[Congressional Record Volume 140, Number 90 (Wednesday, July 13, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 13, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                            TAX EXPENDITURES

                                 ______


                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                        Wednesday, July 13, 1994

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
report for Wednesday, July 6, 1994, into the Congressional Record:

                            Tax Expenditures

       Policy debates in Congress continue to be dominated by 
     efforts to reduce the federal budget deficit. Yet one area of 
     the budget has received comparatively little systematic 
     scrutiny from policymakers: the various tax breaks provided 
     by Congress, known more formally as tax expenditures. They 
     cost some $400 billion annually--which is more than all of 
     domestic discretionary spending combined--and they are 
     growing faster than entitlements.


                                overview

       Tax expenditures are the various provisions added to the 
     tax code over the years that allow individuals and businesses 
     to reduce their federal tax payments. They provide incentives 
     for certain activities or relief for certain taxpayers. 
     Currently there are more than 120 federal tax expenditures, 
     ranging from the home mortgage deduction to tax breaks for 
     oil drilling and historic preservation. They are called ``tax 
     expenditures'' because they add to the budget deficit and 
     address policy needs the same way that direct federal 
     expenditures do. For example, both tax incentives and direct 
     spending programs are aimed at improving housing 
     availability. Tax expenditures function much like open-ended 
     entitlements in that whoever meets the eligibility 
     requirements is entitled to receive benefits, regardless of 
     the cost to the government.
       Many tax expenditures date back to the early 1900s when the 
     federal income tax was being set up. The largest tax 
     expenditures for individuals are for employer-paid pension 
     contributions ($56 billion), employer-paid health insurance 
     ($46 billion), and the home mortgage interest deduction ($44 
     billion). The largest tax expenditure for business is for 
     accelerated depreciation ($19 billion). Almost half of the 
     current $400 billion in annual revenue losses from tax 
     expenditures stems from those enacted before 1920.
       Many tax expenditures serve worthwhile purposes and enjoy 
     broad public support, such as the home mortgage and 
     charitable contribution deductions. Yet others have been 
     called into question, such as those encouraging U.S. 
     businesses to locate operations overseas, allowing income 
     earned by foreigners on their U.S. investments to be tax-
     free, and providing various breaks for the wealthy--such as 
     for million dollar homes, expensive vacation homes, and 
     lavish business entertainment. When certain groups benefit 
     from tax expenditures, everyone else has to pay higher taxes.


                               gao report

       A recent report by the U.S. General Accounting Office, the 
     watchdog agency for Congress, recommended that greater 
     oversight be given to tax expenditures, for several reasons. 
     First, they are costly and are growing rapidly. Since 1980, 
     their cost to the federal treasury has almost doubled. 
     Second, tax expenditures have the same fiscal impact of 
     direct federal spending, but they are subject to much less 
     congressional oversight. They do not compete in the annual 
     budget process and most are not subject to periodic 
     reauthorization. Third, once enacted, tax expenditures are 
     rarely eliminated. Only 13 were eliminated between 1913 and 
     the passage of the 1986 Tax Reform Act. Some still in 
     existence today were set up for World War I purposes. Fourth, 
     tax expenditures often disproportionately benefit higher 
     income individuals. For example, the home mortgage deduction 
     provides more benefits to someone buying a $1 million house 
     than someone buying a $100,000 house, and many tax 
     expenditures only benefit the \1/3\ of Americans who itemize 
     deductions on their taxes. Fifth, sometimes the same policy 
     goal could be reached more efficiently and at lower cost 
     through a direct spending program. GAO states, for example, 
     that it would be much cheaper to pay interest subsidies 
     directly to state and local governments than to continue to 
     exempt state and local bonds from taxation. Finally, tax 
     expenditures can distort business and financial decisions--as 
     the tax breaks lead people to engage in activities they 
     otherwise believe make little economic sense.


                               proposals

       Currently tax expenditures are listed in federal budget 
     documents for informational purposes, but they are not 
     included in the formal budget process nor are they included 
     in various congressional spending controls such as caps or 
     sequestration. GAO recommended several steps to increase 
     scrutiny of tax expenditures: improving public information 
     about them; establishing a schedule for regular congressional 
     review; tightening eligibility for various tax expenditures, 
     such as by limiting benefits for upper income taxpayers; 
     integrating them more fully into the congressional budget 
     process; creating targets for tax expenditure savings; 
     speeding up the study underway to measure the results and 
     performance of tax expenditures; and jointly reviewing them 
     in the budget along with spending programs with the same 
     function.


                               assessment

       My view is that although major progress has been made on 
     the deficit in recent years, much more needs to be done. As 
     part of that effort it makes sense to try to ferret out 
     wasteful government benefits and subsidies--no matter what 
     the source. Past scrutiny of tax expenditures found and 
     curbed some wasteful subsidies, such as those for football 
     stadium skyboxes and business travel on luxury liners, and 
     eliminated a variety of unproductive tax shelters. We should 
     not blindly accept all current tax expenditures and put them 
     totally beyond public scrutiny, as though Congress was 
     somehow infallible when it passed out special tax breaks. 
     Moreover, as deficit reduction proceeds, people may find it 
     preferable, for example, to trim tax breaks for upper income 
     taxpayers rather than cut back student loans or agricultural 
     research.
       A more systematic review of tax expenditures makes sense. 
     The Joint Committee on the Organization of Congress, which I 
     cochaired, has recommended that the total cost of tax 
     expenditures be listed in the congressional budget resolution 
     and that all newly proposed tax expenditures be more clearly 
     identified rather than hidden away in technical bill 
     language. I also favor other steps such as requiring that the 
     president's budget present tax expenditures alongside 
     spending programs with the same function. As we review tax 
     expenditures in a more comprehensive and systematic way, we 
     may find that some are wasteful, inequitable, or 
     unproductive. We may also find that some are working much 
     better than we thought and need to be expanded. Thoroughly 
     and regularly assessing tax expenditures is another way of 
     making government work better and cost less.

                          ____________________