some options could be implemented together and may even 

complement each other.

While these options offer a range of potential benefits, there are 

challenges and tradeoffs for policymakers to consider in whether or how 

to implement any policy to further incorporate tax expenditures into 

federal budgeting processes. For example, agency officials and experts 

said that implementing these options—in particular those requiring 

additional information on, or reviews of, tax expenditures—would require 

resources. Moreover, as previously mentioned, and as experts told us, 

there is not always a consensus on which tax provisions constitute tax 

expenditures. Finally, it is difficult to measure the size of some tax 

expenditures that are only loosely linked to actual tax filing data. While 

the JCT and Treasury use modeling to estimate tax expenditure revenue 

losses, in some cases little data are available and assumptions are made. 

These broad challenges would need to be considered when assessing 

how to approach the different options for further incorporating tax 

expenditures into federal budgeting processes.

Tax expenditures could be presented, for informational purposes, in the 

congressional budget resolution alongside other spending by budget 

function. A similar presentation could be included in the President’s 

Budget. Currently, tax expenditure estimates are presented in 

congressional budget documents and the President’s Budget separate 
Page 33 GAO-16-622 Tax Expenditures

from other types of spending. Moreover, they are not included within, or 

shown alongside, summaries of spending levels by functional category; 

rather, they are an undifferentiated component of total federal revenues, 

which obscures their size.47

OMB previously presented tax expenditure revenue loss totals alongside 

outlays and credit activity for each budget function in the federal budget 

from fiscal year 1998 through fiscal year 2002, in response to one of our 

prior recommendations.48 However, it discontinued the practice in fiscal 

year 2003. In 2005, when we recommended that OMB resume presenting 

tax expenditures in the budget together with related spending programs, 

OMB told us that the current presentation of tax expenditure 

information—that is, presenting tax expenditures separately from other 

spending in the budget—was sufficient for providing the public and 

policymakers with what is useful to know about these provisions of the tax 

code.49 In our roundtable, experts noted that tax expenditure estimates by 

functional category were already included in budget documents, but also 

acknowledged that having the information in different parts of budget 

documents does not facilitate a side-by-side comparison. As we have 

previously reported, presenting tax expenditure estimates alongside 

discretionary and mandatory spending levels could increase transparency 

and better communicate to the public the levels of spending being 

allocated to national priorities.50

 47While JCT publishes estimates of individual tax expenditures by budget function, the 

totals are not aggregated by function and the results are not shown alongside new budget 

authority and outlays. Similarly, in the President’s budget, though Treasury estimates of 

revenue losses associated with tax expenditures are available in the Analytical 

Perspectives chapter, generally, tax expenditures are not shown alongside summaries of 

discretionary and mandatory spending by function.

48In 1994 we recommended that OMB, in consultation with Treasury, revise the budgetary 

presentation of tax expenditure information to highlight the fiscal and other consequences 

associated with tax expenditures for the public and policymakers. We further 

recommended that a revised presentation include the combined federal resources 

allocated in functional areas, including both outlays and tax expenditures and, to the 

extent possible, information that could be used in assessing their effectiveness, 

distributional equity, and economic efficiency. See GAO/GGD/AIMD-94-122.

49GAO-05-690. OMB disagreed with this recommendation and it has not been 

implemented.

50GAO-05-690.
Page 34 GAO-16-622 Tax Expenditures

• What methodology would Treasury and JCT use to estimate 

aggregated tax expenditures by budget function? Tax expenditure 

estimates represent the revenue losses associated with particular tax 

provisions, assuming the rest of the tax code and taxpayer behavior 

remain unchanged. If all tax expenditures within a budget function 

were removed at once, there would be interactions among the tax 

expenditures that would change the estimates. As a result, 

aggregating current tax expenditure estimates for a budget function 

would likely result in an imprecise estimate.51 However, Treasury and 

JCT officials told us that it was methodologically feasible to prepare 

aggregated revenue loss estimates representing those tax 

expenditures related to a specific budget function that would account 

for these interactions.

This option would institute a systematic approach to evaluating tax 

expenditures on an ongoing basis. Evaluations are studies that use 

research methods to address specific questions about program 

performance. In particular, evaluations can be designed to isolate the 

causal impacts of programs from other external economic or 

environmental conditions to assess a program’s effectiveness. Treasury 

does not regularly conduct evaluations of tax expenditures; rather, it 

 51One study found that taking interactions between provisions into account increases the 

estimated total cost of individual income tax expenditures by 5 to 8 percent, depending on 

whether the alternative minimum tax is accounted for or not. See Burman, Leonard, 

Toder, Eric, and Geissler, Christopher. How Big Are Total Individual Income Tax 

Expenditures, and Who Benefits from Them? (The Urban Institute, Washington, D.C.: 

December 2008).

Design Consideration
Page 35 GAO-16-622 Tax Expenditures

conducts some evaluations on an ad hoc basis.52 Other researchers and 

organizations may also conduct evaluations of tax expenditures on an ad 

hoc basis. OMB has previously encouraged agencies to strengthen their 

program evaluations and expand their use of evidence and evaluation in 

budget, management and policy decisions to improve government 

effectiveness.

53

In 2005, we reported that the results of tax expenditure evaluations could 

help identify how well tax expenditures are working, both to identify ways 

to better manage specific tax expenditures and to decide how best to 

ensure prudent stewardship of taxpayers’ resources.54 As previously 

discussed, we recommended that OMB develop and implement a 

framework for conducting performance reviews of tax expenditures, but 

OMB has not reported on progress made on this recommendation since 

the President’s fiscal year 2012 budget.55 Moreover, since fiscal year 

2011, the President’s budget has recognized that a comprehensive 

evaluation framework that examines incentives, direct results, and 

spillover effects would benefit the budgetary process by informing 

 52Treasury officials said the tax expenditure evaluations it conducts generally relate to 

specific tax policy proposals under consideration, or areas of tax policy under potential 

reform. For example, Treasury officials noted that they assessed specific tax expenditures 

for a report on business tax reform, originally published in 2012 and updated in 2016, 

which described tax policy proposals reflected in the President’s budget request. See The 

President’s Framework for Business Tax Reform: An Update (Washington, D.C.: April 

2016).

53GAO, Program Evaluation: Some Agencies Reported that Networking, Hiring, and 

Involving Program Staff Help Build Capacity, GAO-15-25 (Washington, D.C.: Nov. 13, 

2014). We similarly reported on the potential usefulness to Congress, agencies, and the 

public of conducting retrospective analyses of regulations—another type of policy tool 

used to achieve national priorities—to help evaluate how well existing regulations work in 

practice and determine whether they should be modified or repealed. See, for example, 

GAO, Reexamining Regulations: Agencies Often Made Regulatory Changes, but Could 

Strengthen Linkages to Performance Goals, GAO-14-268 (Washington, D.C.: Apr. 11, 

2014).

54GAO-05-690.

55A program evaluation is one type of review that could be conducted within this 

framework. As noted in the President’s fiscal year 2012 budget, the administration 

planned to focus on addressing challenges in conducting evaluations due to limited data 

availability and analytical constraints so it can work toward analyses that examine tax 

expenditures alongside related spending programs, but subsequent budgets have not 

provided an update on these efforts.
Page 36 GAO-16-622 Tax Expenditures

decisions on tax expenditure policy. Finally, this option may improve the 

information available to policymakers on the effectiveness of specific tax 

expenditures, which policymakers could then use in deciding how to best 

allocate resources to achieve national priorities. Tax expenditure 

evaluations could also complement ongoing GPRAMA-related 

performance measurement and reporting by measuring results that are 

too difficult or expensive to assess annually, explaining the reasons why 

performance goals were not met, or assessing whether one approach is 

more effective than another.56

• Which tax expenditures would be evaluated and how frequently?

We have previously identified options for selecting tax expenditures 

for evaluation, including: (1) selecting on a judgmental basis, (2) 

selecting based on established criteria, and (3) evaluating an existing 

temporary tax expenditure before it is extended.57 Some state and 

foreign governments conduct tax expenditure evaluations grouped by 

policy focus or industry, or focus evaluations on tax expenditures with 

the largest revenue losses. For example, Germany focuses on its 

largest tax expenditures, with one budget-related document reporting 

that 27 of 102 tax expenditures—accounting for 75 percent of the 

value of all tax expenditures—were evaluated between 2011 and 

2014.58 Meanwhile, the Netherlands established a 5-year schedule to 

review all tax expenditures and makes the goals and standards of the 

reviews publicly available.

59

• Who would be responsible for conducting the evaluations?

Executive branch agencies could conduct these evaluations within the 

 56For example, an evaluation might assess the effect of a tax expenditure on economic 

growth or the distributional effect of a tax expenditure—the result of which may then be 

compared to outlay programs for which similar data were available (see option 3 below on 

comparing tax expenditures and outlay programs with similar purposes).

57We have published a guide for policymakers to be used when considering how and 

when to evaluate tax expenditures. See GAO, Tax Expenditures: Background and 

Evaluation Criteria and Questions, GAO-13-167SP (Washington, D.C.: Nov. 29, 2012).

58Germany’s Federal Ministry of Finance, 24th Subsidy Report of the Federal Government 

(Berlin: August 2013). 

59Organization for Economic Cooperation and Development, Tax Expenditures in OECD 

Countries (Paris: 2010). 

Design Considerations
Page 37 GAO-16-622 Tax Expenditures

GPRAMA framework.60 We have previously recommended that OMB 

develop and implement a framework for conducting performance 

reviews of tax expenditures, though OMB has not reported on 

progress made on this recommendation since the President’s fiscal 

year 2012 budget, as previously mentioned.61 Experts also suggested 

that Treasury would be well equipped to analyze available taxpayer 

data related to specific tax expenditures. However, they also noted 

the potential for political influence in having any executive branch 

agency conduct the evaluations, and that hiring nongovernmental 

organizations to conduct these evaluations could be an alternative to 

executive branch reviews. One expert suggested that a tax 

expenditure commission with appointees from a balance of political 

parties could identify which of these organizations would conduct 

each review.

• How might policymakers address data challenges? Agencies may 

not have access to confidential taxpayer data that they might need to 

conduct evaluations, and existing IRS data may not be sufficient for 

evaluating the efficiency, equity, and other effects of specific tax 

expenditures. For these challenges with lack of access to data, 

Congress has allowed some exceptions to laws limiting the disclosure 

of taxpayer information to third parties.62 For the challenge of lack of 

tax expenditure data, any party conducting an evaluation could, to 

some extent, use data from other agencies or other sources, such as 

public records, state agency records, and surveys, as previously 

discussed. IRS could also be directed to collect more data that could 

 60Sometimes agencies conduct formal program evaluations of federal programs in 

conjunction with GPRAMA reporting. We have previously reported that a third of the CFO 

Act agencies have evaluation coverage of half or more of their performance goals. 

Similarly, over a third of the CFO Act agencies reported using evaluations to a moderate 

or greater extent as evidence in support of budget or policy changes or program 

management. See GAO-15-25.

61GAO-05-690.

62In considering proposals for exceptions to confidentiality, Congress has generally 

attempted to balance the expectation of taxpayer privacy with the competing policy goals 

of efficient use of government resources, the public health and welfare, and law 

enforcement. Our taxpayer privacy guide provides questions for Congress to consider 

when assessing whether to expand disclosure of tax information. See GAO, Taxpayer 

Privacy: A Guide for Screening and Assessing Proposals to Disclose Confidential Tax 

Information to Specific Parties for Specific Purposes, GAO-12-231SP (Washington, D.C.: 

Dec. 14, 2011).
Page 38 GAO-16-622 Tax Expenditures

be used to evaluate a given tax expenditure, although such an effort 

could increase taxpayer burden.63 Policymakers could also weigh the 

availability of data on specific tax expenditures when deciding which 

tax expenditures should or should not be evaluated.64

OMB could conduct reviews of portfolios of programs and other policy 

instruments—including tax expenditures—used to help pursue similar 

objectives.65 Currently, OMB generally reviews spending by agency rather 

than by policy area. We have previously reported that while the evaluation 

of spending programs in isolation may be revealing, it is often critical to 

understand how federal spending programs fit within a broader portfolio of 

tools and strategies—such as regulations, direct loans, and tax 

 63IRS is obligated under the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35) to 

keep the administrative burden on taxpayers as low as possible, while still fulfilling its 

mission. Tax expenditure data generally would not be collected on tax returns unless IRS 

needs the information to know the correct amount of taxes owed, or is legislatively 

mandated to collect or report the information. In considering additional data requirements, 

it is important that Congress weigh the need for more information with IRS’s other 

priorities because such requirements likely would increase, to some degree, the 

administrative costs for IRS and the compliance burden on taxpayers.

64For example, the Evidence-Based Policymaking Commission Act of 2016 establishes a 

commission tasked with, among other things, evaluating how administrative data on 

federal programs and tax expenditures, survey data, and related statistical data series 

may be integrated and made available to facilitate program evaluation, continuous 

improvement, policy-relevant research, and cost-benefit analyses.

65For more information on portfolio budgeting, see Steve Redburn and Paul Posner, 

Portfolio Budgeting: How a New Approach to the Budget Could Yield Better Decisions

(Washington, D.C.: The Brookings Institution, September 2015), accessed February 16, 

2016. http://www.brookings.edu/research/papers/2015/09/30-portfolio-budgeting-newapproach-redburn-posner. 
Page 39 GAO-16-622 Tax Expenditures

expenditures—to advance federal missions and achieve federal 

performance goals.66

Likewise, such an analysis could help Congress and executive agencies 

identify whether a program complements and supports other related 

programs, whether it is duplicative or redundant, or whether it actually 

works at cross-purposes to other initiatives. For example, we previously 

reported that 20 federal government entities administered 160 programs, 

tax expenditures, and other tools that supported homeownership and 

rental housing in fiscal year 2010.67 We have also previously reported that 

coordinated reviews of tax expenditures with related spending programs 

could help policymakers reduce overlap and inconsistencies and direct 

scarce resources to the most effective or least costly methods to deliver 

federal support.68 Experts identified federal aid for higher education as 

another example of an area for which portfolio review could be valuable, 

as there are multiple federal grants, loans, and tax expenditures that 

serve this policy area.

• How would policy areas be selected for review? One expert noted 

that the selection of policy areas for review could be accomplished in 

Congress, either by the leadership in consultation with the President 

or by a budget committee as a part of the congressional budget 

process.69 Alternatively, GPRAMA could serve as the framework for 

selecting areas for review, specifically through CAP goals—the longterm, outcome-oriented crosscutting priority goals for the federal 

 66GAO, 21st Century Challenges: Performance Budgeting Could Help Promote Necessary 

Reexamination, GAO-05-709T (Washington, D.C.: June 14, 2005).

67GAO, Housing Assistance: Opportunities Exist to Increase Collaboration and Consider 

Consolidation, GAO-12-554 (Washington, D.C.: Aug. 16, 2012). 

68GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save 

Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: Mar. 1, 2011). 

69Posner, Paul. Federal Budget Process Reform. Testimony to U.S. House of 

Representatives Committee on the Budget (Washington, D.C.: July 28, 2015).

Design Considerations
Page 40 GAO-16-622 Tax Expenditures

government.70 In September 2015, OMB staff told us that OMB had 

determined that there were no tax expenditures that were critical to 

support achievement of current CAP goals.71 However, as new CAP 

goals are established, tax expenditures may support their 

achievement. Further, we have previously reported that OMB and 

agencies are required to consult with Congress when establishing or 

adjusting CAP goals, which could provide Congress with opportunities 

to encourage further incorporation of tax expenditures into the goals, if 

desired.72

• How would the federal resources that contribute to a policy area 

be identified? As we have reported previously, creating a 

comprehensive list of federal programs along with related funding 

information is critical for identifying potential duplication, overlap, or 

fragmentation among federal programs or activities.73 GPRAMA 

requires OMB to publish a list of all federal programs on a central 

government-wide website. In October 2014, we reported that although 

OMB and agencies have taken some initial steps to develop program 

inventories with related budget and performance information, the 

ensuing result has not produced a useful tool for decision making.74

We made various recommendations to OMB to better present a more 

coherent picture of all federal programs and ensure that the 

information agencies provide in their inventories is useful to federal 

decision makers. For example, one of our recommendations was that 

OMB, in coordination with Treasury, develop a tax expenditure 

inventory that identifies each tax expenditure and describes its 

 70GPRAMA requires OMB to coordinate with agencies to develop CAP goals for a limited 

number of crosscutting policy areas and management improvement areas every 4 years. 

OMB is to annually identify the federal agencies, organizations, program activities, tax 

expenditures, regulations, policies, and other activities that contribute to each CAP goal, 

along with crosscutting performance measures and quarterly performance targets. 

GPRAMA also requires that OMB, with the agencies, develop a federal government 

performance plan defining the level of performance to be achieved. 

71GAO-16-509. 

72GAO-13-167SP.

73GAO, Government Efficiency and Effectiveness: Inconsistent Definitions and Information 

Limit the Usefulness of Federal Program Inventories, GAO-15-83 (Washington, D.C.: Oct. 

31, 2014).

74GAO-15-83.
Page 41 GAO-16-622 Tax Expenditures

definition, purpose, and related performance and budget information; 

as of November 2015, no action had been taken on that

recommendation.75 Such information could help agencies identify the 

contributions of tax expenditures to achieving national priorities.

Policymakers could help ensure greater coordination between the taxwriting and authorizing committees by having authorizing committees 

consider new or modified tax expenditure legislation for which they have 

program-related expertise. When proposed legislation is introduced in the 

House or Senate, it is generally referred to the committee with subjectmatter expertise—thus, in the case of tax expenditures, tax-writing 

committees are referred proposed tax legislation that can span national 

priorities across the government.76 Authorizing committees, on the other 

hand, are referred proposed legislation for policy areas within their 

jurisdiction, but generally do not provide direct and formal input on 

legislation of related tax provisions in those policy areas.

By being involved in developing or modifying tax expenditure legislation, 

authorizing committees would have a broader picture of federal resources 

being allocated to national priorities. This may further help policymakers 

identify potential duplication between spending programs and tax 

 75Although OMB published an initial inventory covering the programs of 24 federal 

agencies in May 2013, OMB decided to postpone further development of the inventory to 

coordinate with the implementation of the Digital Accountability and Transparency Act of 

2014 (DATA Act). In July 2015, we recommended that OMB accelerate efforts to merge 

DATA Act purposes with the production of a federal program inventory.

76The tax-writing committees also have jurisdiction over some health programs and 

aspects of Social Security.
Page 42 GAO-16-622 Tax Expenditures

expenditures, and may allow for greater comparison of how well specific 

policy tools help achieve a national priority. While bringing other 

committees into the process of reviewing tax expenditures could be 

institutionally cumbersome, having tax-writing and authorizing committees 

review tax legislation may still be appropriate when a provision has both 

programmatic purposes, like stimulating an activity, and tax policy 

purposes, like taking into account taxpayers’ ability to pay taxes.

• What path through committees would new tax legislation take?

Proponents of this option suggested various ways that both tax-writing 

and authorizing committees could provide input when considering 

proposed tax legislation. For example, some proponents suggested 

that tax-writing committees could continue to draft new tax legislation, 

but that authorizing committees would then need to approve the 

legislation before it goes to the full House or Senate for a vote—a

process similar to the sequential referral.77 Under this option, 

policymakers would also need to consider how to account for tax 

expenditures serving varied purposes that fall within the jurisdiction of 

multiple committees.

Congress could authorize the Senate and House Budget Committees to 

include tax expenditures with other spending, both in total and by 

functional category, in budget resolution levels. Currently, the budget 

committees—via the budget resolution—set forth revenue and spending 

 77House and Senate rules allow for the referral of legislation to more than one committee 

in certain instances. For example, legislation addressing the Highway Trust Fund is 

referred primarily to the House Committee on Transportation and Infrastructure, which 

addresses policy issues, and sequentially to the House Committee on Ways and Means, 

which considers revenue issues.

Design Consideration
Page 43 GAO-16-622 Tax Expenditures

targets, including spending targets for each major functional category of 

the budget. Tax-writing committees then decide how to achieve revenue 

targets through, if needed, changes to overall tax rates or to specific tax 

expenditures. Meanwhile, appropriations and authorizing committees 

decide how to achieve spending targets for discretionary and mandatory 

spending, respectively. Depending on how it was designed, this option 

would either result in the budget committees setting targets for tax 

expenditure levels, or it would give authorizing (and potentially 

appropriating) committees greater or full control over determining the 

appropriate levels of spending for tax expenditures and other programs 

within a specific budget function.

Broadly speaking, some experts said that options that further integrate tax 

expenditures into congressional budgetary controls, such as the budget 

resolution, could result in the greatest change in how Congress 

approaches decisions on federal investments. Depending on how 

policymakers designed this option, it could potentially allow for this 

movement of federal resources across policy instruments. Moreover, 

some experts noted it was important for policymakers to have increased 

flexibility to budget across policy instruments—moving resources toward 

the most efficient and effective means of making progress toward a 

national priority.

• How would tax expenditure estimates be allocated to 

committee(s)? From our expert interviews and roundtable 

discussion, and within the literature we reviewed, experts identified 

various ways to further integrate tax expenditures into the budget 

resolution, each of which would result in a different shift in committee 

powers. For example, tax expenditures could be (1) allocated to the 

tax-writing committees; (2) allocated to, or shared between, both the 

tax-writing and relevant authorizing (and potentially appropriating) 

committees; or (3) allocated to the relevant authorizing (and 

potentially appropriating) committee to determine how to achieve 

those spending levels across multiple policy instruments.78 The first 

design alternative would continue to leverage the expertise of tax-

 78The appropriations subcommittees may also play a role in this process, as the 

appropriations committees in each house distribute spending authority and outlays to their 

relevant subcommittees of jurisdiction based on the levels contained in the budget 

resolution.

Design Considerations
Page 44 GAO-16-622 Tax Expenditures

writing committees in deciding tax policy. While the third design 

alternative would likely be complex to design and implement, it would 

potentially allow for the movement of federal resources across policy 

instruments. The second design alternative may help achieve both 

those benefits, but would also be complex to design and implement.

• How might this change affect committee powers? This option 

could result in a substantial change in congressional committee 

jurisdictional powers, depending on how it was designed. The budget 

committees, and potentially authorizing and appropriations 

committees, would have greater input into tax policy decisions than 

previously, while tax-writing committees would have less input.79 One 

expert noted that dispersing tax expenditure decisions across multiple 

committees could impede any opportunity for fundamental tax reform, 

since the powers to make such changes would be distributed among 

more congressional actors. Whether or not this change in committee 

powers is an optimal outcome is a policy decision.

• Could policymakers overcome tax expenditure measurement 

challenges? Policymakers would need to overcome the challenges of 

treating tax expenditures on the same footing as spending 

programs—particularly with respect to budget controls that are 

enforced. Specifically, some tax expenditure estimates are only 

loosely linked to actual tax filing data. Thus, any prior-year levels of 

spending for these tax expenditures are only estimates. In contrast, 

spending programs are measured in obligations and outlays, which 

are generally measured by the specific amounts of cash committed 

and disbursed by the government, respectively. However, this 

measurement challenge is not unique to tax expenditures. For 

example, experts noted that credit programs are also difficult to 

measure, but policymakers have made progress in measuring the 

costs of these types of programs through increased scrutiny and 

requirements for agencies.80

 79The House Ways and Means and Senate Finance Committees are both tax-writing 

committees and authorizing committees for some spending programs, such as Medicare 

and Temporary Assistance for Needy Families.

80According to a Treasury official, certain types of tax expenditures, such as income 

exclusions, might still be more difficult to estimate than credit programs. The exclusion of 

interest on life insurance savings, where the taxpayer is not asked to report the amount of 

the exclusion anywhere on a tax form, may be one such example.
Page 45 GAO-16-622 Tax Expenditures

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. Most other tax expenditures are enacted 

permanently and continue without change unless amended. Under PayAs-You-Go (PAYGO) rules, this option would result in the tax-writing 

committees needing to find revenues to offset the cost of extending 

expiring tax expenditures.

81 However, Congress could incorporate the 

cost of extending expiring tax expenditures in its baseline revenue 

estimates, thus negating the need to find offsetting revenues, or it could 

waive the PAYGO rules on a case-by-case basis.

82 This option could 

result in greater oversight of tax expenditures, as policymakers would be 

required to explicitly decide whether or not to extend more or all tax 

expenditures.

• Which tax expenditures should expire, when, and in what way?

Congress could develop a general rule establishing which tax 

 81The Statutory Pay-As-You-Go (PAYGO) Act of 2010 (Pub. L. No. 111–139) requires that 

new direct spending and tax legislation be deficit neutral so that in the aggregate such 

legislation does not increase the deficit. Thus, if policymakers wanted to reenact an 

expiring tax provision, under current law this reenactment would need to be paid for 

through increases in revenues or reductions in spending in other PAYGO legislation 

affecting the same fiscal year.

82Section 257 of the Balanced Budget and Emergency Deficit Control Act of 1985, as 

amended, defines the baseline with which PAYGO rules are enforced. However, 

Congress can include language in direct spending or revenue legislation effectively 

waiving the PAYGO requirements. For example, section 601 of the Protecting Americans 

from Tax Hikes Act of 2015 excluded the budgetary effects, including the impact of making 

various tax expenditures permanent, from PAYGO scorecards. Consolidated 

Appropriations Act, 2016, Pub. L. No. 114-113, Div. Q, 129 Stat. 2242, 3040-3127 (Dec. 

18, 2015). 

Design Considerations
Page 46 GAO-16-622 Tax Expenditures

expenditures should expire and how often. It could also consider the 

added legislative workload imposed on the tax-writing committees by 

such a policy when deciding when tax expenditures might expire, and 

which ones would expire. We have previously reported that frequent 

changes in the tax code, such as from extended or expired tax 

provisions, can create uncertainty and contribute to compliance 

burden by making tax planning more difficult.83 Policymakers could 

consider if policies should be developed to mitigate this effect. For 

example, grandfathering could be provided for assets purchased 

under tax-preferred regimes.84 Policymakers could also examine how 

other countries that require tax expenditures to periodically expire 

have designed these policies to minimize this burden.85

• Could or should the option be designed to be revenue neutral?

All else equal, if a tax expenditure expires, the result would be 

additional revenue that the federal government would collect. 

Policymakers could consider whether to design this option in a way 

that would automatically lower tax revenues to achieve revenue 

neutrality.86

In recent years, revenue losses from tax expenditures have reached 

levels similar to discretionary spending; approximately $1.23 trillion in 

revenue was forgone for fiscal year 2015. Even as discretionary spending 

has decreased, in real terms, since 2010, the amount of revenue forgone 

via tax expenditures has increased. Yet tax expenditures do not receive 

the same level of scrutiny within federal budget processes as 

discretionary spending. Moreover, the executive branch has made little 

 83GAO, Understanding the Tax Reform Debate: Background, Criteria, and Questions, 

GAO-05-1009SP (Washington, D.C.: September 2005).

84If Congress provided a transition period for changes to take effect, taxpayers who based 

their decisions on tax laws in force at that time may not be significantly harmed by later 

changes. Grandfathering can be controversial, however, due to issues such as 

generational equity and the fact that it would limit the revenues that could be collected in 

early years.

85For example, according to one publication, Japan and Korea require that most or all tax 

expenditures periodically expire. See Organization for Economic Cooperation and 

Development, Tax Expenditures in OECD Countries (Paris: 2010).

86For example, one way to offset the potential revenue generated by expiring tax 

expenditures is to lower individual or corporate tax rates.

Conclusions
Page 47 GAO-16-622 Tax Expenditures

progress toward increasing transparency of the budgetary effects of tax 

expenditures—compared to related spending—or toward implementing a 

framework to gauge their performance, as we have recommended 

previously. We continue to believe in the merit of those 

recommendations.

GPRAMA provides an existing framework for the executive branch to 

exercise greater oversight over tax expenditures and could help facilitate 

further incorporating tax expenditures into performance and budget 

discussions. In implementing GPRAMA, OMB has directed agencies to 

take tax expenditures into account when identifying programs and 

activities that contribute to their goals. However, despite this guidance, 

agencies have identified few tax expenditures that contribute to such 

goals. We have found that a lack of clarity about the roles of different 

agencies in conducting reviews of tax expenditures impedes their ability 

to identify tax expenditures that contribute to agency goals. OMB—given 

its government-wide purview—and Treasury—given its familiarity with 

administering the tax code—are well positioned to assist agencies in 

identifying tax expenditures that relate to their goals. Without additional 

OMB and Treasury assistance, agencies may continue to have difficulty 

identifying whether or which tax expenditures are relevant to their goals, 

and may be limited in their understanding of how the range of federal 

investments and policy tools contribute to agency goals.

More broadly, we identified various other options to further integrate tax 

expenditures into both the executive and congressional budgeting

processes based on our review of literature and our past work, and our 

interviews and roundtable discussion with experts. If implemented, these 

options could increase transparency on how the federal government 

allocates resources, provide additional means for policymakers to review 

tax expenditures’ effectiveness, and create additional controls over 

spending through the tax code. However, the options come with a range 

of challenges and tradeoffs that policymakers would need to consider.

To help ensure that the contributions of tax expenditures toward the 

achievement of agency goals are identified and measured, the Director of 

OMB, in collaboration with the Secretary of the Treasury, should work 

with agencies to identify which tax expenditures contribute to their agency 

goals, as appropriate—that is, they should identify which specific tax 

expenditures contribute to specific strategic objectives and agency priority 

goals.

Recommendation for 

Executive Action
Page 48 GAO-16-622 Tax Expenditures

We provided a draft of this report for review and comment to the 

Secretaries of Agriculture, Commerce, Defense, Education, Energy, 

Health and Human Services, Homeland Security, Housing and Urban 

Development, the Interior, Labor, State, Transportation, the Treasury, and 

Veterans Affairs; the Attorney General of the United States; the Directors 

of the Office of Management and Budget, and the National Science 

Foundation; the Administrators of the Environmental Protection Agency, 

General Services Administration, National Aeronautics and Space 

Administration, Small Business Administration and the U.S. Agency for 

International Development; the Acting Director of the Office of Personnel 

Management; the Acting Commissioner of the Social Security 

Administration; and the Chairman of the Nuclear Regulatory Commission.

OMB staff spoke with us about their comments on our report and 

generally agreed with the recommendation and further noted that 

implementing it could be beneficial. However, they also said it is not an 

effort they are currently pursuing due to competing priorities, as well as 

capacity and resource constraints. They also provided technical 

comments, which we incorporated as appropriate.

The following agencies provided technical comments that were 

incorporated into the draft as appropriate: The Departments of Energy, 

Health and Human Services, Housing and Urban Development, the 

Interior, and Labor.

The following agencies had no comments on the draft report: The 

Departments of Agriculture, Commerce, Defense, Education, Homeland 

Security, Justice, State, Transportation, the Treasury, and Veterans 

Affairs; the Environmental Protection Agency; the General Services 

Administration; the National Aeronautics and Space Administration; the 

National Science Foundation; the Nuclear Regulatory Commission; the 

Office of Personnel Management; the Small Business Administration; the 

Social Security Administration; and the U.S. Agency for International 

Development.

We are sending copies of this report to the Director of OMB, Secretary of 

the Treasury, and the heads of the other agencies we reviewed, as well 

as appropriate congressional committees. In addition, this report is 

available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please 

contact me at (202) 512-6806 or krauseh@gao.gov. Contact points for 

Agency Comments
Page 49 GAO-16-622 Tax Expenditures

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. Key contributors to this report are listed in 

the appendix.

Heather Krause

Acting Director, Strategic Issues
Appendix I: GAO Contact and Staff 

Acknowledgments

Page 50 GAO-16-622 Tax Expenditures

Heather Krause, (202-512-6806) or krauseh@gao.gov.

In addition to the contact named above, Jeff Arkin (Assistant Director), 

Amy Radovich (Analyst-in-Charge), Amy Bowser, Hannah Dodd, Robert 

Gebhart, Carol Henn, Susan Irving, Benjamin Licht, Donna Miller, Ed 

Nannenhorn, Cynthia Saunders, MaryLynn Sergent, Timothy Shaw, and 

Emily Upstill made significant contributions to this report.

Appendix I: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(451160)
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