Author Archive
Latest Federal Health Fraud: $375 Million
The Washington Post reports that a doctor in Texas bilked Medicare and Medicaid out of $375 million. That’s a lot of money, but improper payments represent somewhere between 10 and 20 percent of total spending on these two health programs. Thus, more than $100 billion of taxpayer funds could be going down the drain each year.
The top-down and bureaucratic Medicare and Medicaid systems are perfectly designed for scamming. For example, the government processes 1.2 billion Medicare claims each year by computer, generally without human eyes checking them for accuracy. The Texas doctor apparently just bombarded the system with fake claims, and it took the government six years to catch him.
The ease of ripping off federal health programs is one reason why these Soviet-style programs should be radically restructured. It would harder to perpetrate major scams on Medicare if it were a bottoms-up and more market-oriented system based on vouchers. Federal spending on health programs ought to be cut, and reducing fraud through restructuring would be one way to do it.
For more on fraud in federal subsidy programs, see here.
For more on restructuring Medicard and Medicaid, see here.
Corporate Tax Rates, CNN’s Narrow Sample
David Boaz was watching CNN on Friday and noticed a chart that looked suspicious.
President Obama and other policymakers have expressed concern about the high U.S. corporate tax rate, but this CNN chart shows that our rate isn’t too out of line with other countries. Indeed, CNN host Soledad O’Brien said to guest Jack Welch, “But when I look at the corporate tax rates around the world, we have a little graphic of this, I’ll throw it up. We see United States is at 35%, France is at 34%, Belgium at 33%, Spain at 30%, Japan at 30%, Mexico at 30%. It sounds like we’re kind of competitive, right?”
Alas Soledad, your CNN graphics experts led you astray. America is not “kind of competitive” on corporate taxes. Of the 34 high-income OECD countries, your graphics experts compared us with the 5 other countries that have the highest rates. The data appears to have come from the central government column in this table, and it is charted below.
For your interest Soledad, the average central government rate is just 23.6 percent, which is much lower than our 35 percent rate. Our rate is the highest in the OECD. You may also be interested to know that the rate in our largest trading partner, Canada, was just 16.5 percent in 2011 and was cut to just 15 percent in 2012. Canadian policymakers slashed the corporate rate to the current level from 29 percent in 2000.
Given President Obama’s interest in corporate tax reform, perhaps CNN viewers would be interested in a story about why the Canucks—in a bipartisan fashion—pursued that dramatic reform.
For more on corporate tax rates around the world, see Global Tax Revolution.
Federal Workers Aren’t Victims
Federal employee Jason Ullner portrays federal workers as victims in today’s Washington Post.
It seems that all I hear these days are the once and future leaders of our country tripping over themselves to denigrate the work we do. I’m tired of it, and I’m fed up.
Mr. Ullner complains that he endures long hours, high stress, pay freezes, and (supposedly) lower pay than he would receive in the private sector. “I have sacrificed,” he says. Ullner concludes: “So to all our politicians, I implore you: Stop using the government workforce as a political football. Just stop.”
Good grief! Doesn’t he think that private-sector workers have long hours, high stress, and pay freezes? Doesn’t he know that private-sector workers get sacked, lose their jobs when their companies go belly up, and suffer pay cuts during recessions?
The recent “sacrifice” of federal civilian workers includes a temporary pay freeze during the worst recession since World War II, and changes that require new hires to pay a bit more for their pension plans. That treatment is apparently so barbaric that it is driving Mr. Ullner to despair, and driving federal unions to claim an “outrageous injustice.”
I receive emails occasionally from federal workers who have different views than those of Jason Ullner. I received this note on Friday:
I am employee for the Department of Veterans Affairs. As federal employee I feel extremely fortunate to have a job … I care about the future of this country and I am disturbed by the waste and misuse of taxpayers’ money that I see daily as a federal employee. My issue is that the common sense factor has been taken out of the veterans claims process, and the amounts of money being paid to veterans for conditions that have nothing whatsoever to do with a veterans military service.
I have heard about this problem before. Apparently, the taxpayer costs of unjustified health and disability payments to veterans are rising rapidly. To highlight such problems is not to “denigrate” anybody, but to explore whether we can make reforms to reduce the government’s huge overspending problem.
A few weeks ago, I received a series of emails from an employee at the Bureau of Indian Affairs, which came in response to my recent article on that agency. This employee was deeply concerned about poverty on Indian reservations, but he was also outraged at the dysfunction, misspending, and nepotism he has found at the BIA. Here are a few of his comments:
I started to discover that the nepotism at the BIA in D.C. is out of control. There is a custom of parents getting their children jobs in the BIA and they have twisted loyalties to each other that span generations … It is so easy to turn a blind eye [to bad behavior] by a family member… A lot of the decisions the BIA has made have been based on these family connections that have allowed corruption to exist.
You have urban Indians who have never lived on a reservation who use their ethnicity to claim entitlement to their jobs and could care less about improving conditions on the reservations.
The Inspector General investigates and reports to the BIA leadership, which in turn stalls on doing anything about the corruption and turns a blind eye.
Many of the top people in the BIA have gotten their positions based on favoritism or nepotism and are not qualified for their jobs.
The way it works in the BIA is that you put in the years and you get promoted. The other way is you use your family connections to get the next promotion. I wish I had the power to fire unqualified, incompetent employees, and I would [only] have to hire about 1/2 of the employees of the whole agency…
In the WaPo today, Jason Ullner says of federal workers: “We don’t do our jobs for glory, or money or power. We do them — and do them well — because we take pride in our work and pride in representing the United States of America.”
That’s all very nice, but wrapping oneself in the flag doesn’t do anything to solve the ongoing dysfunction in many government agencies, nor does it help solve the government’s huge financial problems.
Nancy Pelosi on Gasoline Prices
The congresswomen’s comments are so cartoonish, I don’t even have to comment on them. But I thought Cato readers would like to know what the minority leader of the U.S. House is saying about rising gas prices. From a Nancy Pelosi press release today:
Independent reports confirm that speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery. Wall Street profiteering, not oil shortages, is the cause of the price spike.
We need to take strong action to protect consumers from this speculation. Unfortunately, Republicans have chosen to protect the interests of Wall Street speculators and oil companies instead of the interests of working Americans by obstructing the agencies with the responsibility of enforcing consumer protection laws.
We call on the Republican leadership to act on behalf of American consumers and join our efforts to crack down on speculators who care more about their profits than the price at the pump even if these spikes harm the American consumer and our economy.
For a rational discussion on energy policy, see Downsizing the Department of Energy.
Obama’s Corporate Tax Reform
President Obama released a document on business tax reform today. I’m glad the administration is taking an interest in this important topic, but his plan has more negatives than positives. The administration’s tax reform approach is also self-contradictory in numerous ways. Here’s a quick take:
- The proposal would lower the federal corporate tax rate from 35 percent to 28 percent. That’s a small step in the right direction, but with state-level taxes included the U.S. rate would still be about 33 percent. By contrast, the average rate among OECD countries is just 25 percent.
- Studies by Jack Mintz show substantially different marginal effective tax rates than does the new administration study. For 2010, Mintz found that the U.S. rate was 34.6 percent, which was much higher than the average OECD rate of just 18.6 percent.
- The administration rails against tax loopholes, but it proposes a whole slew of new ones in its recent budget.
- Most of the “loopholes” the administration does go after are not real loopholes at all, such as accelerated depreciation.
- The administration’s proposals would further penalize the foreign operations of U.S. companies. Most high-income nations have gone in the reverse direction and adopted territorial corporate tax systems. See Global Tax Revolution.
- The administration’s study describes the problems caused by double taxing corporate equity, but its own proposal to hike the top individual dividend tax rate to 40 percent would make the problem much worse.
- The administration’s plan would be a revenue raiser. As such, it won’t go anywhere on Capitol Hill. Indeed, I doubt whether a revenue-neutral corporate tax plan (if scored statically) would pass Congress. Instead, policymakers should focus on either a pure rate cut or matching a rate cut with cuts to business subsidies and other wasterful spending.
Government Workers vs. Their Unions
As part of the payroll tax bill on Friday, Congress voted to tweak federal worker benefits. New federal hires will be required to make an additional contribution to their pension plans. While just a small change, federal worker unions railed against the bill as if were armageddon.
The American Federation of Government Employees called the pension change an “outrageous injustice that deserves the vociferous opposition of every Member of Congress with a conscience.” The AFGE was “outraged” by the bill because ”no group has sacrificed like federal employees” in recent years. Union press releases can be good for a chuckle.
Anyway, not all federal workers agree with their union heads. One member of the AFGE found a Cato essay on government unions online, and she was so ticked off with her union that she sent me these comments on Friday:
As a member of AFGE, I often receive emails from my union leaders urging me to action … I am being urged to contact my congress members, asking them to oppose the payroll/unemployment insurance extension bill. Personally, I have not paid much attention to this particular bill or the consequences to passing such a bill. However, I am deeply offended by the constant calls from my union to oppose any limits put on the pay and pension of federal employees.
As a federal employee, I enjoy a generous salary, health benefits, vacation, and a comfortable pension. AFGE repeatedly states that reductions in federal employee pay ‘cost’ federal employees money. I understand that a freeze in my pay is not a reduction in my salary, but a reduction in deficit spending. My salary comes at the expense of taxpayers and future generations of Americans who will be required to pay down the debt.
It saddens me that the dues I pay via automatic payroll deduction are sent FIRST to my national union, then leftover change is sent to my local union. I have a voice in how my local union functions. I have virtually no say in what my national union does. I do not vote for my national union president. I do not get to decide how much of my dues go to support my national union. I do not have a voice about what issues my national union spends money on.
In the years that I have been writing about government union and compensation issues, I have received many emails from government employees. Most have opposed my views on curbing pay and union power. When I say “opposed” I mean that foul language is not uncommon. But I have also received numerous thoughtful emails from government workers who are proud of their jobs and appreciate their compensation, but are concerned by the dysfunction of their agencies and by the retention of deadweight workers who receive generous pay but provide little return to taxpayers.
Thus, one suggestion I have for news organizations is to dig a little bit for their stories about government workers and government agencies. Talk to some actual workers in the trenches, rather than just quoting or parroting what the union heads are saying.
Reporters Should Think Big on Budget Reforms
The Washington Post did a great job last week comparing spending earmarks by members of Congress with the locations of property they own in their states. Some members are apparently using our tax dollars to expand infrastructure near their homes and businesses, thus gaining a personal benefit from federal spending.
Washington Post reporters usually do great research on the spending behaviors of politicians, but they often don’t ask the big-picture questions. The Post has uncovered waste and corruption in earmarking, housing programs, and other federal activities, but the paper usually only suggests superficial reforms such as better ethics rules.
When you read the Post story on earmarks, the obvious problem with all the projects identified is that they are properly state, local, and private activities. The story summarized questionable earmarks for 30 members of Congress, and the spending activities included repaving roads, expanding highways, building parking lots, replenishing beaches, dredging harbors, improving traffic signals, and building light rail projects.
States, cities, and private businesses can and should finance these sorts of activities by themselves. There is no economic or technical reason why the federal government needs to be involved. Indeed, there are many disadvantages of federal involvement—including the pork barrel politics that the Post does a great job researching.
Today in the Post, I see the same problem with Walter Pincus’s interesting article on port dredging, which is carried out by the Corps of Engineers. Members of Congress have been battling to secure Corps’ projects in their districts for 150 years, and it’s always been a wasteful process. (Watch for my forthcoming essay on DG).
Pincus hints that port dredging is a subsidy to the “multibillion-dollar import-export business,” and he is right. But he doesn’t then proceed to address the obvious big-picture question: Can businesses support these activities by themselves without subsidies?
The answer is yes. Seaports and seaport dredging can be privatized. Hong Kong has the world’s best seaport according to the World Economic Forum (p. 391), and it is privately financed and operated. By contrast, U.S. seaports—which are generally government-owned—ranked just 23rd in the world, according to the WEF.
So let me suggest that when reporters are investigating problems with federal programs they ask a few big-picture questions. Is the program really needed? Can state governments or the private sector do it? What can we learn from reforms in other countries? After all, the federal government is running ongoing trillion-dollar deficits. To solve its giant fiscal problems, it will need much more than ethics and earmark reforms.
For background, see essays on privatization, fiscal federalism, and transportation.
President Obama’s Spending
The new federal budget includes a range of accounting maneuvers to cast the administration’s 10-year projections in the best possible light. Senate Republicans point out some of President Obama’s funky accounting here. But note that the George W. Bush administration also used tricks to make deficit forecasts look more optimistic.
That’s why it’s useful to look at a president’s spending numbers for the current year and next year, rather than the make-believe numbers for later years in the budget. The chart shows total federal outlays since 2000 and Obama’s estimated spending for 2012 and proposed spending for 2013. Data are for fiscal years. Also, I’ve excluded TARP spending because reestimates of TARP costs distort the data.
Spending has gone up from $2.98 trillion in 2008—the year before Obama came into office—to a proposed $3.80 trillion in 2013. That is a 28-percent increase in five years, which represents a compound annual growth rate of 5.0 percent. Because the economy has stagnated during this period, spending has increased as a share of GDP.
Note that the lack of an overall spending increase in 2013 is not a victory for frugality. For one thing, spending on the 2009 “stimulus” bill peaked at $235 billion in 2010 and is now falling. It will be roughly $30 billion in 2013.
Similarly, Iraq/Afghanistan war costs peaked at $163 billion in 2010 and are expected to fall to $97 billion by 2013. There have been similar drop offs in spending for recession-related programs such as unemployment insurance.
Thus, as stimulus, war, and recession-related costs are falling by hundreds of billions of dollars, President Obama is using the money to increase spending on other programs. We have run deficits greater than a trillion dollars four years in a row, and yet the president seems oblivious to the need for real spending cuts.
Here’s a better fiscal plan, which focuses on ways to cut spending and balance the budget.
Obama’s Budget, Taxes, and Doctors
President Obama is releasing his FY2013 budget today, and it’s more of the same—trillion-dollar deficits, huge spending, and tax hikes on high-earners. The president wants to raise taxes substantially on households earning more than $250,000. It’s all about fairness he claims, even though effective tax rates on high-earners are already double the rates on middle-earners.
More importantly, supporters of President Obama’s soak-the-rich tax strategy don’t seem to be concerned about the negative consequences for the economy. They seem to have convinced themselves that the Top 1 Percent is dominated by shady Wall Street speculators and other supposed economic leeches.
The reality is that the Top 1 Percent is mainly populated by highly productive people who are crucial to America’s economy. Let’s look at one of the largest subgroups within the Top 1 Percent—doctors and surgeons. Bureau of Labor Statistics data show that there are about 700,000 doctors and surgeons in the United States. The Washington Post on Sunday provides median 2011 doctor salaries from a medical organization survey. Salaries range from $208,658 for family doctors to $501,808 for orthopedic surgeons.
The marketplace has rewarded doctors generously, but everyone knows that makes sense because doctors have extensive education and often work long hours in stressful environments. In its occupational overview of physicians and surgeons, the Bureau of Labor Statistics notes that these professionals need “4 years of undergraduate school, 4 years of medical school, and 3 to 8 years of internship and residency,” which are requirements “among the most demanding of any occupation.”
The BLS also notes that “many physicians and surgeons work long, irregular hours. In 2008, 43 percent of all physicians and surgeons worked 50 or more hours a week.” Doctors often need to make emergency visits to hospitals and nursing homes, and they need to spend many additional hours reading to keep up with medical advances.
So doctors study hard, work hard, and serve a crucial role in society. And what does President Obama want to do to them? He wants to punish them with higher taxes.
If doctor salaries are in the $200,000 to $500,000 range, then most of them will be hit by Obama’s plan to raise top income tax rates. Even doctors with salaries in the lower $200,000 range would be hit if they have spouses that work or if they have investment income that pushes their overall income into the president’s punishment range.
Raising taxes on doctors would damage the economy because doctors will work less and they will have less money to reinvest in their practices. Doctors are exactly the type of workers who have large behavioral responses to tax increases. Facing higher marginal tax rates, a substantial number of doctors will reduce their hours worked or they will retire earlier. In the long run, fewer people will want to go into this difficult profession if the government reduces the after-tax rewards.
The Washington Post story focused on the expected shortages of doctors in coming years. Raising taxes on doctors will make such shortages worse. Just at a time when the nation needs more doctors because of the aging of the population, liberal punish-the-productive policies threaten to exacerbate doctor shortages in our health care system.
CBO Spending Projections, Then and Now
Each January the Congressional Budget Office provides updated projections of the federal budget for the coming decade. Let’s compare the January 2011 projections to the January 2012 projections to see whether the switchover of the House to Republican control during 2011 has made a dent in spending.
We will look at CBO projections for the three basic components of federal spending: discretionary, entitlements, and interest. The three figures below are CBO “baseline” projections of fiscal year outlays, with historical data back to 2007.
Figure 1 shows that discretionary outlays jumped from $1.04 trillion in 2007 to $1.35 trillion in 2011. The CBO’s new projection (red line) for spending in 2012 is $44 billion below what the CBO projected for 2012 last year (blue line). That small reduction is partly attributable to GOP spending restraint efforts.
Looking ahead to 2021, spending is now projected to go down significantly from what was projected last year. That is the result of the budget caps that the Republicans negotiated with the Democrats in the Budget Control Act enacted last summer, and it includes the further reduction in caps stemming from the failure of the “supercommittee.”
If the caps hold, discretionary outlays will be 16 percent lower in 2021 than they might otherwise have been. However, that’s a giant “if” given the track record of Congress. And even if the caps do hold, it would only be a cut of $256 billion in 2021, which would be less than 5 percent of total federal spending that year of more than $5 trillion.
Indian Gaming: The Lobbyists Always Win
One of the issues discussed in my new essay on the Bureau of Indian Affairs (BIA) is the lobbying by groups of American Indians seeking official tribal status. The BIA has the power to confer tribal status, and it does so in a non-transparent manner. With official status comes tribal access to a wide range of federal subsidy programs plus the ability to earn monopoly profits with a casino. The gaining of official status for tribes was one of Jack Abramoff’s specialty services.
The most recent BIA decision to confer tribal status is a classic case. The 221-member Tejon tribe in California received a thumbs up from the BIA in January 2012. The group’s reservation and its tribal status had been dissolved decades ago, but it hired some powerful Washington lobbyists to work their magic. An article in the Bakersfield Californian notes, “In their quest to gain recognition, the Tejons had the help of an unnamed ‘financial backer’ who had paid $300,000-plus to the tribe’s attorneys.” This financial backer was “banking on a casino.”
A Mountain Enterprise story says that once the Tejon tribe’s status was official, “speculation began almost immediately about the tribe’s plans to affiliate with Tejon Ranch Corporation and Las Vegas investors to establish a casino facility.” Famous D.C. lobby shop Patton Boggs earned $120,000 in fees on the deal.
For the Tejons, the lobbyists produced results. There are hundreds of Indian groups who have petitioned the BIA for tribal status, and the BIA only confers status to a few tribes a year. Yet somehow the Tejons managed to jump to the front of the queue. This list (and this one) appear to show that the tribe ranked low on the recognition waiting list at #230 (but I admit I’m not an expert on how the system works).
The tribes who hire lobbyists don’t always win. Here’s a story about the 450-member Muwekma Ohlone of California:
Financed by their own casino sugar daddy, Florida real estate tycoon Alan Ginsburg and his associates, as well as with proceeds from the tribe’s own archaeological consulting firm, the otherwise humble Muwekma have spent millions of dollars on the effort. Much of that money has gone toward procuring the aid of a high-powered Washington, D.C., law firm…. [R]ecognition would open the door for the tribe… to place land in federal trust as a ‘reservation’ on which it could open a casino. Indeed, should they attain recognition, the Muwekma almost assuredly will become the envy of non-gaming tribes from outlying regions of the state who’ve tried and thus far not succeeded at ‘reservation shopping’ — that is, attempting to set up casino operations in urban areas far from their aboriginal homeland.
The Muwekma Ohlone tribe lost an important court ruling last year, which has set back their search for official recognition. In this case, the only winners were the lawyers and lobbyists, who apparently pocketed huge fees from the tribe. This data source shows that lawyers and lobbyists gain about $20 million a year in fees on Indian gaming-related issues. Jack Abramoff alone raised $80 million from half a dozen tribal clients in the early 2000s for lobbying on a wide range of tribal issues.
Indian gaming and other complex regulatory schemes usually generate “rent” or monopoly privileges that groups vie for a manner that is unproductive to society as a whole. When the government confers special benefits through regulation, wealth is channeled to lawyers and lobbyists but the overall economy shrinks due to the misallocation of resources.
The best policy for gaming would be to repeal all government restrictions and to treat gaming like any other industry. That would eliminate rents and the related lobbying, and it would create an equal and competitive playing field for Indians and non-Indians alike.
The good thing about Indian gaming is that it has shown that Indians are every bit as entrepreneurial as other Americans. But gaming is not likely to be a stable platform for long-term Indian economic development. That’s because as tribal and nontribal gaming continues to expand, profit levels in tribal gaming are likely to decline.
A more durable strategy for Indian prosperity is to make institutional reforms on reservations to encourage broad-based investment in a range of industries, as discussed here.
Unemployment Insurance Fraud: Chile Has Solution
Like other government hand-out programs, the unemployment insurance system suffers from a substantial fraud problem. The Washington Post reports that 90 D.C. city employees and 40 former employees are being investigated for grabbing UI benefits to which they were not entitled. The cost of this fraud has been about $800,000 since 2009.
It’s not hard to rip-off federal subsidy programs, and UI is no exception. The Post reports that “the alleged fraud is not complicated, nor is it uncommon in unemployment insurance programs: Workers apply for checks and receive them legitimately for a time but fail to inform authorities when they go back to work.”
Other sources of UI fraud include the misreporting of earnings, the provision of false ID to gain benefits, and falsifying reasons for employment termination. Nationwide, the Department of Labor estimates that the improper payment rate for UI is about 11 percent, which amounted to $17 billion of wasted taxpayer money in 2010.
What’s the solution? The nation of Chile appears to have found it. In 2002 it created a system of UI personal savings accounts to replace the traditional government hand-out system. The new system built on the success of Chile’s Social Security personal account system. UI personal accounts help solve the fraud problem because workers would only be stealing from their own accounts if they took unjustified benefits.
There are other benefits to the Chilean system. A detailed study in 2010 found that the nation’s savings-based UI system helped improve work incentives and reduced unemployment. Such accounts can also add to the long-term retirement savings of workers.
For a full analysis of the failures of our UI system and possible reforms, see my co-authored essay on DG here.
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