The House Budget Committee will hold a hearing Thursday morning on a White House proposal to give the president authority to force reconsideration of items in spending bills that he concludes are not a good use of public resources. Under this rescission measure, the president could send recommended spending cuts back to Congress for an up-or-down vote.

Unfortunately, the Reduce Unnecessary Wasteful Spending Act of 2010 excludes from the presidential scalpel one of the largest categories of government spending: tax expenditures, or more simply, government subsidies that are doled out through the tax code. The failure to include tax expenditures in the president’s spending-reduction measure leaves more than $1 trillion off the table.

Lawmakers should press administration officials at Thursday’s hearing about this regrettable omission from the new proposal. White House Director of the Office of Management and Budget, Peter Orszag, has said tax expenditures were considered for inclusion in the bill, even though the White House ultimately left them out. He indicated that the Obama administration is "interested in exploring whether there is any way to incorporate tax entitlements and, frankly, all mandatory spending in a way that is constitutional and does not create procedural problems with the provisions."

Congress should follow up this week by asking Orszag’s acting deputy director, Joseph Liebman, who is scheduled to testify Thursday, to identify the steps the administration has taken in this exploration. And importantly, to outline the steps the administration will take.

The stakes are high. Subsidies provided through tax expenditures will amount to nearly 25 percent of total government spending. And this amount is growing. There were 133 tax expenditure items in 2000. The most recent budget listed 173 items.

Spending-control mechanisms that ignore this spending would have the perverse effect of encouraging Congress to circumvent presidential spending controls by spending even more money through the tax code, where government spending is essentially free from budget scrutiny. Instead of offering a subsidy as a grant or a check—spending that might be subject to rescission authority—Congress could ensure spending would pass the president’s desk by simply repackaging the subsidy as a tax expenditure.

Tax expenditures are government spending programs authorized through the tax code. This spending—which is delivered to individuals and businesses via tax deductions, credits, preferential rates, exclusions, exemptions, and deferrals—looks on its face different from other forms of government spending. But spending programs implemented through the tax code are economically equivalent to direct spending programs that are implemented through grants or direct services. With direct spending, the government cuts a check to the recipient. In the case of a tax expenditure, a recipient’s tax is reduced by the amount of the transfer. Either way, the recipient pockets the same amount of money.

For example, the government could encourage a company to drill for oil by sending it a check to do so. Or, as it does now, the government can offer an oil company a tax deduction for drilling oil.

Spending-control measures that fail to address tax expenditures are less effective. As written, the Reduce Unnecessary Wasteful Spending Act would allow legislation with large swaths of wasteful spending to pass the president’s desk without a second look—so long as they are packaged as tax expenditures. Consider the current extenders bill, which contains more than $30 billion in tax expenditures. Among these are a tax subsidy for NASCAR racetrack owners of nearly $50 million and a $100 million tax subsidy for oil companies.

The failure to subject tax expenditures to scrutiny makes them a privileged form of spending. If these subsidies were coming out of discretionary spending, the president’s rescissions proposal would provide him the authority to zero them out and force Congress to take an up-or-down vote to restore this spending. Because these items are tax expenditures, however, the president has no rescission authority over this $150 million in spending.

Thursday’s hearing will cover only one of the administration’s spending control mechanisms. A second proposal, announced by Orszag in a speech last week at the Center for American Progress, requires nonsecurity agencies to submit a FY 2012 budget request that is 5 percent below that agency’s FY 2011 discretionary spending total. In addition, all agencies must identify low-priority or ineffective spending. As the memo released to agencies explains, "Eliminating low-priority programs and activities can free up the resources necessary to continue investments in priority areas even as overall budgets are constrained."

Neither of these requirements will apply to tax expenditure spending. This is most likely because, unlike spending programs, agencies do not generally have control over how tax expenditure programs are administered. Tax expenditures are treated as foregone revenue, rather than spending; they cannot be "cut" from an agency’s spending budget because they are not budgeted as spending per se—though they should be. Nonetheless, agency budgets sometimes recognize that tax expenditures provide valuable support for their programs. For example, the Department of Education’s FY 2011 budget request shows that tax subsidies for higher education financial aid grew 123 percent from FY 2008, and now comprise about 10 percent of overall federal aid for postsecondary student aid.

Leaving tax expenditures out of these requirements creates a conundrum for agencies that are forced to identify wasteful spending without taking into account large parts of the spending within the areas the agencies cover. For example, about 60 percent of energy-related spending comes through tax expenditures. And as the graph below shows, most of the government’s commerce and housing programs are comprised of tax expenditures.

To be sure, there are challenges to incorporating tax expenditures into spending proposals. First, there is a conceptual hurdle to overcome. Policymakers and the public are used to thinking of spending programs delivered through the tax code as "tax cuts" instead of as the subsidies they are.

And there are procedural challenges, because most tax expenditures are largely ignored during the budget process. Putting them on the chopping block will require Washington to fundamentally change business as usual—a theme that should resonate with President Obama. Indeed, the administration has already taken one important step in this direction: It has instructed agencies to submit with next year’s budget proposals an analysis of overlapping tax and spending policies. Whether the administration’s FY 2012 budget request to Congress will reflect this information remains to be seen.

The Obama administration is championing initiatives intended to get government to spend money wisely. These proposals, Obama has said, stem from the belief that "allowing taxpayer dollars to be wasted is both an irresponsible use of taxpayer funds and an irresponsible abuse of the public trust." To be most effective, the administration must include tax expenditure spending in all spending initiatives designed to root out waste.

Some in Congress have already signaled they are receptive to this notion. Sens. Russ Feingold (D-WI) and John Kerry (D-MA) and Rep. Paul Ryan (R-WI) are among those who have introduced bills that would give the president the authority to also rescind targeted tax benefits and tariff expenditures in addition to discretionary spending items.

Thursday’s hearing provides another opportunity for Congress to raise important questions, and to signal to the White House that it has a true partner on the Hill when the administration gets serious about the problem of tax expenditures.

Sima Gandhi is a Senior Policy Analyst at the Center for American Progress.