- The Washington Times - Friday, December 16, 2011

ANALYSIS/OPINION:

The year’s myriad high-stakes budget battles - and most of the commentary about them - have focused almost wholly on the game of “Deal or No Deal.” The ostensible winner was whichever party got the most of what it wanted while giving up the least.

The merits of the tax and spending decisions seemed, at best, ancillary details. That’s a lot like rejoicing over the shiny wrapping paper on a Christmas present without bothering to see whether there’s a kitten or a cobra inside the box.

This superficial approach to fiscal policy is not new. Historically, most federal budget debates have focused on who gets spending or tax breaks rather than what the spending or tax breaks accomplish.

Consider “tax expenditures,” or special tax breaks that incentivize individuals or businesses to spend their money in ways the federal government wants. There are hundreds of them in the tax code. But which - if any - are good economic policy?

Academic economists have studied tax expenditures and found costs often far outweigh benefits. For example, the deductibility of home mortgage interest and property taxes increases homeownership in the United States by a tiny amount but costs the Treasury about $100 billion annually.

With this information in hand, it seems reasonable that Congress would consider whether this tax break should be eliminated or pruned back so general tax rates could be lower. But clearly, this doesn’t appear to be something either Congress or the administration is particularly interested in exploring. In fact, the federal government has an abysmal record of even attempting to measure the results produced by its tax and spending decisions - let alone using the information to guide better policy.

The Clinton administration evaluated a total of three tax expenditures in the mid-1990s, concluding that one had failed to accomplish its goals and the results of the other two were indeterminate. The federal budget hasn’t reported much other evaluation of tax expenditures since then.

As Leonard Burman, who served as deputy assistant secretary of the Treasury for tax analysis between 1998 and 2000, noted in a 2003 National Tax Journal article, administrations are not very enthusiastic about evaluating tax expenditures because “comprehensive evaluation of tax expenditures would necessarily raise serious objections to measures enthusiastically advanced by the administration.”

Washington’s record on using “performance” data - or data regarding the outcome of tax and spending policies - to guide budgetary decisions is only slightly better. A performance-based budget would establish goals, such as keeping elderly people out of poverty or moving unemployed people into the workforce, and then fund only the spending programs or tax breaks that evidence shows accomplish those goals most effectively.

Since passage of the Government Performance and Results Act of 1993, federal agencies have gotten better at reporting the outcomes produced by their programs. But Congress has failed to adopt a comprehensive, performance-based approach to budgeting. The main obstacle is the incentive structure in Congress. Congressional appropriations subcommittees exercise the most influence on spending decisions. The appropriators who make spending decisions are often big fans of the spending, even if it doesn’t produce significant results for the public. The spending itself, rather than the result it produces, is the “outcome” many legislators care about. (Think “Bridge to Nowhere.”)

Congress needs institutional reform to shift power away from advocates for individual programs and tax breaks, toward a decision-making entity that is more concerned with the overall federal budget. The House and Senate Budget committees were supposed to serve this function, but while they can devise budget blueprints, they can’t enforce them.

The supercommittee looked like another attempt to move decision-making to a group whose job is to consider the overall federal budget rather than advocate for particular programs or constituencies. While the supercommittee failed for myriad reasons, a principled adherence to evidence-based policymaking was not one of them.

And as each party in Congress furiously wheels and deals to get more of its year-end policy list enacted, it’s unlikely we’ll see an attempt to justify decisions based on evidence about the results of spending programs and tax breaks.

But with the coming budget year threatening to look a lot like the current one - or even worse, depending on your perspective - Congress and the administration would be wise to take another look at performance-based budgeting. For once, decision-makers could use reality as their political cover: “The facts made me do it.”

Jerry Ellig is a fellow at George Mason University’s Mercatus Center and co-author of “Government Performance and Results: An Evaluation of GPRA’s First Decade” (CRC Press, 2012).

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