A controversial decision by the Navy to lease 13 cargo ships will cost the government $270 million more than purchasing the ships, according to an analysis by the Joint Committee on Taxation challenging the Navy's cost-saving claims.
The leasing arrangement, which allows the companies providing the ships to get sharply increased tax breaks, will be the subject of a Ways and Means oversight subcommittee hearing on Monday. The Joint Committee study contends that practice will raise U.S. costs 11.7 percent.
Moreover, these additional costs will be hidden in the budget, the study points out. While the Navy will pay less to lease the ships than to buy them, these savings will be more than wiped out by a reduction in federal revenues due to the tax breaks going to the companies.
On the surface, the cost of leasing is $481 million less than purchasing. But according to the study, leasing hides $751.4 million in lost tax revenues resulting from the tax breaks. The leasing approach makes "it difficult to determine the true cost of the government and may "disguise the nature of the outlays and reduce accountability," the study noted.
On another point, the study said the use of leasing by the government "may erode the public's confidence in the tax system." The authors noted that Congress phased out the 1981 tax provisions allowing corporations to buy and sell tax breaks after public criticism of the law.
"To the extent that government leasing appears to be tax-motivated, the public may question the equity of the tax system as a whole."
The cost of leasing ships will appear on the Navy's operations and maintenence account instead of the procurement account, where purchases of ships, weapons and equipment normally is placed.
Some critics of the Pentagon have charged that the administration is spending too much on procurement and not enough on the cost of running and maintaining the material already owned. Leasing creates the impression that the Navy is boosting maintenance spending while cutting procurement, the study shows.