Shining Light on Stimulus Tax Provisions Tough

Tax law makes transparency a difficult goal for the economic recovery act.

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When President Barack Obama promised transparency and accountability in the $787 billion stimulus package, the idea hinged largely on providing full disclosure on who would be spending which portions of the government's money.

The kinks in exactly how to do that are still being worked out. But the concept that the information should be made public effectively applies to less than two thirds of the law's total price tag: namely, the act's direct spending allocations, funneled through grants and loans to projects like school renovations and nuclear site cleanups. For the remaining $288 billion, ensuring transparency and accountability will be a far trickier beast.

That's because that sum goes to tax cuts and credits, a different kind of government expenditure that's protected by privacy laws and under the jurisdiction of the Internal Revenue Service. "There are no provisions in the recovery act to track tax expenditures at all," says Craig Jennings, senior federal fiscal policy analyst at OMB Watch. "A third of the act is just completely opaque." But with expectations high that stimulus package funds will be spent in a targeted and efficient manner, some watchdogs are hoping that more detailed data on tax expenditures will be made available than in the past. The Government Accountability Office wants the IRS to identify who is using which provisions, says Mike Brostek, a director of tax issues at the GAO. Others say that even if individuals should not have to disclose their tax information, companies should.

Hardly unique to the recovery legislation, the relative lack of disclosure is a traditional, and generally accepted, feature of taxation. When an individual or a company applies for a tax credit, that information for the most part isn't disclosed. So while companies that receive recovery act funds for projects like building new roads will have to make that information public, companies that receive tax credits are not required to do so, unless Congress makes an exception to the law. "For the outlay programs, there's a fairly rich body of information that's going to be available," says Brostek. "But it's not clear what's going to be available for the tax provisions."

The main obstacle to tracking any tax expenditures is taxpayer privacy, regardless of whether it is an individual or a company. "Historically, we never ask people to reveal the extent to which they use incentives," says Deborah Schenk, a tax law professor at New York University. By law, the IRS cannot share tax information with a third party, except in certain circumstances. As well as protecting the taxpayer's right to privacy, the policy stems from the belief that the government shouldn't disclose information that taxpayers are required to provide.

Many experts on tax policy see those privacy protections, even when extended to companies, as reasonable. But some watchdogs call the policy problematic. In the case of the recovery act, they say, it's hard to show where the stimulus funds went if it's unknown who received money or what they spent it on. Meanwhile, they say, even more general information, such as which demographic groups tend to use particular credits, could help future tax policy. (The IRS can reveal those details, but it doesn't have to unless Congress specifically requests it. So far, there have been no moves to request the information.)

Still, a number of new steps have been taken to increase transparency and accountability in the recovery act, from the continual improvements to the website Recovery.gov, which tracks stimulus spending, to a bill introduced in the House that would strengthen reporting requirements for anyone receiving funds. But little emphasis has been given to the tax side. While Recovery.gov states that one of the president's goals for the law is that "the recipients and uses of all recovery funds are transparent to the public," for one third of the stimulus, that goal simply won't be achievable.

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