The GAO report is Tax Expenditures: Background and Evaluation Criteria and Questions, GAO-13-167SP (posted January 8, 2013, and dated November 29, 2012).
Read the report: GAO-13-167SP [PDF 2.2 MB]
Summary of GAO findings
As the GAO explained, tax expenditures are reductions in a taxpayer's tax liability that are the result of special exemptions and exclusions from taxation, deductions, credits, deferrals of tax liability, or preferential tax rates.
The GAO found that tax expenditures are similar to spending programs, and represent a substantial federal commitment to a wide range of mission areas. Using Treasury Department estimates, the GAO noted that $1 trillion in revenue was forgone from the 173 tax expenditures reported for fiscal year 2011.
Tax expenditures are often aimed at policy goals similar to those of federal spending programs. Existing tax expenditures, for example, are intended to encourage economic development in disadvantaged areas, finance post-secondary education, and stimulate research and development.
For some tax expenditures, forgone revenue can be of the same magnitude or larger than related federal spending for some mission areas. The revenue the federal government forgoes from a tax expenditure reduces revenue available to fund other federal activities, requires higher tax rates to raise any given amount of revenue, increases the budget deficit, or reduces any budget surplus.
Given the interest in tax expenditures' effectiveness, Congress asked GAO to develop a framework that could be used to evaluate their performance. In response, this guide describes criteria for assessing tax expenditures and develops questions Congress can ask about a tax expenditure's performance.
GAO's previous work has shown that, once enacted, tax expenditures and their relative contributions toward achieving federal missions and goals are often less visible than spending programs, which are subject to more systematic review. One reason for this is that they often operate, in practice, like entitlement programs not subject to annual appropriations.