This is the accessible text file for GAO report number GAO-07-1194T 
entitled '21st Century Challenges: How Performance Budgeting Can Help, 
Statement of David M. Walker, Comptroller General of the United States' 
which was released on September 20, 2007. 

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GAO Highlights: 

Highlights of GAO-07-1194T, a testimony to Committee on the Budget, 
House of Representative. 

Why GAO Did This Study: 

As part of its work to improve the management and performance of the 
federal government, GAO monitors progress and continuing challenges in 
using performance information to inform budgetary choices (performance 
budgeting). In light of the nation’s long-term fiscal imbalance and 
other 21st century challenges, we have reported that the Government 
Performance and Results Act of 1993 (GPRA) and performance budgeting 
can support needed reexamination of what the federal government does, 
how it does it, and who does it. GAO remains committed to working with 
Congress and the Administration to help address these important and 
complex issues. 

What GAO Found: 

Reexamining the base of all major existing federal spending and tax 
programs, policies, and activities by reviewing their results and 
testing their continued relevance and relative priority for our 
changing society is an important step in the process of assuring fiscal 
responsibility and facilitating national renewal. Reexamination can arm 
decision makers with better information on both individual program 
results and entire portfolios of programs and tools—encompassing a wide 
range of discretionary, entitlement, tax, and regulatory 
approaches—addressing common goals. 

GPRA provided a foundation for strengthening government performance and 
accountability. The President’s Management Agenda and the Program 
Assessment Rating Tool (PART)—OMB’s framework for assessing federal 
program performance—continue to build on GPRA’s foundation. Properly 
done, these and future efforts—along with a set of Key National 
Indicators (KNI)—could provide a strong basis to support the needed 
review, reassessment, and reprioritization process. 

Moving forward, for performance budgeting and program reviews to hold 
appeal beyond the executive branch and actually have an impact on 
legislation, congressional buy-in on what to measure and how to present 
this information is critical. In addition, tax expenditures result in 
forgone revenue that in some years has approximated the size of total 
discretionary spending. Yet relatively little is known about the 
effectiveness of these provisions, which are often aimed at policy 
goals similar to those of federal spending programs. To date, PART has 
generally not been applied to tax expenditures. GAO continues to urge 
as a next step a more comprehensive and consistent approach to 
evaluating all programs relevant to common goals. This would require 
assessing the performance of all programs related to a particular 
goal—including tax expenditures—using a common framework. 

Figure 1: Federal Income Tax Expenditures Reported by Treasury Doubled 
from 1974 to 2006: 

[See PDF for image] 

Source: GAO analysis of Office of Management and Budget (OMB) budget 
reports on tax expenditures, fiscal years 1976-2008. 

Note: The number of tax expenditures reflects all provisions reported 
by Treasury, including those enacted but effective for future fiscal 
years. Fluctuations in the trend lines from year to year may reflect 
changes in Treasury's methodology. 

[End of figure] 

What GAO Recommends: 

GAO is not making new recommendations. We have previously reported that 
reexamination requires a comprehensive perspective that crosses 
agencies, includes all major tools of government, and considers both 
spending programs and tax provisions. How different programs or 
policies in the same area support each other or work at cross purposes 
is important. Government-wide strategic and performance 
plans—especially if created in consultation with Congress and supported 
by KNIs—could provide a framework for reexamination. GAO has also 
suggested that Congress consider the need to develop vehicles and 
structures for such review and for communicating its top performance 

To view the full product, including the scope and methodology, click on 
GAO-07-1194T. For more information, contact Susan J. Irving at (202) 
512-9142 or 

[End of section] 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss performance budgeting as a way 
to help government meet the pressing challenges of the 21ST Century by 
prompting review of federal activities and programs. The federal 
government is in a period of profound transition and faces an array of 
challenges and opportunities to enhance performance, ensure 
accountability, and better position the nation for the future. A number 
of overarching trends--including the nation's long-term fiscal 
imbalance--drive the need to reexamine what the federal government 
does, how it does it, and who does it. The term "performance budgeting" 
encompasses a range of approaches, activities, and processes but they 
all have in common the idea of more explicitly linking resources to 
results. As such it holds promise as a means for facilitating a 
reexamination effort. Reexamination can enhance the government's 
capacity to assess competing claims for federal dollars by arming 
decision makers with better information both on the results of 
individual programs as well as on entire portfolios of programs and 
tools--encompassing a wide range of discretionary, entitlement, tax, 
and regulatory approaches--addressing common goals. 

Through the President's Management Agenda (PMA) and its related 
initiatives, including the Office of Management and Budget's (OMB) 
Program Assessment Rating Tool[Footnote 1] (PART), the Administration 
has taken steps in the right direction by calling attention to 
successes and needed improvements in federal management and 
performance. As we have previously reported,[Footnote 2] PART itself 
has certain weaknesses we believe should be addressed and several 
strengths on which future efforts should build. Whatever approach is 
taken in the future, however, it will be important to include not only 
those programs and activities run through the spending side of the 
budget but also those run through the tax side. Any reexamination or 
performance budgeting effort that fails to include tax expenditures in 
the review of federal activities and whether they are achieving their 
intended policy goals will fall short of its potential. 

In my testimony today I will focus on three main points: 

* The extent of our long-term fiscal and governance challenges 
necessitates a thorough reexamination of government programs and 

* Performance budgeting can help accomplish the goal of reexamination; 

* Congressional support and comprehensive crosscutting program 
assessments are critical to reexamination. 

In addition, I offer some ideas for moving forward. 

This testimony draws upon our wide-ranging work on the use of 
performance information in government--including the Government 
Performance and Results Act of 1993[Footnote 3] (GPRA), PART, agency 
coordination and collaboration, tax expenditures, and key national 
indicator (KNI) systems. We conducted our work for this statement 
during August and September 2007 in accordance with generally accepted 
government auditing standards. 

Long-Term Fiscal Challenge Provides Context and Impetus for Reexamining 
Federal Programs: 

As I have previously testified before this committee,[Footnote 4] known 
demographic trends and rising health care costs are major drivers of 
the nation's large and growing structural deficits. The nation cannot 
ignore this fiscal pressure: it is not a matter of whether the nation 
deals with the fiscal gap, but how and when. Although it is the "big 
three"--Medicare and Medicaid and to a lesser extent, Social Security-
-that drive this phenomenon on the spending side, other federal 
spending cannot be ignored. Difficult as it may seem to deal with these 
long-term challenges, policymakers must not only address these 
entitlement programs but also reexamine other budgetary priorities in 
light of the changing needs of this nation in the 21ST century. It will 
be necessary to work on several fronts at once. In fact, our history 
suggests that all major spending and revenue programs and policies need 
to be subject to periodic reviews and that exempting major areas can 
undermine the credibility and support for the entire process.[Footnote 

These challenges would be difficult enough if all we had to do is 
figure out how to fund existing commitments. But as the nation 
continues to change in fundamental ways, a wide range of emerging needs 
and demands--for example, evolving defense and homeland security 
policies, increasing global interdependence, and advances in science 
and technology--can be expected to compete for a share of the budget. 
Whether national security, transportation, education, or public health, 
a growing population will generate new claims for federal actions on 
both the spending and tax sides of the budget. Many of our programs 
were designed decades ago to address earlier challenges. Outmoded 
commitments and operations constitute an encumbrance on the future that 
can erode the capacity of the nation to better align its government 
with the needs and demands of a changing world and society. 

Accordingly, reexamining the base of all major existing federal 
spending and tax programs, policies, and activities by reviewing their 
results and testing their continued relevance and relative priority for 
our changing society is an important step in the process of assuring 
fiscal responsibility and facilitating national renewal. A periodic 
reexamination offers the prospect of addressing emerging needs by 
weeding out programs and policies that are redundant, outdated, or 
ineffective. Those programs and policies that remain relevant often 
could be updated and modernized by improving their targeting and 
efficiency through such actions as redesigning allocation and cost- 
sharing provisions, consolidating facilities and programs, and 
streamlining and reengineering operations and processes. 

We recognize that taking a hard look at existing programs and carefully 
reconsidering their goals and financing are challenging tasks, as 
making decisions about reforming programs and activities creates 
winners and losers. Furthermore, given the wide range of programs and 
issues covered, the process of rethinking government programs and 
activities may take a generation to unfold. We are convinced, however, 
that reexamining the base offers compelling opportunities to both 
redress our current and projected fiscal imbalance while better 
positioning government to meet the new challenges and opportunities of 
this new century. 

Performance Budgeting Can Help Facilitate Reexamination: 

Performance budgeting can help enhance the government's capacity to 
assess competing claims in the budget by arming budgetary decision 
makers with better information on the results of both individual 
programs as well as entire portfolios of policies, tools, and programs 
designed to address common outcomes. It is useful to start with a 
review of the current landscape. The management and performance reforms 
enacted by Congress in the past 15 years have provided some new ways to 
gain insight into the financial, program, and management performance of 
federal agencies and activities. With GPRA as its centerpiece, the 
statutory and management framework laid out in the 1990s provided a 
foundation for strengthening government performance and accountability. 
As our work as shown,[Footnote 6] GPRA has succeeded in expanding the 
supply of performance information and promoting institutionalization of 
a culture of performance as well as providing a solid foundation for 
more recent budget and performance initiatives. 

As I have previously said,[Footnote 7] PMA and its related initiatives, 
including PART, demonstrate the Administration's commitment to 
improving federal management and performance. Properly done, 
performance assessment and performance budgeting information produced 
by GPRA and PART could provide a strong basis to support the needed 
review, reassessment, and reprioritization process. By calling 
attention to successes and needed improvements, the focus that these 
initiatives bring is certainly a step in the right direction toward 
providing the kind of information needed for effective reexamination, 
and our work shows that progress has been made in several important 
areas over the past several years. For example, we have reported that 
the PART process continues to aid OMB's oversight of agencies and 
encourage improvements in executive budget formulation and agency 
program management. The PART has helped to structure and discipline 
OMB's use of performance information for internal program analysis and 
budget review, and made its use of this information more transparent. 
Many agency officials told us that the PART helped to create or 
strengthen an evaluation culture within agencies by providing external 
motivation for program review and focused attention on performance 
measurement and its importance in daily program management. Some 
officials said that the PART and the PMA helped them move away from 
"analysis by anecdote" and refocused their attention on the impact 
their programs have, instead of largely on output measures. Others 
echoed a similar sentiment--one indicated that the PART scores helped 
to create "a new sense of urgency" about performance measures and 
completing the changes to performance systems that were already under 

Congressional Support and Comprehensive, Crosscutting Program 
Assessments Are Critical to Reexamination: 

Even the best performance data are insufficient to achieve real 
improvements in management and program results unless they are used by 
decision makers and managers alike to inform policy and management 
decisions. Key stakeholder outreach and involvement in developing 
performance information is critical to encouraging the use of such 
information in both performance budgeting and reexamination efforts. 
Moreover, little is known about the performance of tax expenditures, 
which are often aimed at policy goals similar to those of federal 
spending programs, such as those intended to encourage economic 
development in disadvantaged areas, finance postsecondary education, 
and stimulate research and development. Yet tax expenditures and their 
relative contributions toward achieving federal missions and goals are 
often less visible than spending programs, which are subject to more 
systematic review. 

Lack of Congressional "Buy-in" and Participation Limits the Potential 
of Performance Budgeting Efforts: 

In order for performance budgeting and program reviews to hold appeal 
beyond the executive branch, and to actually have an impact on 
legislation, garnering congressional buy-in on what to measure and how 
to present this information is critical. Without congressional 
involvement and buy-in, these efforts are unlikely to play a major role 
in the authorization, appropriations, and oversight processes. Although 
congressional support is critical to sustain any major management 
initiative, Congress's constitutional role in setting national 
priorities and allocating the resources to achieve those priorities 
makes it especially important for performance budgeting and 
reexamination efforts. Lack of consensus by a community of interested 
parties on goals and measures and the way that they are presented can 
detract from the credibility of performance information and, 
subsequently, its use. Fifty years of past executive branch efforts to 
link resources with results have shown that any successful effort must 
involve Congress as a full partner. We have previously reported that 
past performance budgeting initiatives faltered in large part because 
they intentionally attempted to develop performance plans and measures 
in isolation from the congressional authorization, appropriations, and 
oversight processes.[Footnote 8] 

Some tension about the amount of stakeholder involvement in the 
internal deliberations surrounding the development of measures used in 
budget formulation and the broader consultations more common to the 
GPRA strategic planning process is inevitable. Compared to the 
relatively open-ended GPRA process, any budget formulation process is 
likely to seem closed. However, if performance information--and budget 
recommendations based on such information--is to hold appeal beyond the 
executive branch, congressional understanding and acceptance will be 
critical. Moreover, any performance budgeting effort that does not 
involve Congress will be limited in its ability to function as a tool 
to comprehensively reexamine the entire scope of federal spending, as a 
major player will be left out of the effort. 

Performance Budgeting and Reexamination Require a Crosscutting 

Existing performance budgeting initiatives provide a foundation for a 
baseline review of federal policies, programs, functions, and 
activities. Building on this foundation, several changes are in order 
to support the type of reexamination needed. For example, PART focuses 
on individual programs, but key outcome-oriented performance goals-- 
ranging from low-income housing to food safety to counterterrorism--are 
addressed by a wide range of discretionary, entitlement, tax, and 
regulatory approaches that cut across a number of agencies, levels of 
government, and sectors. PART's program-by-program approach fits with 
OMB's agency-by-agency budget reviews, but it is not well-suited to 
addressing crosscutting issues or to looking at broad program areas in 
which several programs or program types address a common goal. The 
evaluation of programs in isolation may be revealing, but a broader 
perspective is necessary for an effective overall reexamination effort. 
It is often critical to understand how each program fits with a broader 
portfolio of programs, tools, and strategies to accomplish federal 
missions and goals. 

Such an analysis is necessary to capture whether and how a program 
complements and supports other related programs, policies, and tools, 
or whether it actually works at cross-purposes to such other 
initiatives. OMB has reported on a few crosscutting 
assessments[Footnote 9] in recent budget requests. We would urge as a 
next step a more comprehensive and consistent approach to evaluating 
all programs relevant to common goals. Such an approach would require 
assessing the performance of all programs related to a particular goal-
-including tax expenditures and regulatory programs--using a common 

Our federal tax system includes hundreds of billions of dollars of 
forgone revenue annually. In some years, total tax expenditures have 
approximated the size of total discretionary spending. Yet relatively 
little is known about the effectiveness of tax incentives in achieving 
the objectives intended by Congress.[Footnote 10] PART, OMB's current 
framework for assessing the performance of federal programs, has 
generally not been applied to tax expenditures. 

Tax Expenditures Have Doubled in Number and Represent a Substantial 
Federal Commitment: 

Tax preferences--which are legally known as tax expenditures--result in 
forgone revenue for the federal government due to preferential 
provisions in the tax code, such as exemptions and exclusions from 
taxation, deductions, credits, deferral of tax liability, and 
preferential tax rates. Excluding tax expenditures from program reviews 
is especially problematic because tax expenditures represent such a 
substantial investment in such a wide range of policy goals. Whether 
gauged in absolute numbers, by revenues forgone, or in comparison to 
federal spending, tax expenditures have been substantial over the last 
three decades.[Footnote 11] Between fiscal years 1974 and 2006, tax 
expenditures doubled in number from 67 to 161, as shown in figure 1. 
While some were dropped over the period, considerably more were added. 

Figure 1: Federal Income Tax Expenditures Reported by Treasury Doubled 
from 1974 to 2006: 

[See PDF for image] 

Source: GAO analysis of Office of Management and Budget (OMB) budget 
reports on tax expenditures, fiscal years 1976-2008. 

Note: The number of tax expenditures reflects all provisions reported 
by Treasury, including those enacted but effective for future fiscal 
years. Fluctuations in the trend lines from year to year may reflect 
changes in Treasury's methodology. 

[End of figure] 

Tax expenditures span almost all federal mission areas, but their 
relative size differs across budget functions. As figure 2 shows, the 
sum of revenue loss estimates was greater than federal spending in 
these budget functions: energy, commerce and housing credit, and 
general government. For example, the $42.4 billion in outlays for the 
Department of Housing and Urban Development in fiscal year 2006 are far 
surpassed by the estimated revenue losses of $68.3 billion from the 
mortgage interest deduction (the second largest tax expenditure for 
that year). Moreover, as figure 3 indicates, revenue losses due to tax 
expenditures exceeded discretionary spending for half of the last 

Figure 2: Tax Preference Revenue Loss Sums Compared with Federal 
Outlays by Budget Function, Fiscal Year 2006: 

[See PDF for image] 

Source: GAO analysis of OMB budget reports on tax expenditures, fiscal 
year 2006. 

[End of figure] 

Figure 3: Federal Tax Expenditures Exceeded Discretionary Spending for 
Half of the Last Decade: 

[See PDF for image] 

Source: GAO analysis of OMB budget reports on tax expenditures, fiscal 
years 1976-2008. 

Note: Summing tax expenditure estimates does not take into account 
interactions between individual provisions. Outlays associated with 
refundable tax credits are included in mandatory spending. 

[End of figure] 

Much of the revenue loss due to individual income tax expenditures is 
attributable to a small number of large tax expenditures. The six tax 
expenditures shown in figure 4--each with an annual revenue loss 
estimated at $40 billion or more--accounted for about 44 percent of the 
sum of revenue losses for all tax expenditures for fiscal year 2006. 

Figure 4: Revenue Loss Estimates for the Largest Tax Expenditures 
Reported for Fiscal Year 2006: 

Source: GAO analysis of OMB, Analytical Perspectives, Budget of the 
United States Government, Fiscal Year 2008. 

[See PDF for image] 

[A] The value of employer-provided health insurance is excluded from 
Medicare and Social Security payroll taxes. Some researchers have 
estimated that payroll tax revenue losses amounted to more than half of 
the income tax revenue losses in 2004, and we use this estimate for 
2006. The research we are aware of dealt only with health care, 
therefore the 50 percent figure may not apply to other items that are 
excluded from otherwise applicable income and payroll taxes. 

[End of figure] 

Tax expenditure estimates reflect federal income tax revenue forgone 
and do not account for provisions that exclude certain earnings from 
payroll taxes. As a result, this understates the total revenue forgone 
by the federal government for some of the largest tax exclusions. If 
payroll tax revenue losses were 50 percent of the $125 billion in 
income tax revenue loss estimated by the Department of the Treasury, 
the combined revenue loss associated with the exclusion of employer 
contributions for health insurance premiums would be $187.5 billion in 
2006.[Footnote 12] 

Tax Expenditures Receive Little Scrutiny: 

So far, OMB has used PART to review tax expenditures in only a few 
cases, such as the Earned Income Tax Credit (EITC) compliance 
initiative, the New Markets Tax Credit, and the Health Care Tax 
administration. Generally, these reviews assessed how well Treasury and 
IRS administer the tax expenditures rather than the efficacy of the tax 
expenditures themselves. Since tax expenditures represent a significant 
investment of resources and in some program areas tax expenditures may 
be the main tool used to deliver services, this is a significant gap. 
For example, in the fiscal year 2006 budget request, OMB reported on a 
crosscutting PART assessment for Community and Economic Development 
(CED) programs. The CED crosscut examined the performance of 18 of the 
35 federal community and economic development programs that were 
identified by OMB and that account for the majority of the $16.2 
billion OMB estimates is spent annually in this area. Although OMB 
identified three tax expenditures in the CED portfolio, it did not 
assess all of them with the PART instrument even though Treasury's 
estimate of their combined "cost" was nearly $1.4 billion, or about 57 
percent of Treasury's revenue loss estimates for community development. 

Periodic review and reexamination of programs--including tax 
expenditures--is important to identify and mitigate against mission 
fragmentation, overlap, and conflict, as well as service gaps. In the 
same way that federal spending programs can work at cross purposes, tax 
expenditures meant to address certain policy challenges may exacerbate 
other key private sector and public policy challenges. For example, the 
income tax exclusion of employer-paid health insurance premiums reduces 
the after-tax cost of insurance for the beneficiary. However, the 
exclusion offers no benefit to workers whose employers do not offer 
health benefits or who purchase their own insurance. Further, this tax 
benefit also leads people to obtain more comprehensive coverage than 
they would otherwise and could increase the demand for health care to 
the extent that it shields those insured from the full costs of health 
care, complicating efforts to moderate health care spending. The 
exclusion also tends to favor higher-income workers more likely to have 
employer-sponsored coverage. Another example is higher education: 
students seeking federal grants and loans are penalized for having 
saved funds to pay for their education although the Internal Revenue 
Code encourages saving by exempting individuals from federal income 
taxation on interest income used to pay for postsecondary education. 

If well designed and effectively implemented, tax expenditures can be 
an effective tool and appropriate to further some federal goals and 
objectives. Moreover, sometimes it may be cheaper and simpler to 
subsidize through the tax code than by setting up a separate program 
using a different tool. For example, the incremental administrative and 
compliance costs to deliver the tax credit for child and dependent care 
expenses may be relatively low compared to the costs of setting up a 
separate system for processing child care applications and sending 
vouchers to those eligible. However, tax expenditures may not always be 
efficient, effective, or equitable; consequently, information on these 
attributes can help policymakers make more informed decisions about 
resource allocation and the most effective or least costly methods to 
deliver federal support. 

Regular review could also provide needed scrutiny of certain 
expenditures that have few controls. With some exceptions, tax 
expenditures generally are not subject to reauthorization and therefore 
lack the opportunity for regular review. Moreover, many tax 
expenditures--like mandatory spending programs--are governed by 
eligibility rules and benefit formulas, meaning funds are spent as 
required to provide benefits to those who are eligible and wish to 
participate. Thus, because they are not as visible in the budget as 
discretionary spending programs, tax expenditures run the risk of 
simply being a form of "back-door spending" embedded in the tax code 
and are effectively "fully funded" before any discretionary spending is 

Future Performance Budgeting Efforts Must Continue to Build on Lessons 
Learned in Order to Facilitate Effective Reexamination: 

The federal government is in a period of profound transition and faces 
an array of challenges and opportunities to enhance performance, ensure 
accountability, and better position the nation for the future. In our 
February 2005 report on 21ST century challenges,[Footnote 13] we 
outlined a number of approaches that could facilitate a reexamination 
effort. Agencies and OMB will need to continue to focus on ensuring 
that the growing supply of performance information is credible, useful, 
reliable, and used both in day-to-day program management and in 
formulating budget requests that focus on outcomes that can be achieved 
with resources requested. Further, the executive branch can help 
promote demand for and acceptance of performance information by 
developing goals and measures relevant to the large and diverse 
community of stakeholders in the federal budget and planning processes 
and presenting this information in a way that is tailored to the needs 
of congressional stakeholders. Engaging Congress early in the process 
may help target reviews with an eye toward those areas most likely to 
be on the agenda of Congress, thereby better ensuring the use of 
performance assessments in resource allocation processes throughout 
government. Lastly, taking a comprehensive and crosscutting approach to 
program assessment by more strategically selecting programs and policy 
areas for review--regardless of the agency in which programs are 
housed, and inclusive of all tools (e.g., grant, credit, regulatory 
programs, and especially tax expenditures) that bring resources to bear 
on a particular program or policy area--will provide robust, rich 
information about the performance of all tools aimed at federal and 
national challenges. Moving forward will require actions by both the 
executive branch and the Congress. Let me elaborate. 

Executive Branch Actions: 

Although recent OMB efforts to assess programs in a crosscutting 
fashion represent progress, to provide the kind of information that can 
be of assistance in reexamining the base of government, we encourage a 
more extensive and consistent approach to evaluating all programs 
relevant to common goals. We recommended in 1994 and again in 2005 that 
OMB design and implement a structure for conducting reviews of tax 
expenditures' performance. Our recommendation is consistent with 
language in the Senate Committee on Government Affairs' Report on GPRA, 
which specified that the Director of OMB was to establish an 
appropriate framework for periodic analyses of the effects of tax 
expenditures in achieving performance goals. To significantly increase 
the oversight and analysis of tax expenditures, the committee report 
also called for a schedule for periodic tax expenditure evaluations. 

Although incorporating tax expenditures into crosscutting reviews 
presents significant analytical challenges, we do not believe such 
challenges are insurmountable. Moreover, assessing the performance of 
tax expenditures is critically important given that many function as 
entitlement programs--although perhaps with even less transparency-- 
and do not compete overtly in the annual budget process. Presenting tax 
expenditures alongside outlays is a first step in providing the public 
and policymakers with a more useful and accurate picture of the extent 
of federal support and activities. In fact, in the tax expenditure 
chapter in Analytical Perspectives, OMB has in the past included a 
section outlining possible performance measures developed by Treasury, 
which could be used to present information about the performance of tax 
expenditures. Although this overview was initially introduced in the 
1997 budget and expanded in the 1999 budget, no performance information 
is actually displayed. OMB states that the measure examples provided 
are "illustrative" in nature, acknowledges that the performance measure 
discussion "although broad, is nonetheless incomplete," and notes that 
many tax expenditures are not explicitly cited. 

One of the key impediments to moving forward in conducting reviews of 
tax expenditures' performance is the continuing lack of clarity about 
the roles of OMB, Treasury, IRS, and departments or agencies with 
responsibility for related spending programs. Designing a structure and 
approach for including tax expenditures in performance reviews will be 
challenging, but it is important. Ideally, reviews would look at 
federal involvement in a given policy area across related agencies and 
tools, which means a decision would have to be made as to which tax 
expenditures and which spending programs are relevant. The review would 
need to involve the departments or agencies with related spending 
programs, Treasury, and OMB. It might make sense for OMB and Treasury 
to conduct some case studies of the proposed review structure to 
identify (1) successful methods agencies devise for reviewing tax 
expenditures' performance, (2) how best to report the results of these 
reviews, and (3) how to ensure that adequate resources are available 
for such reviews. This type of effort can both strengthen the budget 
process itself and provide a valuable tool to facilitate a fundamental 
reexamination of the base of government. 

Reexamination is not a one-time activity. It must be a continuing 
process and we should expect even the initial round to take several 
years. The process could be helped by the governmentwide performance 
plan required by GPRA, as well as a governmentwide strategic plan and a 
set of KNIs. GPRA requires the President to include in his annual 
budget submission a federal government performance plan. Congress 
intended that this plan provide a "single cohesive picture of the 
annual performance goals for the fiscal year." The governmentwide 
performance plan could help Congress and the executive branch address 
critical federal performance and management issues, including 
redundancy and other inefficiencies in how we do business. It could 
also provide a framework for any restructuring efforts. Unfortunately, 
this provision has not been fully implemented. Instead, OMB has used 
the President's budget to present high-level information about agencies 
and certain program performance issues. The agency-by-agency focus of 
the budget does not provide the integrated perspective of government 
performance envisioned by GPRA. 

In addition, we have previously said that a governmentwide strategic 
plan could provide a framework to identify long-term goals and 
strategies to address issues that cut across federal agencies.[Footnote 
14] Such a plan for the federal government, supported by key national 
outcome-based indicators and a fully developed governmentwide 
performance plan to assess the government's performance, position, and 
progress, could be a valuable tool for governmentwide reexamination of 
existing programs, as well as proposals for new programs. Developing a 
strategic plan can help clarify priorities and unify stakeholders in 
the pursuit of shared goals and is therefore an important first step in 
articulating the role, goals, and objectives of the federal government. 
A governmentwide strategic plan can potentially provide a cohesive 
perspective on the long-term goals of the federal government and 
provide a much needed basis for fully integrating, rather than merely 
coordinating, a wide array of federal activities. The development of a 
set of KNIs could both be used as a basis to inform the development of 
governmentwide strategic and annual performance plans as well as link 
to and provide supporting information for outcome-oriented goals and 
objectives in agency-level strategic and annual performance plans. 
Successful strategic planning requires the involvement of key 
stakeholders and thus could serve as a mechanism for building 
consensus. Further, it could provide a vehicle for the President to 
articulate long-term goals and a road map for achieving them. In 
addition, a strategic plan can provide a more comprehensive framework 
for considering organizational changes and making resource decisions. 

Fully implemented, governmentwide strategic and performance plans--if 
developed in consultation with Congress--could also provide a framework 
for congressional authorization, appropriation, and oversight 

Congressional Actions: 

Congress of course has a number of regular opportunities to provide its 
perspective on specific performance issues and performance goals. When 
you create a new spending program or tax provision, you have the 
opportunity to say what you expect that program or incentive to 
achieve--and to direct that performance be tracked. I believe Congress 
should be clear about what performance information it wants and should 
expect that information to be provided. For discretionary spending 
programs, the annual appropriations process provides an opportunity to 
ask about the performance of an individual program and/or a group of 
programs within the same agency or within the jurisdiction of the 
appropriations subcommittee. When Congress considers the 
reauthorization of a program, it should have information on that 
program's performance--and on how that performance compares with other 
tools addressing the same or similar objectives. Reauthorization can-- 
and should--be informed by performance information and evaluations. 

Discretionary spending programs may be looked at in the annual 
appropriations process or when they are up for reauthorization. 
Although some entitlement programs require reauthorization and so offer 
up opportunities for evaluation and reexamination, others do not. With 
few exceptions, programs run through the tax code--tax expenditures-- 
generally are not subject to reauthorization; as a result no review or 
evaluation of their effectiveness is triggered. For many mandatory 
spending programs and tax expenditures, congressionally initiated 
oversight may be the vehicle for evaluation. I would suggest that 
Congress specify the kind of performance information it would like for 
these programs and use that in crosscutting reviews. 

The institutional challenge before you is to find a way to broaden your 
assessment beyond individual programs or agencies or even committee 
jurisdiction. It is not uncommon for multiple tools or programs-- 
administered through more than one agency--to address a similar goal or 
national priority. Although this may make sense, it also complicates 
the task of evaluation, oversight, and reexamination. 

We have previously suggested that Congress consider the need to develop 
a more systematic vehicle for communicating its top performance 
concerns and priorities; develop a more structured oversight agenda to 
prompt a more coordinated congressional perspective on crosscutting 
performance issues; and use this agenda to inform its authorization, 
appropriations, and oversight processes. Just as the executive branch 
needs a vehicle to coordinate and address programs and challenges that 
span multiple departments and agencies, Congress might need to develop 
structures and processes that better afford a coordinated approach to 
overseeing agencies and tools where jurisdiction crosses congressional 

In the past we have also suggested that one possible approach could 
involve developing a congressional performance resolution identifying 
the key oversight and performance goals that Congress wishes to set for 
its own committees and for the government as a whole. Such a resolution 
could be developed by modifying the current Congressional Budget 
Resolution, which is already organized by budget function. I note that 
this year your Committee took the first step by including in this 
year's Budget Resolution a directive that Committee "Views and 
Estimates" reports include recommendations for improved governmental 
performance based on "committee performance reviews of programs within 
their jurisdiction." I hope this Committee remains interested and 
continues to urge and support the other Committees in this effort. 

You may also wish to consider what kind of structures will facilitate 
cross-cutting reviews. If a performance resolution or some other 
mechanism specifies areas for reexamination in any given year, what 
structure will enable you to look across agencies and at both programs 
run through the spending side of the budget and those run through the 
tax side? Challenging as this task may be, I believe it is critical to 
the successful assertion of Congress' role in setting the goals and 
objectives to be achieved with the programs it establishes and the 
resources it provides. 

Concluding Observations: 

Much is at stake in the development of a collaborative performance 
budgeting and reexamination process. This is an opportune time for the 
executive branch and Congress to consider and discuss how agencies and 
committees can best take advantage of and leverage the new information 
and perspectives coming from the reform agenda under way in the 
executive branch. Through PMA and its related initiatives, including 
PART, the Administration has taken important steps in the right 
direction by calling attention to successes and needed improvements in 
federal management and performance. Some program improvements can come 
solely through executive branch action, but for any performance 
budgeting or reexamination effort to meet its full potential the 
assessments it generates must also be meaningful to and used by 
Congress and other stakeholders. I cannot stress this point enough--to 
make a difference, performance information must be useful and used. 
Hence I believe it is important for Congress to develop structures and 
processes that are flexible, adaptable, and inclusive of various 
perspectives to conduct successful performance reviews on those issues 
that cross jurisdictional boundaries. GAO stands ready to assist 
Congress in addressing the much needed baseline review of existing 
federal programs, policies, functions, and activities. 

Mr. Chairman, this concludes my prepared statement. I would be pleased 
to answer any questions you or the other Members of the committee may 
have at this time. 

For future information on this testimony, please contact Michael 
Brostek, at (202) 512-9110 or b [Hyperlink,] or Susan J. Irving at (202) 512-9142 or i [Hyperlink,] Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this testimony. Individuals making key contributions to this 
testimony were Jacqueline M. Nowicki, Assistant Director; Elizabeth 
Curda; Edward Nannenhorn; Amy Rosewarne; and MaryLynn Sergent. 


[1] OMB describes PART as a diagnostic tool meant to provide a 
consistent approach to assessing federal programs as part of the 
executive budget formulation process. It applies 25 questions to all 
"programs" under four broad topics: (1) program purpose and design, (2) 
strategic planning, (3) program management, and (4) program results 
(i.e., whether a program is meeting its long-term and annual goals) as 
well as additional questions that are specific to one of seven 
mechanisms or approaches used to deliver the program. There is no 
standard definition for the term "program." OMB defined the unit of 
analysis (program) as (1) an activity or set of activities clearly 
recognized as a program by the public, OMB, and/or Congress; (2) having 
a discrete level of funding clearly associated with it; and (3) 
corresponding to the level at which budget decisions are made. 

[2] GAO, Performance Budgeting: Observations on the Use of OMB's 
Program Assessment Rating Tool for the Fiscal Year 2004 Budget, GAO-04-
174 (Washington, D.C.: Jan. 30, 2004) and Performance Budgeting: PART 
Focuses Attention on Program Performance, but More Can Be Done to 
Engage Congress, GAO-06-28 (Washington, D.C.: Oct. 28, 2005). 

[3] Pub. L. No. 103-62 (1993). 

[4] GAO, Long-Term Budget Outlook: Deficits Matter--Saving Our Future 
Requires Tough Choices Today, GAO-07-389T (Washington, D.C.: Jan. 23, 

[5] For more information on reexamination of federal programs, see GAO, 
21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-352T (Washington, D.C.: February 2005) and Suggested 
Areas for Oversight for the 110th Congress, GAO-07-235R (Washington, 
D.C.: Nov. 17, 2006). 

[6] GAO, Results-Oriented Government: GPRA Has Established a Solid 
Foundation for Achieving Greater Results, GAO-04-38 (Washington, D.C.: 
Mar. 10, 2004). 

[7] GAO, 21ST Century Challenges: Performance Budgeting Could Help 
Promote Necessary Reexamination, GAO-05-709T (Washington, D.C.: June 

[8] GAO, Performance Budgeting: Past Initiatives Offer Insights for 
GPRA Implementation, GAO/AIMD-97-46 (Washington, D.C.: Mar. 27, 1997). 

[9] In addition, OMB recently announced two new PMA initiatives aimed 
at improving the performance of federal credit programs and health 
information quality and transparency across the major relevant federal 

[10] For more information on tax expenditures, see 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). 

[11] Summing the individual tax preference estimates is useful for 
gauging the general magnitude of the federal revenue involved, but it 
does not take into account possible interactions between individual 
provisions. Despite the limitations in summing separate revenue loss 
estimates, these are the best available data to measure the value of 
tax expenditures and make comparisons to other spending programs. 
Summing the estimates provides perspective on the use of tax 
expenditures as a policy tool and represents a useful gauge of the 
general magnitude of government subsidies carried out through the tax 
code. The estimates also can be used to compare tax expenditures to 
federal spending overall and by budget function. Other researchers also 
have summed tax expenditure estimates to help gain perspective on the 
use of this policy tool and examine trends in the aggregate growth of 
tax expenditure estimates over time. 

[12] Some researchers have estimated that payroll tax revenue losses 
amount to more than half of the income tax revenue losses. See John 
Sheils and Randall Haught, "The Cost of Tax-Exempt Health Benefits in 
2004," Health Affairs (Feb. 25, 2004); and Leonard E. Burman and 
Jonathan Gruber, "Tax Credits for Health Insurance," Tax Policy Center 
Discussion Paper No. 19 (Washington, D.C.: The Tax Policy Center, June 
2005). This work dealt only with health care. Payroll tax revenue 
losses for certain other tax expenditures, such as pensions, could 

[13] GAO-05-325SP. 

[14] GAO-04-38.

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