Topic: Tax and Budget Policy

Why Do Some Advocates of Small Government Want to Keep a Democrat Appointee at CBO?

Since I’ve accused the Congressional Budget Office of “witch doctor economics and gypsy forecasting,” it’s obvious I’m not a big fan of the organization’s approach to fiscal analysis.

I’ve even argued that Republicans shouldn’t cite CBO when the bureaucrats reach correct conclusions on policy (at least when such findings are based on bad Keynesian methodology).

So nobody should be surprised that I think the incoming Republican majority should install new leadership at CBO (and the Joint Committee on Taxation as well).

So why, then, are some advocates of smaller government - such as Greg Mankiw, Keith Hennessey, Alan Viard, and Michael Strain - arguing that Republicans should keep the current Director, Doug Elmendorf, who was appointed by the Democrats back in 2009?

Before answering that question, let’s look at some of what was written today for the Washington Post’s Wonkblog.

Today in Cato’s Growth Forum

Cato’s special online forum on reviving growth continues today with the following new essays:

1. Morris Kleiner makes the case against occupational licensing.

2. Tim Kane calls for more immigration.

3. Alan Viard advocates moving to a progressive consumption tax.

4. Donald Marron argues for a carbon-corporate tax swap.

New in Cato’s Online Growth Forum

Here are the newest essays in the Cato Institute’s online forum on reviving growth:

1. Ramesh Ponnuru offers three ideas – on taxes, patents, and money.

2. William Gale argues for getting our fiscal house in order.

3. Jeff Miron proposes cuts in health insurance subsidies.

4. Adam Thierer calls for a culture of permissionless innovation.

Fraud in the Defense Department

The wars in Iraq and Afghanistan cost more than $1 trillion with billions going to Department of Defense (DoD) contractors. All of that spending has led to a large uptick in waste and fraud.

As much as $60 billion has been wasted on U.S. operations in those two countries, according to analysis from the Commission on Wartime Contracting in Iraq and Afghanistan. The Justice Department has brought more than 235 criminal cases since 2005.

The Associated Press highlights some examples:

In the past few months alone, four retired and one active-duty Army National Guard officials were charged in a complex bribery and kickback scheme involving the awarding of contracts for marketing and promotional material, and a trucking company driver pleaded guilty to bribing military base employees in Georgia to obtain freight shipments — often weapons which required satellite tracking — to transport to the West Coast.

More recently, a former contractor for the Navy’s Military Sealift Command, which provides transportation for the service, was sentenced to prison along with a businessman in a bribery case in which cash, a wine refrigerator and other gifts traded hands in exchange for favorable treatment on telecommunications work. Also, three men, including two retired Marine Corps officers, were charged with cheating on a bid proposal for maintenance work involving a helicopter squadron that serves the White House.

The story continues on with the long list of abuses:

Defense contractor Leonard Francis was arrested in San Diego last year on charges that he offered luxury travel, prostitutes and other bribes to Navy officers in exchange for confidential information, including ship routes. Prosecutors say he used that information to overbill the Navy for port services in Asia in one of the biggest Navy bribery schemes in years. Ethan Posner, a lawyer for Francis, declined comment.

Yet many others involve more mundane cases of contracting or procurement fraud. Consider the trucking company contractor in Afghanistan who bribed an Army serviceman to falsify records to show fuel shipments that were never delivered, or the former Army contractor who demanded bribes before issuing orders for bottled water at a military camp in Kuwait.

According to the story, the Defense Department acknowledges the issue and is working to improve the situation. But if this report is any indication, DoD has a long way to go.

Drugs for the Deceased

Medicare fraud is rampant. The Government Accountability Office (GAO) estimates fraud compromises 8 percent of total expenditures, or $44 billion annually. Outside estimates are as high as $120 billion. A recent report from the Department of Health and Human Services Inspector General highlights just one of the many examples of waste, fraud, and abuse within the system: Medicare paying for drug coverage of deceased beneficiaries.

Medicare Part D provides prescription drug coverage to 39 million seniors costing taxpayers $59 billion annually, net of premiums paid by seniors. In 2013 Medicare paid for 1.2 billion prescriptions.

The Inspector General’s report details the fraud: “In 2012, Medicare paid for 348 HIV [human immunodeficiency virus] drugs for 158 deceased beneficiaries. The total cost for these drugs was $292,381.” The report studied HIV drugs as they are targets for abuse since they are so expensive.

These drug claims were not isolated instances. The IG found “each of the 158 beneficiaries had between 1 and 6 drugs dispensed after the date of death; most beneficiaries had at least 2.” Medicare spent $7,160 for three prescriptions for one patient’s drugs in Florida. They were approved on two separate occasions after his death. Medicare approved three prescriptions for a patient in Michigan costing $5,616.

Approvals occur because of a delay in receiving information about a beneficiaries death. This results in a period where the recipient is dead, but Medicare’s system still consider the patient to be alive.

This is not the first time that the Inspector General has criticized Medicare’s handling of deceased beneficiaries. In 2011 the Inspector General found that Medicare Part C and D paid $21 million for claims by deceased beneficiaries.

The Inspector General acknowledged that the total amount of fraud was miniscule compared to total Medicare spending. HIV drugs represent just one-quarter of one percent of Part D prescriptions. But the approval process is the same for all Part D drugs meaning other drugs are also vulnerable to improper payments for deceased individuals. The report says “A change in CMS’s practice would affect all Part D drugs, not just HIV drugs. Considering the enormous number of Part D drugs, a change in practice could result in significant cost savings for the program and for taxpayers.” An estimate of cost savings is not included, but it would likely be in the millions.

Medicare does plan to fix the system for dead beneficiaries, but with billions  wasted on Medicare every year, stopping the tide of improper payments seems unlikely without major structural reform of the program.

Government Shutdown Theater: Republicans Should Not Surrender to Obama’s Blackmail

Notwithstanding the landslide rejection of Obama and his policies in the mid-term election, I don’t think this will produce big changes in policy over the next two years.

Simply stated, supporters of limited government do not have the votes to override presidential vetoes, so there’s no plausible strategy for achieving meaningful tax reform or genuine entitlement reform.

But that doesn’t mean that there won’t be important fiscal policy battles. I’m especially worried about whether we can hold on to the modest fiscal restraint (and sequester enforcement) we achieved as part of the 2011 debt limit fight.