The conservative economist Veronique De Rugy has gone on the warpath over waste, fraud and abuse, those three horsemen of government malfeasance, observing on her academic website and at the National Review that the latest official figures estimate federal “improper payments” at $137 billion last year.
Sounds like a lot. “Who is accountable for this government failure?” De Rugy fumes. “The government has become so big that no one is accountable, oversight is impossible, and no one seems to care at all.”
Yet as Kevin Drum of Mother Jones observes, although this figure “makes for a fine, scary headline,” it isn’t all it’s cracked up to be. Let’s take a closer look at De Rugy’s case and see if it holds water.
The government has become so big that no one is accountable, oversight is impossible, and no one seems to care at all.
One point that catches the eye right off is that almost all the programs on which De Rugy trains her firepower are anti-poverty programs. They include the earned income tax credit, which has been hailed as one of the most effective anti-poverty programs ever, Supplemental Security Income, Medicaid, food stamps, and school lunches and breakfasts.
Curiously, De Rugy’s list doesn’t include programs such as energy industry handouts or farm subsidies, the capital gains tax break, or other such deals that chiefly benefit the non-poor.
But that’s not her agenda. She’s talking explicitly about “government spending on social welfare programs,” which rather limits her range.
De Rugy’s goal is to hunt down "fraud and bureaucratic ineffectiveness,” which enables her to place blame both on the people who collect social program payments and those who hand them out.
She acknowledges that, other than fraud, “an improper payment can also result from simple clerical error or failure to confirm that a recipient was eligible to receive the amount of money that was disbursed." But she leaves out another salient fact: As the government’s Paymentaccuracy.gov website explains, "improper payments” are defined as overpayments or underpayments, or payments that "may have been proper, but were labeled improper due to a lack of documentation confirming payment accuracy." Drum estimates that netting out these factors might reduce the amount of improper overpayments, which are De Rugy’s real quarry, to about $50 billion, but that’s a very rough guess.
De Rugy and her colleague at the Mercatus Center of Virginia’s George Mason University, Jason Fichtner, shine a particular spotlight on the earned income tax credit, which recorded $15.6 billion in improper payments last year. That’s 23.8% of all EITC payments, the highest error rate of any of the programs they examined. Like other high-error programs, De Rugy wrote in National Review, the EITC “should be put on the chopping block” if it doesn’t “finally address these problems.”
That would be a stern sentence for a program that successfully steers assistance to needy families in a way that encourages, rather than discourages, work -- something that conservatives should praise. It also overlooks the well-documented reasons why the EITC is so error-prone: Its eligibility rules are incredibly complicated and aimed at a population that is ill-equipped to navigate them, especially since the population of EITC claimants is volatile: One-third of the applicants who file for the EITC every year via their tax returns are doing so for the first time. As the Center on Budget and Policy Priorities reported just last December, “the EITC is one of the most complex elements of the tax code that individual taxpayers face."
Here are the rules for the EITC as simplified -- yes, simplified -- by the IRS' national taxpayer advocate:
Got all that?
These rules would be less than intuitive even for someone of De Rugy’s undoubted training and perspicacity, much less for a low-income taxpayer who has just cycled into eligibility because of his or her economic situation. If these people have a paid tax preparer, it’s likely to be a temp at H&R Block, not a full-time CPA.
The IRS does subject some tax returns claiming the EITC to audits, but whether more auditing would be cost-effective is not even an open question. It wouldn’t be. That was the conclusion of Nina Olson, the IRS national taxpayer advocate, who testified in 2014 that the EITC administrative costs were a rock-bottom 1% of all benefits paid. This was due to the ease of applying via the tax return. This gave the EITC "far higher participation rates” than other anti-poverty programs, which was a good thing, since “we want the intended beneficiaries to receive the benefits enacted by Congress.”
The downside of a streamlined application is a higher rate of erroneous claiming, Olson acknowledged. But rigorously verifying eligibility would cost the program about 20% of benefits -- about the same as is lost to improper payments. Devoting IRS resources to the task of checking up on working poor families with average annual benefits of $3,000 would take staff away from going after bigger game. That’s especially important now, since Congress has been hacking away at the IRS’ enforcement budget for years.
De Rugy gives away her game a bit by complaining, almost in passing, that some of the programs in her crosshairs--food stamps, for instance--are “distributing money to people under questionable -- and in some cases, objectionable -- circumstances.” (Objectionable to whom?)
Back in 2012, De Rugy groused that food stamp enrollment and spending had doubled in five years, perhaps not noticing from her perch at a Virginia public university that there had been a little thing called a Great Recession in the interim. She asserted that the increase in food stamp spending had occurred even though “unemployment and the poverty level dropped modestly between 2007 and 2011.” Well, not in this world: The Bureau of Labor Statistics reports that the unemployment rate rose from 4.6% in 2007 to 8.9% in 2011, and Census Bureau figures show that the poverty rate -- people living at 100% of the federal poverty level or below -- rose from 12.5% to 15% in the same period.
But her assertion allows us to place her complaint about "improper payments” in perspective. Let’s look, for instance, at one of the genuinely wasteful and unnecessary government programs, federal farm price supports, which De Rugy herself criticized in 2012. As we reported in 2013, the families of a number of senators and members of Congress were shoveling farm subsidies into their pockets with both hands while figuring out how to cut food stamps for needy Americans.
Take the family of Rep. Doug LaMalfa (R-Richvale) as an example. The LaMalfa family agricultural partnership collected $5.3 million in rice subsidies from 1995 through 2013, according to figures compiled by the Environmental Working Group. To match that take via the earned income tax credit, a working family with two kids would have to collect the maximum $5,548 annual credit for 955 years.
Farm supports don’t appear on De Rugy’s latest chart, unlike food stamps, school lunches and school breakfasts. It’s good of her to ferret out government waste, fraud, and abuse. But she may be looking in the wrong places.
7:54 a.m.: This post has been updated to describe De Rugy’s 2012 critique of farm price supports.