Tax Policy: Summary of GAO Work Related to Expiring Tax Provisions
Highlights
GAO discussed 5 of the 12 expiring tax provisions extended by the Tax Extension Act of 1991. GAO noted that: (1) of the 12 provisions, qualified mortgage revenue bonds (QMB), the targeted jobs tax credit, the low-income housing tax credit, the qualified research tax credit, and employer-provided educational assistance benefits account for 70 percent of the estimated foregone federal revenues in fiscal years 1992 through 1996; (2) QMB were an inefficient and costly way to provide assistance to first-time home buyers and serve mostly buyers who could afford homes anyway; (3) the targeted jobs program was not fully achieving its goals, since there were no substantial differences in participants' earnings before and after obtaining targeted jobs, compared to others who were not in the program; (4) providing low-income housing through housing certificates or vouchers would be more efficient than building or rehabilitating housing in areas where adequate low-income housing exists; (5) Congress revised the base used in calculating the qualified research credit in 1989, but because the base is not subject to periodic reviews and many companies' spending and sales continue growing, the revised base may become deficient after a few years; and (6) sufficient information is not available to adequately measure whether the educational assistance provision effectively meets its objectives.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| If the research tax credit is permanently extended, Congress may wish to consider ensuring that the credit continues to provide an attractive incentive to most taxpayers at an acceptable revenue cost by requiring that the base be reviewed periodically and adjusted as needed. |
Closed – Implemented
|
In the Omnibus Budget Reconciliation Act of 1993, Congress retroactively extended the research tax credit from July 1, 1992, until June 30, 1995. The extension did not adjust the base used in calculating the credit. Congress again extended the credit, but for only a short period, for research expenditures made from July 1, 1996, through May 31, 1997. The extending legislation added an alternative credit computation method for taxpayers that could not earn a credit under the regular computation method. Other potential problems relating to the credit's base were not addressed or studied in depth. The Taxpayer Relief Act of 1997 extended the credit from May 31, 1997, through June 30, 1998 with no change in the base of the credit. The credit has now expired. Bills have been introduced in both the Senate and the House to permanently extend the credit. Some of those bills would revise the base of the credit. None of the bills have come up for a vote yet. |
| If Congress should decide to extend section 127 of the Internal Revenue Code again, it should modify and maintain the reporting requirement for a sufficient period to establish a reasonable basis for evaluating whether the assistance is reaching the targeted population. |
Closed – Not Implemented
|
In the Taxpayer Relief Act of 1997, Congress extended the employer-provided educational assistance provision for undergraduate course work begun after June 30, 1997, and before June 1, 2000. Although the GAO recommendation was made before this and four earlier extensions of the provision, Congress did not amend the reporting requirement. |