March 22, 1974
Page 7935
TREATMENT OF TAX EXPENDITURES IN THE CONGRESSIONAL BUDGET ACT OF 1974
Mr. MUSKIE. Mr. President, the Congressional Budget Act of 1974 would substantially improve information about and congressional control over tax expenditures – those provisions of tax law which provide for reductions in tax revenue for special purposes.
By allowing special exclusions, exemptions, deductions, credits, tax rates, or deferrals, tax expenditures each year cost the Federal Treasury billions of dollars in tax revenues that would otherwise be collected under our normal tax structure. The revenue loss under each direct tax expenditure is quite similar to a budget outlay, since each one is justified as serving non-tax policy purposes. Some tax expenditures, such as the $3.4 billion of lost revenue in calendar year 1972 resulting from charitable contribution income tax deductions, serve goals on which there is broad agreement. Other tax expenditures, such as the $1.7 billion revenue lost in 1972, because of percentage depletion provisions, serve as goals on which there is disagreement, and without proven effectiveness. But currently, none of these tax expenditures – and the sum of their costs was, at least, an estimated $59.8 billion in 1972 – are scrutinized as part of a rational congressional decision about the entire Federal budget.
The definition of tax expenditures in section 3(a) (3) of the bill is:
Those revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability representing a deviation from the normal tax structure for individuals and corporations.
This definition includes a variety of tax expenditures, including items which are not excluded by a provision of the tax law but affirmatively as a result of Internal Revenue Service interpretation and practice.
The use of the words "income tax" in the definition should not preclude consideration of tax expenditures in the gift and estate tax systems. Generation skipping under the estate tax, for instance, has an estimated cost of well over $250 million annually, and the charitable deduction under the estate tax, including deductions for family foundations, has a much larger annual cost, well over $1 billion annually.
The bill also includes a definition of the tax expenditure budget as a complete enumeration of such expenditures. This enumeration should include at least all the items in tax expenditure materials prepared to date by the Treasury and the relevant committees of Congress.
The Committee on the Budget will have the duty to institute studies concerning tax expenditures, to devise methods of coordinating tax expenditures with direct budget outlays, and to report on this work. Their work should include study of converting tax expenditures into direct budget outlays – section 101(a).
The Congressional Budget Act would integrate consideration of tax expenditures into the congressional budget-making process. The Congressional Office of the Budget, for instance, would be required to develop information about tax expenditures, and would report to Congress before April 15 an estimate of tax expenditure levels for the succeeding fiscal year. The President would also be required to include estimates of tax expenditure levels in his proposed budget – section 601.
While tax expenditures would not be included in that text of concurrent resolutions on the budget, levels of tax expenditures by major functional budget categories would be included in the report of the Budget Committees accompanying concurrent resolutions – section 301(e) . The information in Budget Committee reports, together with the estimated tax expenditures in the President's budget, would constitute background information for judging revenue levels in the concurrent resolution.
In addition, bills proposing new or increased tax expenditures would be subject to two of the requirements imposed on bills providing new budget authority. The report accompanying any such bill or resolution would include a comparison of the proposed tax expenditure level with the level specified in the report on the concurrent resolution, together with a projection of the tax expenditures resulting from the proposed legislation for future fiscal years – section 308(e). Such bills and resolutions would also be enacted into law prior to the August adjournment, as would be the case for new budget authority bills – section 309.
S. 1541 requires the establishment of a standardized information system for Federal fiscal, budget, and program data – section 801(a). This system will include complete tax expenditure information. Tax expenditure budget data will be aggregated in the same functional program categories as direct budget outlays, and will be fully integrated with functional aggregations of direct budget outlays so as always to present a complete picture of total Federal effort in any one functional area.
The provisions of S. 1541 relating to tax expenditures are an essential part of the increased budgetary control the bill provides. They would insure that congressional control of the budget extends to all of our expenditures for public purposes.