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ceilings on tax-free benefits provided or allowing credits against taxes paid rather than exclusions from taxable income (GAO/GGD-92-43, Apr. 7, 1992). (See p. 83.)

Company Effective Tax Rates. In 1986, Congress passed the Tax Reform Act, which eliminated many tax benefits provided to businesses. We found that consistent with the act, U.S. and worldwide average effective tax rates for the companies we reviewed were higher in 1989 (33 and 37 percent, respectively) than in 1986 (19 and 28 percent). Because of data limitations, however, we could not conclude that the act directly caused these changes. In our opinion, part of any increase in average U.S. effective tax rates due to the act may exist only temporarily as the companies go through a transition period (GAO/GGD-92-111, Aug. 19, 1992). (See p. 88.)

Pharmaceutical Industry Tax Benefits in Puerto Rico. We provided information about the pharmaceutical industry's tax benefits obtained from operating in Puerto Rico. Section 936 of the Internal Revenue Code was enacted to help Puerto Rico obtain employment-inducing investments and provides a tax credit equal to the federal tax liability on certain income earned in Puerto Rico. We found that throughout the 1980s the pharmaceutical industry received a relatively large share of the tax benefits from section 936 compared to the number of jobs directly created and the amount of employee compensation the industry provided. Pharmaceutical industry representatives stated that other employment-related information needed to be considered and cited (1) the importance of examining the number of high-paying, skilled jobs that have been provided; and (2) indirect jobs created in other industries (GAO/GGD-92-72BR, May 4, 1992). (See p. 87.)

Tax Credit Effectiveness. We reviewed the effectiveness of a tax credit proposed to facilitate the sale of Resolution Trust Corporation (RTC) property and concluded that the federal government would lose about $127 million on a present-value basis with the proposed $1 billion tax credit program. We said that overall we did not believe the tax credit proposal was an effective way for RTC to dispose of its real estate assets. However, if the proposal were to be enacted, we suggested changes to help minimize the losses and protect RTC's financial interests (GAO/GGD-92-14BR, Nov. 1, 1991). (See p. 79.)

Expiring Tax Provisions. For congressional consideration of whether the provisions should be extended, we summarized our work on 5 of the 12 tax provisions that were last extended by the Tax Extension Act of 1991. First, we concluded that Mortgage Revenue Bonds were an inefficient and costly way to provide assistance to first-time home buyers. Second, we said that the Targeted Jobs Tax Credit goals were not achieved

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to their full extent, and we found no substantial differences in participants' earnings before and after a targeted job compared to others not in the program. Third, we noted that the Low-Income Housing Tax Credit allowed building or rehabilitating housing in areas where adequate low-income housing existed, which is less efficient than providing low-income housing through certificates or vouchers. Fourth, we suggested that if the Research Tax Credit was permanently extended, Congress provide for a periodic adjustment to the base used in calculating the credit. Fifth, we said that sufficient information about the program's effect was not available to measure whether Employer-Provided Educational Assistance was meeting its objectives; we suggested modifying the provision's reporting requirement to establish a basis for evaluation (GAO/T-GGD-92-11, Jan. 28, 1992). (See pp. 80.) Luxury Excise Taxes. We examined the effect of the luxury excise tax on the luxury boat, car, aircraft, jewelry, and fur markets. About $168 million in luxury excise taxes was collected in 1991. We found that diverse factors interacted to affect both the demand for and supply of these luxury products. We could not disentangle the effects of these diverse factors from the effects of the tax and therefore could not quantify tax effects. Some portion of sales decline during 1991 in these products may have resulted from the price effect of the luxury excise tax, but it is likely that other factors significantly affected these markets (GAO/GGD-92-9, Feb. 26, 1992). (See p. 82)

We do our work on tax policy and administration matters pursuant to 31 U.S.C. 713, which authorizes the Comptroller General to audit IRS and the Bureau of Alcohol, Tobacco and Firearms. GAO Order 0135.1, as amended, prescribes the procedures and requirements that must be followed in protecting the confidentiality of tax returns and return information made available to us when doing tax-related work. This order is available upon request.

Copies of this report are being sent to the Director of the Office of Management and Budget, the Secretary of the Treasury, and the Commissioner of Internal Revenue. Copies will also be sent to interested congressional committees and to others upon request.

Major contributors to this report are listed in appendix VII. If you or your colleagues would like to discuss any of the matters in the report, please call me on (202) 512-5407.

Jennie

Jennie S. Stathis

3. Stathis

Director, Tax Policy and

Administration Issues

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