Here’s How To Fix The Budget And Save Hundreds of Billions of Dollars Per Year

July 27, 2017

Here’s How To Fix The Budget And Save Hundreds of Billions of Dollars Per Year Image via zefart / Shutterstock.com

If you live in New Jersey and you are a single mother with two children, you can net more than $38,700 per year on welfare programs. You would have to make $20.89 per hour on a full-time job, pulling in close to $43,500 per year, to make that much money actually working.

These numbers are from a 2013 study by Cato Institute Senior Fellow Michael Tanner. Since then, the costs of welfare programs have stagnated or – as in the case of food stamps – even declined marginally, but life on benefits remains largely the same. In eight states, Tanner reports, welfare can pay more than the median salary in that state.

In a whopping 43 states, welfare can pay more than the federal poverty limit.

When people game the system, it’s just plain theft

When welfare programs afford such a relatively comfortable life, it is hard to believe that recipients would risk their lifestyle by cheating the system to get more benefits. But stories like this one, reporting from New Jersey, show that people try anyway:

Nearly 15 people have been arrested in raids over two days in a New Jersey community in connection with an ongoing investigation that has so far exposed about $2 million in alleged public-assistance fraud in the town. Six people were arrested Tuesday night in Lakewood, N.J., … The arrests follow the federal and state raids of four homes and arrests of eight people Monday on charges of stealing $1.3 million in public assistance over the last few years.

Beyond the individual stupidity of welfare theft, this case raises a bigger question: how much are taxpayers doling out through welfare programs to people who are not eligible for benefits?

And, more importantly, what could we be doing with the money that these thieves pocket?

The $100,000,000,000 ($100 billion) question: how much is fraud?

This question is enormously important, because it is not a matter of chump change. In an article for the National Review on July 2, Kevin Williamson reports that theft from Medicaid and Medicare could account for as much as ten percent of the benefits paid out through these programs. With Medicaid expected to cost the federal government some $404 billion in 2018, and Medicare running north of $588 billion, Williamson’s fraud estimate suggests there is about $100 billion to save in these two programs alone.

But that is not all. His estimate is probably conservative. Professor Michael Sparrow of the Kennedy School of Government at Harvard suggests that the fraud rate may be much higher — costing hundreds of billions of dollars in fraud. He gives examples of programs within Medicare where fraud rates have run at 90 percent or higher.

Sparrow, an expert on fraud in government-paid health care, is very critical of how the federal government handles fraud. He explains that the agencies maintain no adequate methods for systematic fraud detection.

As shocking as this sounds to a faithful taxpayer, the potential scale of entitlement fraud opens up a new perspective on the entire federal budget. Entitlement programs of all kinds account for about two thirds of the federal budget. This includes more than 120 programs surveyed in the aforementioned Tanner study. If all these programs are plagued by the same rate of fraud as Medicare and Medicaid, the federal government could save $250-$300 billion per year on just fraud enforcement.

On top of that, states could save tens of billions of dollars on their end through fraud enforcement in programs jointly funded by Washington and state governments.

Let’s put that money to better use

Looking at the federal budget alone, the free-up of $250-300 billion could be enough to break the deadlock of the federal budget that has plagued Congress since the early Obama years. Putting half the money toward defense would increase Pentagon’s budget by 25 percent compared to 2016. This way, the Department of Defense would get about more than $30 billion extra, on top of even the most hawkish demands from Capitol Hill Republicans.

If the other half of the fraud savings went toward deficit reduction, it would reduce the expected annual federal deficit by up to 37 percent over the next five years. Even though the deficit would not go away, it would be a nice gesture from today’s adult generations to future taxpayers. It would take some of the burden off their shoulders for the fiscal excesses that we have permitted ourselves over the past few decades.

The best part of fighting fraud is that liberals, progressives and other supporters of major entitlement programs will not have to concede a dime’s worth of money for their protected constituencies.

On the contrary, since fraudsters erode taxpayers’ willingness to pay for entitlement programs, a zero-fraud strategy could even help modernize and strengthen these programs for the future.

With valid entitlement recipients on safer ground, more money for defense, and a lessened debt burden on future generations, everyone is a winner on fraud enforcement.

Only one question remains to be answered: what is Washington waiting for?


Sven Larson

Sven Larson is an economist specializing in macroeconomics and the welfare state. He has worked for several free-market think tanks and is the author of "Industrial Poverty" a book about the European economic crisis. His forthcoming book "The Rise of Big Government" explains how egalitarianism conquered America. He has a Ph.D in Social Sciences with a Major in Economics from Roskilde University, Denmark.