This presentation was made by Scott Showalter, FASAB, United States, at the 18th Annual Meeting of OECD Senior Financial Management and Reporting Officials held at the OECD Conference Centre, Paris, on 1-2 March 2018

1. Tax Expenditures
D. SCOTT SHOWALTER, CPA, CGFM
CHAIRMAN, US FEDERAL ACCOUNTING
STANDARDS ADVISORY BOARD
18TH ANNUAL OECD PUBLIC SECTOR
ACCRUALS SYMPOSIUM
1

2. Disclaimer
● Views expressed are those of the speaker.
2

3. Overview
●What are tax expenditures
●Why issue standard
●Standards
●Challenges
3

4. What are Tax Expenditures
4

5. Tax Expenditures Defined
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
5

6. 6

7. Tax Policy
7
Tax Policy Social Policy

8. Use Increasing
8

9. 9
0
50,000
100,000
150,000
200,000
250,000
Exclusion of
employer
contributions for
medical
insurance
premiums and
medical care
Exclusion of net
imputed rental
income
Deferral of
income from
controlled
foreign
corporations
Capital gains
(except
agriculture,
timber, iron ore,
and coal)
Defined
contribution
employer plans
Deductibility of
nonbusiness
State and local
taxes other than
on owner-
occupied homes
Deductibility of
mortgage
interest on
owner-occupied
homes
Defined benefit
employer plans
Largest Tax Expenditures - Fiscal Year 2018
millions of dollars

10. Why Issue Standard
10

11. ● 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

12. 12
Is the tax expenditure good policy?
See http://www.gao.gov/key_issues/tax_expenditures/issue_summary

13. ● 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.
How it Helps Meet Reporting Objectives
13

14. New standard
14

15. SFFAS No. 52
15
● Disclosure requirements
○ U.S. Government financial statements
○ Disclosures
● Required supplementary information
○ Management Discussion & Analysis
● Other information
○ Encourage tax expenditure estimates
● Effective date
○ Reporting periods beginning after 30 Sept. 2017

16. Financial Reporting in FY 2018
16
● Management’s discussion and analysis
● Note disclosure
● Other information
● Monitor progress

17. Implementation Challenges
●Determining baseline
●Measurement
●Timing
●Which taxes to include
17

18. Tax Cuts and Jobs Act of 2017
18
● Perfectly timed for new standards.
● The President’s Budget for Fiscal Year 2019 reports
tax expenditure estimates in detail. The Budget
states:
○ The estimates provided below do not reflect the effect of
changes introduced by the Tax Cuts and Jobs Act (TCJA),
signed into law on December 22, 2017. Given its late date of
enactment, these effects will be reflected in the estimates
reported in the FY 2020 Budget. Under the Act, a number of
provisions were scaled back, expanded, and repealed, or newly
introduced. Provisions otherwise untouched directly by the Act
were also affected by the modification of the individual tax rate
schedule and reduction of corporate tax rates.

19. Questions
19

20. Contact Information
D. Scott Showalter, CPA, CGFM
Chairman, FASAB
919.513.0526
scott_showalter@ncsu.edu
www.fasab.gov
20