Households paying tens of thousands of dollars in federal taxes deserve better performance.
Lawmakers need to learn lessons from the hundreds of billions of dollars in waste from Covid-relief programs.
A Florida man fraudulently used a $7.2 million emergency loan to purchase a 12,579-square-foot mansion and several cars. A California couple fraudulently collected $18 million and purchased “three houses, diamonds, gold coins, luxury watches, expensive furniture and other valuables.” Another man forged enough applications to collect $27 million in Paycheck Protection Program (PPP) funds.
“The biggest fraud in a generation.” That’s how a former U.S. attorney described the immense waste and abuse from the federal government’s emergency pandemic aid. The extent of this fraud and waste is still being uncovered, and most lawmakers do not want to discuss this national scandal.
The numbers are staggering. Approximately $80 billion of the $800 billion disbursed by the PPP program was likely fraudulent. Added to that, the Small Business Administration also disbursed as much as $80 billion in fraudulent Economic Injury Disaster loans. And on top of that, the unemployment-insurance system lost as much as $163 billion of its $1 trillion in pandemic-era disbursements to fraud and overpayments.
Overall, waste, fraud, and overpayments may reach $320 billion of the $2 trillion disbursed from these key pandemic programs.
How much is $320 billion? It is enough to send each family in the U.S. $2,400 or eliminate the employee half of the payroll tax for six months. It is also as much as Washington annually spends on international affairs, farm subsidies, natural resources, environment, energy, science, space, technology, unemployment benefits, training, employment, social services, general commerce, air transportation, water transportation, disaster relief and insurance, community and regional development, general-purpose fiscal assistance, general retirement and disability insurance, and the postal service — combined.
But that is not all the unnecessary pandemic spending. State and local governments received $350 billion for budget deficits that did not even exist. Most of that funding remains unspent, while some was diverted into luxuries such as golf courses. The $1.9 trillion American Rescue Plan reportedly funded items such as an “armored SWAT vehicle in Pittsburgh, ‘restorative justice’ educational discipline in New York City, racial healing pop-ups in Minneapolis, and school vape detectors in Montgomery, Ala.” Washington sent nearly $200 billion in grants to K–12 education systems to be able to reopen safely following the pandemic. When they eventually re-opened, schools needed only a small fraction of this money, and the vast majority remains an unspent slush fund.
Overall, the amount of “emergency” pandemic spending that was either lost to waste and fraud, or sent to state and local governments that had no need for it, likely approaches $1 trillion. Just paying the interest on that federal borrowing will cost taxpayers $30 billion to $40 billion per year, forever.
The horror stories are absurd. The Economic Injury Disaster Loan Program disbursed $6.7 billion in loans and grants to 845,000 applications that are now suspected for identity theft. A network of individuals working under a Minnesota nonprofit organization called Feeding Our Future obtained nearly $250 million in pandemic funds purportedly for the purpose of feeding (fictional) needy children. They instead spent the money on homes, expensive cars, and other personal items. The state of California paid out more than $20 billion in unemployment benefits to non-eligible criminals, including $810 million to prison inmates. The examples of individuals using identity theft or fake businesses to collect millions in emergency aid and then spend it on expensive homes, vacations, luxury cars, and jewelry are too numerous to list.
Lawmakers and Agencies Shrug
The response of political and elite opinion to this waste has ranged from modest frustration to shrugging it off as the unavoidable cost of emergency spending. A common refrain has been that Washington needed to quickly allocate trillions of dollars to struggling families and businesses, and instituting fraud controls would have slowed them down too much.
Such government incompetence should not be so easily excused. “Nothing like this has ever happened before,” said Matthew Schneider, the aforementioned former federal attorney. Federal spending — even when borrowed — is not free. This (mostly) newly printed money is inflationary, and taxpayers will be paying the annual interest costs on this federal borrowing for the rest of their lives. These funds could otherwise have financed major improvements in infrastructure or veterans’ health care.
The federal government simply failed to take oversight seriously. The $478 million earmarked by Congress for oversight came to just $1 for every $12,000 in pandemic aid, according to the Washington Post. The chairman of the Pandemic Response Accountability Committee told NBC News, “The Small Business Administration, in sending that money out, basically said to people, ‘Apply and sign and tell us that you’re really entitled to the money. . . . And, of course, for fraudsters, that’s an invitation. . . . What didn’t happen was even minimal checks to make sure that the money was getting to the right people at the right time.”
It gets worse. In 2020, Congress created a “Congressional Oversight Commission” to oversee the Treasury and Federal Reserve’s lending programs but let it languish for months because Republicans and Democrats could not agree on a chairperson. A congressional subcommittee created to oversee waste was reduced to partisan theater before abandoning much of its work. The special inspector general for pandemic recovery was so severely unfunded that he told Congress the office could barely operate — which was in line with the Biden administration’s push to limit the jurisdiction of the office.
The Department of Labor even limited the ability of federal officials — including the inspectors general — to investigate pandemic fraud. This meant that each time the IGs needed to investigate state and local data, they had to separately subpoena it from each state or territory. These are not the actions of a government interested in safeguarding your taxes.
Why Government Is So Mismanaged
Washington now claims to be focused on fighting this waste and fraud. “There is no question that the immense fraud that took place at the crush of the pandemic in 2020, particularly in small-business loans and unemployment insurance, is the largest oversight challenge the Biden administration inherited,” Gene Sperling, the president’s point person on stimulus spending, told the Washington Post. The Biden administration is beginning to put more resources into investigating pandemic waste and fraud and has extended the statute of limitations for prosecuting pandemic-related fraud. Federal prosecutors have charged more than 1,500 alleged fraudsters but have yet to review millions of potential fraud cases.
However, only a fraction of the fraud and abuse will ever be conclusively identified — and only a small fraction of those losses will ever be recovered. That is why preventing fraud ahead of time matters so much more than accounting, identifying, and even prosecuting it after the fact. Critics correctly note that quickly crafting, funding, and implementing airtight oversight systems to handle the distribution of trillions of dollars was not feasible while much of the economy was essentially shutting down in spring 2020. Those accountability systems should have been in place years earlier.
For decades, government watchdogs have expressed concern that federal program administration has been mismanaged and neglected. In some areas, the challenge has been chronic underfunding. In other areas, even healthy funding could not compensate for mismanagement and a bloated bureaucracy that resists basic accountability. At the state level, many unemployment-insurance systems continue to run on 1970s-era computer systems with poorly trained staff. Perhaps the most unbelievable example of outdated government is that the IRS still has its employees manually enter into computers the data from 21 million paper tax returns each year, instead of simply scanning the returns into the system.
The ultimate fault lies with Congress, the president, and elected state officials. Presidents and governors are tasked with running the administration of government programs, and legislatures are constitutionally empowered to provide oversight. Instead, elected officials prioritize the flashy ribbon-cuttings of new projects and the press releases announcing expensive new benefit programs — to the extent that they focus on public policy at all. The quiet, daily work of administering government programs is largely ignored until there is a crisis exposing the government’s ill-preparedness. This exposure is typically followed by more legislative press releases blaming everyone else and pledges to appoint a blue-ribbon commission to get to the bottom of the government failure. Then, as soon as the newspaper headlines shift elsewhere, the lawmakers lose interest, the commission gets ignored, and all that results is perhaps a report that sits unread on some government website.
This is a far cry from the WWII-era Senate Special Committee to Investigate the National Defense Program (the “Truman Committee”) that was so motivated, credible, and successful in rooting out military waste, fraud, and mismanagement that it carried Senator Harry Truman to the vice presidency and ultimately the Oval Office.
While the federal government should recover as much waste as possible, it is equally important to modernize its archaic technology, hold staff accountable, cooperate across agencies, and ensure better performance moving forward. Unfortunately, the Biden administration is still prioritizing trillions of dollars in new federal programs, thus encouraging a government that continues to do many things poorly instead of a few things well. Republicans and Democrats in Congress remain almost completely uninterested in safeguarding tax dollars.
Losing $320 billion to fraud and abuse, and as much as $1 trillion in generally unneeded spending, is not simply an unavoidable cost of distributing benefits during a recession. At some point, lawmakers need to get off Twitter and stop treating their office as merely a steppingstone to their own cable-news show, and begin running the government competently. The avalanche of pandemic fraud and waste is a national scandal. Households paying tens of thousands of dollars in federal taxes deserve better performance.