GAO Presses Treasury Department on Tax Expenditure Evaluation

The Government Accountability Office once again is pressing the Treasury Department to examine the effectiveness of tax expenditures—a category of tax break that includes the credit union tax exemption.

The recommendation is contained in a letter to Treasury Secretary Janet Yellen outlining recommendations that the GAO has made to the department and that the department has not implemented.

While the letter does not make specific reference to the credit union tax exemption, it could provide ammunition to banking trade groups, which long have argued that the credit union exemption is outdated.

The GAO letter cites a 2005 GAO study that made the original recommendation.

“To ensure that policymakers and the public have the necessary information to make informed decisions and to improve the progress toward exercising greater scrutiny of tax expenditures, the Director of OMB, in consultation with the Secretary of the Treasury, should develop and implement a framework for conducting performance reviews of tax expenditures,” the GAO wrote in the letter to Yellen.

The letter goes on to state that the director of the Office of Management and Budget should determine which agencies should take the lead in reviewing the tax breaks, how reviews should be conducted and “how to address the lack of credible performance information on tax expenditures.”

The letter said that at the time of the 2005 report, the Treasury Department deferred to OMB. OMB officials said at the time that the recommendation “had promise” and said that the Treasury Department would conduct the evaluations.

Neither agency has taken action since then, the GAO said.

“We continue to believe that Treasury should consult with OMB to develop and implement a framework for evaluating tax expenditures and preliminary performance measures,” the GAO said. “Such action would inform policy decisions about the efficiency, effectiveness, and equity of tax expenditures and help policymakers determine whether tax expenditures are the best tool for accomplishing federal objectives within a functional area.”

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