1. Tax Expenditures D. SCOTT SHOWALTER, CPA, CGFM CHAIRMAN, US FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD 16TH ANNUAL OECD PUBLIC SECTOR ACCRUALS SYMPOSIUM 1

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

3. Overview What are tax expenditures? Why do they matter? Challenges and options for reporting? 3

4. 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 4

5. 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 5

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7. Tax Policy 7 Social Policy

8. Use Increasing 8

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10. Transparency Tax Policy Story of government services Why It Matters 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. Does it Help Meet Reporting Objectives? 13

14. Challenges Definition (what’s “normal” affects what’s in and what’s out) Measurement Accuracy 14

15. Reporting Options Amounts in financial statements Note disclosures Management’s discussion and analysis Required supplementary information Other information 15

16. What Is FASAB Proposing? Management’s discussion and analysis Note disclosure Other information Monitor progress 16

17. Questions 17

18. Contact Information D. Scott Showalter, CPA, CGFM Chairman, FASAB 919.513.0526 scott_showalter@ncsu.edu www.fasab.gov 18