GAO and duplicative government programs (and taxes)

The headlines are all about “government waste” — for example this in the Wall Street Journal: “Billions in Bloat Uncovered in Beltway”. Even the title of the recently released GAO report implies that point of view: Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. But if you closely at the report, you will find it is more about better government management. And it includes this little gem:

According to the sum of U.S. Department of the Treasury estimates for fiscal year 2009, almost $1 trillion in federal revenue was forgone due to tax exclusions, credits, deductions, deferrals, and preferential tax rates– legally known as tax expenditures. The revenue that the government forgoes is viewed by many analysts as spending channeled through the tax system. Similar to spending programs, tax expenditures represent a substantial federal commitment in a wide range of mission areas. For fiscal year 2009, the U.S. Department of the Treasury listed a total of 173 tax expenditures, some of which were of the same magnitude or larger than related federal spending for some mission areas.
. . .
Tax expenditures, if well designed and effectively implemented, can be an effective tool to further federal goals, such as encouraging economic development in disadvantaged areas, financing higher education, and stimulating research and development. However, tax expenditures can contribute to mission fragmentation and program overlap, thus creating the potential for duplication. Moreover, some tax expenditures may be ineffective at achieving their social or economic purposes. Tax expenditures do not compete overtly with other priorities in the annual budget, and spending embedded in the tax code is effectively funded before discretionary spending is considered. Many tax expenditures are not subject to congressional reauthorization. Therefore, Congress lacks the opportunity to regularly review their effectiveness. Periodic reviews could help identify redundancy in related tax and spending programs and determine how well specific tax expenditures work to achieve their goals and how their benefits and costs compare to those of programs with similar goals.

So, GAO’s point is that if a government spending program needs to be re-evaluated and re-authorized periodically, then a government spending program in the guise of a tax break should also be periodically be re-evaluated.
Something tells me, however, not to expect much talk in the public and political debate on this side of the ledger. Too bad, for this could have been the start of a meaningful debate on tax policy.

The return of securitization?

According to a story in the New York Times (Commercial Real Estate Breathes Life Into a Moribund Market), the securitization market is making a comeback. Led by commercial loan securitization, the story claims that “other sectors of this market, including car loans and collateralized loan obligations, are also showing signs of life.” The key seems to be a better quality of loan underlying the securitization brought about by a number of factors, including new regulations:

Under the Dodd-Frank regulatory reform, banks are required to hold 5 percent of any securities they sell to investors. The move is intended to reduce risk by forcing banks to eat their own cooking.
Another rule, which will most likely take effect early next year, requires banks and other financial firms that issue asset-backed securities to review the quality of the underlying assets, including commercial real estate. The banks must then disclose their findings to investors. If the assessment shows that the assets did not meet the underwriting standards promised to investors, financial firms must explain the discrepancy in a filing.
Banks are also improving their lending standards on their own. The securities today are more diverse, including multiple loans from a number of developers across the country. The recent deals, for instance, includes a broad set of properties like the Christiana Mall in Newark, Del., the Kenwood Towne Centre in Cincinnati, the Pearlridge Center near Honolulu and 7 Hanover Square in New York.
“The banks can cherry-pick the loans they are making and typically only top-quality prime borrowers are getting financed,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte.

I wonder if these means that we will see a return of IP securitizations — or whether the market will see these types of financial products backed by royalties from trademarks, copyrights and patents as simply too risky and uncertain for a market that needs high quality to survive?