GAO Suggests Review Of US Tax Loopholes

IT'S conventional wisdom in Washington: If you want to eliminate the budget deficit, you have to cut popular entitlement programs such as Social Security and food stamps.

But the Government Accounting Office, Congress's watchdog agency, points out another kind of ``entitlement'' - called a ``tax expenditure'' - that receives far less attention and actually contributes far more to the ever-growing $4.5 trillion national debt.

Tax expenditures, the GAO explains in a new report, ``are reductions in tax liabilities that result from preferential provisions in the tax code such as exemptions and exclusions from taxation, deductions, credits, deferrals, and preferential rates.''

In other words, they're ``loopholes,'' and once they're established they stay in place forever, or until Congress and the president agree to cut or eliminate them.

Between the inception of the modern income tax in 1913 and the passage of the Tax Reform Act of 1986, only 13 tax expenditures were permanently eliminated. The 1986 act killed an additional 30. But most continue on, with little or no review.

Tax expenditures are growing by 4 percent annually, faster than the economy as a whole. They totaled about $400 billion last year, more than enough to to eliminate the year's $255 billion budget deficit. And they're expected to reach $469 billion in 1998. The GAO is recommending a number of changes aimed at increasing the scrutiny of tax expenditures, such as a schedule for periodic reviews. Congress might also set annual targets for tax expenditure savings. And it could review tax breaks at the same time it reviews related spending programs.

Rep. William Coyne (D) of Pennsylvania, who ordered the GAO report, argues that closing loopholes is fairer than cutting entitlements. The average tax expenditure beneficiary had annual income of more than $30,000 in 1991, while the average Social Security beneficiary had an annual income of $14,619. Feinstein abandons health care bill

WHEN no one was looking, Sen. Dianne Feinstein (D) of California withdrew her name as one of the 30 Democratic cosponsors of President Clinton's Health Security Act. Ms. Feinstein, who is running for reelection, took the action May 25, but it only came to light last week.

``I stand with the president on the need for health-care reform,'' she insisted, but added that she preferred the free agent role since Clinton's plan is being ``substantially reworked'' by both the House and Senate.

White House Deputy Chief of Staff Harold Ickes said the health reform drive was right ``on target'' and predicted that most, if not all, of the five key committees will approve bills by the 4th of July.

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