Biden Administration Resisting GAO Pressure on Tax Expenditure Study

Statements from administration appear to run counter to those in FY24 budget request.

The Biden Administration is resisting pressure from the Government Accountability Office to evaluate the effectiveness of tax expenditures—a budget category that includes the credit union tax exemption. 

The administration is just the latest in a string of administrations that have decided not to follow the GAO’s recommendations on tax expenditures. 

Backstory and Context

The GAO periodically sends federal agencies letters outlining recommendations it has made that remain unresolved.

In a letter to the White House’s Office of Management and Budget (OMB) Director Shalanda Young last month, Comptroller General Gene Dodaro noted that, in 2005, the GAO recommended that the OMB—in consultation with the Treasury Department—develop and implement a framework for conducting performance reviews of tax expenditure.

That framework, the GAO said at the time, should take into account the lack of credible performance information on tax expenditures.

In addition, the GAO said the agencies should set a schedule for conducting reviews and re-establish appropriate methods to test the framework.

Inside the Letter

“At the time of our report, OMB agreed that this recommendation had promise, but as of December 2022 does not plan to address it,” Dodaro wrote in his letter.

He added, however, that GAO officials still believe such a framework is needed.

“Although revenue losses from tax expenditures exceed $1 trillion each year, tax expenditures continue not to receive the same level of scrutiny within federal budget processes as discretionary spending,” he stated.

Dodaro said that in a separate report, issued in 2016, the GAO recommended that federal agencies evaluate tax expenditures to identify those which contribute to specific strategic objectives and agency priorities.

“OMB generally agreed with this recommendation,” Dodaro wrote, in his letter to Young. “Subsequently, OMB stated that although it still agreed, it was not pursuing the effort because of competing priorities, as well as capacity and resource constraints. As of December 2022, OMB does not plan to address this recommendation.”

Again, Dodaro said that the GAO still believes the evaluation is warranted, adding that in FY22, tax expenditures represented an estimated $1.49 trillion in foregone revenue.

Potential Impact on Credit Unions

The administration’s statements seem to run counter to those that were included in its FY24 budget request sent to Congress in March.

The budget stated that the administration was committed to conducting an assessment of which tax expenditures were accomplishing agency policy goals.

At the time, the administration estimated that the credit union tax exemption will cost $3.020 billion in 2023 and a total of $34.720 billion between 2023 and 2032. Last year, the administration estimated the cost at $25.330 billion between 2022 and 2031.

Using those estimates, the administration said, the credit union tax exemption does not fall into the 50 most expensive tax exemptions.

What Comes Next?

Bankers have long pushed for congressional hearings on the credit union tax exemption, contending that credit unions essentially have become banks and that they no longer deserve their tax status.

However, few lawmakers have said they favor such an evaluation. Former Sen. Orrin Hatch, R-Utah, raised the issue—but only in the year he announced his retirement.

And when he was in the Iowa state legislature, Rep. Randy Feenstra, R-Iowa, introduced legislation that would have subjected credit unions to state income taxes. That position led Friends of Traditional Banking, a bank industry super-Political Action Committee, to endorse Feenstra for reelection last year.

But so far, Feenstra has not pushed such legislation on the federal level.