The Best Way to Cut Government Spending: Get Really Tough on Fraud

Fraud and improper payments for government programs amount to $125 billion a year. Reducing those losses substantially would avoid a lot of painful cuts.

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David Axelbank / Gallery Stock

As America slides toward the fiscal cliff, both sides are debating ways to reduce the deficit in 2013 and also over the longer term. President Obama’s proposed budget for 2013 called for total deficit reduction of $4 trillion over six years – or more than $660 billion a year – based on a ratio of $2.50 in spending cuts for every $1 of tax increases. In fact, it wouldn’t be too hard to find additional revenues: The tax hikes currently scheduled to go into effect in 2013 consist of nine different categories accounting for as much as $539 billion. And only a fraction of that would be needed to meet revenue targets for any likely budget deal. What’s less clear is where spending cuts can be made, since most programs that could provide big savings remain off the table.

Fortunately, there is a way to begin reining in spending that would be painless: Get really tough on fraud.

The challenge on the spending side becomes clear if you consider the consternation caused by the so-called sequester, the cuts slated to go into effect automatically in 2013 if there is no budget deal. This program would slash $55 billion from defense, $38 billion from discretionary Federal spending and the rest from cuts to entitlements, for total savings of $109 billion a year. But the spending reductions needed over the coming decade to bring the U.S. budget into a sound condition would have to be several times as large as the sequester. To have any hope of reaching those goals, policymakers cannot afford to overlook savings that can be made relatively painlessly.

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As a percentage of total spending on entitlement programs, fraud has been reduced somewhat over the past decade. But the size of social programs has been growing so rapidly that the amount of money lost to fraud remains enormous in total dollar terms. Moreover, the recent stimulus program has created new opportunities for fraud, according to the FBI. Among the largest sources of improper payments:

Medicare & Medicaid – The Department of Health and Human Services pays for health care for more than 100 million Americans. Medicare currently spends nearly $600 billion and is projected to rise to $1 trillion by the end of the decade. Medicaid spending is harder to quantify because it is split between the Federal government and the States, but it currently totals more than $400 billion and is growing faster than Medicare. These amounts are so big that government health care accounts for the biggest chunk of fraud, ranging from overcharges for drugs and surgery to insurance claims that are totally bogus. For the 2011 fiscal year (2011-2012), the Department of Health and Human Services estimated that improper payments exceeded $64 billion.

Social Security – More than 56 million Americans receive more than $770 billion a year in Social Security payments. Regular Social Security payments are quite accurate, with overpayments running less than half a percent. Improper payments are much higher for Supplemental Security Income, which goes chiefly to low-income Americans who are aged, blind, or disabled. Last year, the Social Security Administration inspector general told a Congressional subcommittee that Social Security overpayments were about $6.5 billion, $4 billion of which was for Supplemental Security Income.

Food Stamps – The number of Americans on food stamps has soared from 28 million in 2008 to 46 million today. Spending totals about $80 billion a year and outright fraud accounts for less than $1 billion a year. Two to three times as much is lost, however, through benefits that go to ineligible households. Total improper payments amount to more than $3 billion annually.

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Similar losses to outright fraud, overpayment and payments to ineligible beneficiaries exist throughout Federal government programs. Figures released by the White House two weeks ago estimate that all types of improper payments now amount to 4.3% of entitlement spending. Defense-related improper payments are smaller in percentage terms but still a sizable amount of money.

If those rates could be cut by a quarter, the government would save around $30 billion a year. Such savings would greatly blunt the impact of proposed spending cuts. Indeed, savings from eliminating one-quarter of current fraud would reduce cuts from the sequester by more than 10% for defense and by more than 40% for nondefense spending. While that doesn’t offer a total solution to U.S. budget problems, it certainly makes sense to go after fraud aggressively before contemplating cuts that would do real harm to national security and the general welfare.

20 comments
NellWalton
NellWalton

I find it impossible to understand why so much of taxpayer dollars is paid out - in this particular instance I am speaking about ARRA (stimulus) funds are paid out with so little oversight.  Examples - in the Dept. of Education from 2009-2011 there have been 1115 fraud/waste/abuse claims filed, with 102 of those being whistleblower allegations.  Of all of those there are only 139 investigations active at this time, 0 have been closed and 43 have resulted in convictions, pleas or judgments.  DHHS, another problematic agency - 125 complaints have been made in the same time period, 8 whistleblower complaints - 15 active investigations 23 closed without action and 0 convictions.  And it just goes on and on.  Clearly some of the Inspector Generals' offices charged with investigating ARRA fraud, waste and abuse just don't have enough resources to get the job done.  This needs to change.  Information can be reviewed at: http://www.recovery.gov/about//board/pages/reports.aspx

jillyanscott
jillyanscott

It is disheartening that only a few people benefit for what' supposed to be for the people. Fraud is everywhere and the only way to fix that is to  make sure that honest people are appointed. And I do not even know how to measure honesty in a person. In these times you have to work doubly hard to make ends meet and to know that some people are just lazing around... that ticks me off.

pap91rt50
pap91rt50

Lets not be ridiculas!!! There is sooo much fruad in govt/private sector that it's appalling!! Hire two hundred thousand IRS agents to chase down all the takers. You wouldn't need to raise taxes.

Then go after all these corporations that have their accounting department as a profit center..... The obvious never is!!

fennecfox
fennecfox

This article is sad and misguided.  I also highly suspect that the numbers in the this article are "fuzzy math".  Why do we expect those with the least resources and least influence (the working poor) to be responsible for bearing the brunt of the fiscal cliff?  What about the responsibilities of those with power, wealth and influence whose irresponsibility led to this financial mess?

gordo
gordo

Let's look outside entitlement programs too. My bitch is with the Telecommunications Act - third party billing. Big problem with cramming, false billing to millions of people on their telephone bills for services they have not ordered and are not receiving.  Jay Rockefeller held Congressional hearings on this issue last year and in spite of overwhelming evidence of widespread abuse it appears that nothing has been done. Clearly White Collar Crime is alive and well as long as this travesty persists. AT&T, Verizon etc. have not been helpful - they are not properly screening companies that piggyback on their billing system - my guess is that 3rd party billing is actually a profit center for them.

Hadrewsky
Hadrewsky

You can fight fraud but never expect victory

it is like trying to run away from the atmosphere.... it wont happen

SamuelClemens
SamuelClemens

This article was really disappointing. From the headline, I thought that at last we would get the heart of the matter: the wealthy simply don't pay what they owe, not matter what the nominal rate. Mitt Romney, champion tax dodger and proud of it, lost. So let's get on with it. Plug the giant holes the rich exploit. Tax companies that move headquarters offshore as they were originally. Shut down GE's tax avoidance and evasion department that pays negative income tax. By all means limit deductions to a reasonably high level, but let's get them paying what they owe. Let's end the hedge fund evasion of "earned interest", special rates for capital gains and dividends. I call these evasion because often they are taken to excess but more importantly there were gained only through buying political influence. Corrupt law is unjust law needing urgent reform literally from the bottom up. Let's plug tax cheating, manipulation, and avoidance. Let's also be creative with carbon taxes, increased inheritance tax, and financial transaction taxes to broaden the base to where the money really is.

BobJan
BobJan

Fraud==535 people in Congress +Congressional aides = 5 Gazillion dollars of fraud.

superlogi
superlogi

Yeah right.  The government is complicit in the fraud, so that will never happen.  Reagan had the right idea.  Starve the Beast.  Unfortunately, Congress didn't agree.

FrankBlank
FrankBlank

@superlogi  You seem to miss the point.  The largest frauds are committed by private sector companies.  Mr. Reagan approved.  After all, the stolen money would trickle down.  It did, for example, trickle right to Rick Scott, elected by 24 percent of Floriduh's registered voters to sit in the governor's seat.  Since Scott ran the company that committed the most massive Medicare/Medicaid fraud in history, you might also conclude that the Tea Baggers wholeheartedly approve of fraud.

jason024
jason024

@superlogi 

I agree starve the beast....the DEFENSE beast. But where are GOP proposals to do that?....nothing but crickets.

superlogi
superlogi

@FrankBlank @superlogi Rick Scott?  And you call me misguided. Is there any other bit of irrelevance you'd like to bring up or are you finished?

superlogi
superlogi

@jason024 @superlogi You would starve government's most important function.  Even the buffoon in office understands his most important function is as Commander in Chief.  But, as a former military person, I'd like to thank you for your support.

superlogi
superlogi

@chappy715 @superlogi @jason024 Chappy, we have millions of people on government assistance who shouldn't be.  70% of our budget is spent on entitlements, 18% on the military.  Which do you think would be most effective to attack waste, fraud and abuse first?

superlogi
superlogi

@jason024 @superlogi Before we even begin to address cuts in our most important requirement as a government, we need to address waste fraud and abuse in our welfare system (70% of our expenses).  I'm all for cracking down on military profligacy but the fact is, we've been starving the military in the last decade.  Like it or not, we protect the free world and in doing so, we protect ourselves.  If you really want to cut our expenses, convince those we protect, they need to pony up.

chappy715
chappy715

@superlogi @jason024 Our military budget is out of control we have thousands of soldiers still stationed in Germany and Japan making sure they don't rebuild their armies after the second world war. I think it is safe to send them home now. Even if we cut our military in half it would still be much bigger than any other country's.

SamuelClemens
SamuelClemens

@superlogi @jason024 The government's most important function is to serve the people. Throwing money at military madness does not necessarily serve the people at all.

jason024
jason024

@superlogi @jason024 And if you equate people wanting to cut the military budget to not supporting our troops you are just as dumb as the fools who called liberals terrorists for not blindly supporting GWB.

jason024
jason024

@superlogi @jason024 No problem...as a military person you have to admit there needs to be some cuts on the miltiary side. There are just too many contractors, useless projects, and sensless military actions. Sure there are many good functions for our military but you have to be delusional to think the military needs to be exempt from cutting.