tax expenditures - scott showalter, fasab, united states
TRANSCRIPT
Tax Expenditures
D. SCOTT SHOWALTER, CPA, CGFM
CHAIRMAN, US FEDERAL ACCOUNTING
STANDARDS ADVISORY BOARD
16TH ANNUAL OECD PUBLIC SECTOR ACCRUALS SYMPOSIUM
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Disclaimer
Views expressed are those of the speaker.
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Overview
What are tax expenditures?
Why do they matter?
Challenges and options for
reporting?
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What Are Tax Expenditures?
Revenue losses attributable to
provisions of the U. S. Federal tax laws
which allow:
• special exclusion, exemption, or
deduction from gross income
• provide a special credit, a preferential
rate of tax, or a deferral of tax liability Source: Congressional Budget and Impoundment Act of 1974
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Examples
Not taxed: Employer-provided health insurance
Gains from the sale of a home
Earnings set aside for retirement
Interest on state and local bonds
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EXAMPLES OF SIX TYPES OF TAX EXPENDITURES
EXCLUSION EXEMPTION DEDUCTIONExcludes income that would
otherwise constitute part of a
taxpayer's gross income.
Reduces gross income for
taxpayers because of their
status or circumstances.
Reduces gross income due to
expenses taxpayers incur.
Employees generally pay no
income taxes on contributions
their employers make on their
behalf for medical insurance
premiums.
Taxpayers may be able to
reduce their tax liability if they
have a dependent who is a
child aged 19 through 23 and
is a full-time student.
Taxpayers may be able to deduct
state and local income taxes and
property taxes.
CREDIT PREFERENTIAL TAX RATE DEFERRALReduces tax liability dollar-for-
dollar. Additionally, some
credits are refundable
meaning that a credit in
excess of tax liability results in
a cash refund.
Reduces tax rates on some
forms of income.
Delays recognition of income or
accelerates some deductions
otherwise attributable to future
years.
Taxpayers with children under
age 17 potentially can qualify
for up to a $1,000 partially
refundable, per child credit,
provided their income does not
exceed a certain level.
Capital gains on certain
income are subject to lower
tax rates under the individual
income tax.
Taxpayers may defer paying tax
on interest earned on certain U.S.
savings bonds until the bonds
are redeemed.
Tax Policy 7
Tax Policy Social Policy
Use Increasing 8
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210,980
92,820
67,780 66,600 64,710 62,440 58,270 51,380
44,240
Largest Tax Expenditures - Fiscal Year 2016 Billions of Dollars
Transparency
Tax Policy
Story of government services
Why It Matters 10
Transparency – An important component of a comprehensive overview of financial position and performance.
Tax Policy – Tax code is not subject to annual review in the same fashion as the budget. Tax reform requires an evaluation of tax expenditures which adds complexity to the challenge.
Tell the story of government services – They are a tool of government but their success may not be measured and assessed as frequently as other programs. Also, their role may be harder to understand.
Why It Matters 11
See http://www.gao.gov/key_issues/tax_expenditures/issue_summary
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Is the tax expenditure good policy?
See http://www.gao.gov/key_issues/tax_expenditures/issue_summary
Operating Performance – cost of government actions and how costs are financed should be known.
Tax expenditures are a growing part of the story of service efforts and accomplishments.
Stewardship – how the government makes investments that impact the nation’s financial condition is important information.
Tax expenditures are an investment tool that may be overlooked by citizens.
Does it Help Meet Reporting Objectives? 13
Challenges
Definition (what’s “normal” affects
what’s in and what’s out)
Measurement
Accuracy
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Reporting Options
Amounts in financial statements
Note disclosures
Management’s discussion and analysis
Required supplementary information
Other information
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What Is FASAB Proposing?
Management’s discussion and
analysis
Note disclosure
Other information
Monitor progress
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Questions 17
Contact Information
D. Scott Showalter, CPA, CGFM
Chairman, FASAB
919.513.0526
www.fasab.gov
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