Report: Tax Breaks Need More Attention

The White House (search) budget office should periodically review federal tax breaks and analyze whether they're worth the money, a government report said Friday.

The Government Accountability Office (search) said the number of tax breaks doubled and their dollar value tripled over the last 30 years, but the government knows little about whether special tax incentives achieve the goals that they promote.

Those tax breaks, also called tax expenditures, totaled $730 billion in 2004, said the GAO, an investigative arm of Congress.

The White House budget office disagreed with the report's reasoning and conclusions. It called the analysis "deeply flawed" and described portions of GAO's work as "wasted effort."

"GAO has overlooked the fact that the tax expenditures are regularly reviewed as provisions of the tax code," James D. Foster, the Office of Management and Budget's associate director for economic policy, wrote to GAO.

The GAO looked at tax deductions and credits that lawmakers have fashioned to promote certain behaviors and activities. The biggest tax breaks for individuals include tax reductions for employer-provided medical insurance, home mortgage interest, retirement savings, charitable deductions and state and local taxes. Large business tax breaks include equipment depreciation.

The GAO encouraged the White House budget office to give the tax reductions closer scrutiny because long-term forecasts show the government budget out of balance.

"As we move forward in shaping government for this century, the federal government cannot accept all of its existing programs, policies, functions and activities as 'givens'," GAO concluded.

The White House budget office disagreed with GAO's economic assumptions. Long-term budget imbalances stem from a growing population of retired workers and rapidly increasing health care costs, it said.

"The administration rejects any attempt to address the long-term fiscal imbalance with tax increases," Foster wrote. "The long-run fiscal imbalance is solely related to federal spending policies already in place."

A presidential commission studying tax laws concluded this spring that there are too many tax deductions and credits, confusing taxpayers.

"We have lost sight of the fact that the fundamental purpose of our tax system is to raise revenues to fund government," according to President Bush's Advisory Panel on Federal Tax Reform.