Biden Administration Plans Tax Expenditure Evaluation

White House releases Analytical Perspectives volume, which includes examination of credit union tax exemption.

The Biden Administration is committed to finding ways to evaluate tax expenditures—a category that includes the credit union tax exemption, the administration said Monday.

“Evaluations include an assessment of whether tax expenditures are achieving intended policy results in an efficient manner, with minimal burdens on individual taxpayers, consumers, and firms, and an examination of possible unintended effects and their consequences,” the administration said in “Analytical Perspectives,” a volume that accompanies the FY24 budget.

While the budget was released last week, the “Analytical Perspectives” was released on Monday.

What Does It Say About the CU Tax Exemption?

The volume’s tax expenditures section includes a new estimate of the amount the credit union tax exemption is expected to cost the federal government in lost revenue. The administration estimated that the 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.

The administration did not explain the cost change.

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

As far back as 2016, the Government Accountability Office called for administrations to evaluate the costs and benefits of tax expenditures, which the GAO has identified as one of its own long-term goals.

Will This Change Anything?

In its “Analytical Perspectives,” the Biden Administration said that a comprehensive evaluation that examines incentives, direct results and spillover effects would be useful in developing policy. However, the administration also said that some tax expenditures are well-suited to quantitative measurement, while others are not.

“Developing a framework that is sufficiently comprehensive, accurate, and flexible is a significant challenge,” the volume warns. “Evaluations are constrained by the availability of appropriate data and challenges in economic modeling.”

For instance, data may not exist in an “analytically appropriate form” that would allow for detailed evaluation.

In addition, the administration said, tax expenditure analyses are constrained by staffing considerations, with expert analysts often engaged in other areas of work related to the budget.

“The Executive Branch is focused on addressing these challenges to lay the foundation for the analysis of tax expenditures comprehensively, alongside evaluations of the effectiveness of direct spending initiatives,” the volume states.

What Happens Next?

The credit union tax exemption remains a political football in our nation’s capital. Most recently, the Independent Community Bankers of America circulated a letter on Capitol Hill calling on Congress to “restore balance to the American financial services marketplace and help close the growing budget deficit by re-examining the justification for the outmoded, 100-year-old credit union tax subsidy.”

When the Biden Administration released its budget last week, it proposed spending $341 million on the CDFI program in FY24—a $17 million increase over the current funding level, but less than the $500 million many advocates wanted.

The administration also called for $4 million for the NCUA Community Development Revolving Loan Fund—a $500,000 boost over FY23.