You may have never heard the name Stanley Surrey, but anytime you read about the efficacy of tax policy, the analysis likely reflects his legacy. Surrey established a model for how policy, not just tax policy, should be conducted within government and how good analysis can positively influence the outcomes.
Surrey is best known for promoting the concept of tax expenditures—the characterization of tax preferences as substitutes for direct expenditures. For instance, there is little difference between a tax credit and a government spending line item that are both meant to encourage an alternative energy source – both reduce government revenues to achieve a policy goal.
He also served as the first head of Treasury’s Office of Tax Policy (OTP), helping establish its reputation for integrity and professionalism and building support in the wider tax policy community for putting the principles of fairness, simplicity, and efficiency at the center of tax debates.
Surrey prompted Treasury to publish its first tax expenditure budget in 1968, giving lawmakers a line-item list of tax subsidies, their purpose, and their cost to fiscal coffers. In the Congressional Budget and Impoundment Control Act of 1974 Congress mandated the continued publication of this document. Today, more than eighty countries report on their tax expenditures in some form. The presence of this information alone brings attention to the many government programs administered by tax authorities rather than via direct spending.
The willingness to reform tax expenditures has waxed and waned over the years. The executive branch led a significant expansion of tax expenditures in response to the Great Depression and World War II, but Congress has since expanded its reach and today has become ever more reluctant to let presidents take the lead on the tax agenda. At the same time, the White House increasingly has taken control over the tax policy debate by cutting back on what might be called the Treasury’s “power of the first draft”— its ability to lead in preparing drafts of tax legislation according to its understanding of tax policy principles and the president’s broader goals.
Attempts to centralize policymaking have occurred concurrently with limited public communication on important issues, particularly on issues that need to be addressed but are seen as a political risk. The increased partisanship on Capitol Hill has exacerbated this trend when almost any report can be written off as politically motivated. These developments have not been good for tax and most other policymaking.
Still, my colleague Eric Toder—who served for many years as a senior executive in OTP—explained in our article how the office’s influence was still visible through its publication of tax expenditure and other analyses. “We could still prevail if we could show that a policy could not be administered or, through control over the revenue-estimating process, whether it cost too much. (In the latter, we were helped by the fact that Joint Committee on Taxation scoring was the official metric used by Congress, so trying to subvert the revenue-estimating process would have been counterproductive.)”
By tracking the revenue and sometimes distributional impact of tax expenditures each year, the OTP and Joint Committee on Taxation are better prepared to provide advice and analysis on those provisions. Regardless of somewhat narrow academic debates over what to include in the tax expenditure budget, the very listing of these items calls elected officials to give them attention.
One anecdote that is still relevant today illustrates Surrey’s dedication to maintaining the integrity of the tax policy process. Joseph Guttentag, who served as International Tax Counsel under Surrey, notes that Surrey once received a call from a senior White House official responsible for domestic tax policy. The caller expressed that President Lyndon Johnson was interested in the status of an IRS ruling. Such rulings are usually only interpretative, which means they must reflect the law as enacted, not how some White House official might want to change them. Per Guttentag’s recollection, Surrey responded that he ” must have missed the president’s call asking me about that ruling,” after which the official terminated the call.
Within the United States government, the OTP stands out as a premier institution. Its analysis is top-notch, even when insufficiently appreciated by elected officials. That development owes much to Stanley Surrey and the many people he influenced, including those who knew him as students, colleagues, or through his work.
Policymaking is always better when individuals like Surrey stand up for the integrity of institutions or set up a useful baseline against which to measure a policy’s costs and achievements. Surrey did both extraordinarily well.