Federal Budget
Opportunities for Oversight and Improved Use of Taxpayer Funds Gao ID: GAO-03-1030T July 17, 2003The hearing today deals with the important congressional obligation to exercise oversight over the use of taxpayer funds, recognizing that waste, fraud, abuse, and mismanagement are not victimless activities. When resources are diverted for inappropriate, illegal, inefficient, or ineffective purposes, both taxpayers and legitimate program beneficiaries are cheated. Beyond preventing obvious abuse, government also has an obligation to modernize its practices and processes and fundamentally reexamine and reprioritize its activities to meet the demands and needs of today's changing world.
This testimony focuses on program reviews, oversight, and stewardship of taxpayer funds in three tiers: (1) areas vulnerable to fraud, waste, abuse, and mismanagement; (2) improving the economy, efficiency and effectiveness of federal programs and activities to enhance and maintain government performance; and (3) fundamental reassessment and reprioritization of government programs, policies & activities to meet the challenges of the 21st century, especially in light of the demographic tidal wave looming on our fiscal horizon. Each of these tiers is relevant to the areas on which the Committee on Ways and Means is focusing attention as part of this hearing: Social security programs, Medicare, and tax compliance and preferences. The Social Security Administration (SSA) must modernize its disability programs to bring them in line with the current status of science, medicine, technology, law, and labor market conditions. GAO placed federal disability programs on its high-risk list in 2003 to focus attention on this multi-agency challenge. SSA needs also to ensure the integrity of its programs, and in particular should give continuing management attention to problems in the SSI program. Medicare is one of the largest and most complex programs in the federal government, making it highly vulnerable to waste, fraud, abuse, and mismanagement. GAO designated the Medicare program as a high-risk area in 1990, and the risk remains. Weaknesses in contractor performance and agency oversight increase the risks of improper payments, and--along with difficulties in payment setting--lead to wasteful spending. Structural reform is also necessary given the pressures of demographics and rising health care costs. Ensuring that taxpayers meet their tax obligations under an increasingly complex tax code has long presented the Internal Revenue Service (IRS) with daunting challenges. The potential revenue losses and the threat to voluntary compliance make the collection of unpaid taxes a high-risk area. Congress and others have been concerned that declines in IRS's enforcement programs are eroding taxpayers' confidence in the fairness of our tax system. Further, any reassessment of government's activities must include tax preferences. These often are not subject to the same review processes applied to spending programs but, given their growth and importance, they must be part of any comprehensive approach to the challenges ahead.
GAO-03-1030T, Federal Budget: Opportunities for Oversight and Improved Use of Taxpayer Funds
This is the accessible text file for GAO report number GAO-03-1030T
entitled 'Federal Budget: Opportunities for Oversight and Improved Use
of Taxpayer Funds' which was released on July 17, 2003.
This text file was formatted by the U.S. General Accounting Office
(GAO) to be accessible to users with visual impairments, as part of a
longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States General Accounting Office:
GAO:
Testimony:
Before the Committee on Ways and Means, House of Representatives:
For Release on Delivery :
Expected at 10 a.m. EDT Thursday, July 17, 2003:
FEDERAL BUDGET:
Opportunities for Oversight and Improved Use of Taxpayer Funds:
Statement of David M. Walker:
Comptroller General of the United States:
GAO-03-1030T:
GAO Highlights:
Highlights of GAO-03-1030T, testimony before the Committee on Ways and
Means, House of Representatives
Why GAO Did This Study:
The hearing today deals with the important congressional obligation to
exercise oversight over the use of taxpayer funds, recognizing that
waste, fraud, abuse, and mismanagement are not victimless activities.
When resources are diverted for inappropriate, illegal, inefficient,
or ineffective purposes, both taxpayers and legitimate program
beneficiaries are cheated. Beyond preventing obvious abuse, government
also has an obligation to modernize its practices and processes and
fundamentally reexamine and reprioritize its activities to meet the
demands and needs of today‘s changing world.
What GAO Found:
This testimony focuses on program reviews, oversight, and stewardship
of taxpayer funds in three tiers: (1) areas vulnerable to fraud,
waste, abuse, and mismanagement. For example, payments made to
ineligible recipients drain resources that could otherwise go to the
intended beneficiaries of a program. Everyone should be concerned
about the diversion of resources and subsequent undermining of program
integrity. (2) improving the economy, efficiency and effectiveness of
federal programs and activities to enhance and maintain government
performance. (3) fundamental reassessment and reprioritization of
government programs, policies & activities to meet the challenges of
the 21st century, especially in light of the demographic tidal wave
looming on our fiscal horizon.
Each of these tiers is relevant to the areas on which the Committee is
focusing attention as part of this hearing: Social security programs,
Medicare, and tax compliance and preferences.
* The Social Security Administration (SSA) must modernize its
disability programs to bring them in line with the current status of
science, medicine, technology, law, and labor market conditions. GAO
placed federal disability programs on its high-risk list in 2003 to
focus attention on this multi-agency challenge. SSA needs also to
ensure the integrity of its programs, and in particular should give
continuing management attention to problems in the SSI program.
* Medicare is one of the largest and most complex programs in the
federal government, making it highly vulnerable to waste, fraud,
abuse, and mismanagement. GAO designated the Medicare program as a
high-risk area in 1990, and the risk remains. Weaknesses in contractor
performance and agency oversight increase the risks of improper
payments, and”along with difficulties in payment setting”lead to
wasteful spending. Structural reform is also necessary given the
pressures of demographics and rising health care costs.
* Ensuring that taxpayers meet their tax obligations under an
increasingly complex tax code has long presented the Internal Revenue
Service (IRS) with daunting challenges. The potential revenue losses
and the threat to voluntary compliance make the collection of unpaid
taxes a high-risk area. Congress and others have been concerned that
declines in IRS‘s enforcement programs are eroding taxpayers‘
confidence in the fairness of our tax system. Further, any
reassessment of government‘s activities must include tax preferences.
These often are not subject to the same review processes applied to
spending programs but, given their growth and importance, they must be
part of any comprehensive approach to the challenges ahead.
What GAO Recommends:
Tackling areas at risk for fraud, waste, abuse, and mismanagement will
require determination, persistence, and sustained attention by both
agency managers and Congressional committees. In addition, there is a
need to fundamentally review and reassess, the proper role of the
federal government, how the government should do business in the
future, and”sometimes--who should do the government‘s business in the
21st century. Periodic review of programs on the mandatory and
discretionary sides of the budget, as well as tax preferences, can
prompt a healthy reassessment of our priorities and of the changes
needed in program design, resources and management to achieve results.
Congressional support and oversight will be key.
Mr. Chairman, Mr. Rangel, members of the Committee:
It is a pleasure to be here today as you deal with one of your
important obligations--to exercise oversight over the use of taxpayer
funds. No government should waste its taxpayers' money, whether we are
operating during a period of budget surpluses or deficits. And, as you
all recognize, waste, fraud, abuse, and mismanagement are not
victimless activities. Our resources are not unlimited, and when they
are diverted for inappropriate, illegal, inefficient, or ineffective
purposes, both taxpayers and legitimate program beneficiaries are
cheated. Both the Administration and the Congress have an obligation to
safeguard benefits for those that deserve them and avoid abuse of
taxpayer funds by preventing such diversions. Beyond preventing obvious
abuse, government also has an obligation to modernize its priorities,
practices, and processes so that it can meet the demands and needs of
today's changing world. More broadly, the federal government must
reexamine the entire range of policies and programs--entitlements,
discretionary spending, and tax preferences[Footnote 1]--in the context
of the 21ST century. Both the Congress and the executive branch have a
fiduciary and stewardship obligation to gain control over our fiscal
future.
Periodic reexamination and revaluation of government activities has
never been more important than it is today. Our nation faces large and
growing long-term fiscal challenges. Increased pressure also comes from
world events: both from the recognition that we cannot consider
ourselves "safe" between two oceans--which has increased demands for
spending on homeland security--and from the U.S. role in an
increasingly interdependent world. Government also faces increased
demands from the American public for modern organizations and
workforces that are results-oriented, capable, responsive, agile, and
accountable.
This committee has jurisdiction over some of the most important
programs in the federal government: Social Security--including related
programs such as SSI--Medicare, and TANF. As the committee with
jurisdiction over our tax system--over raising the revenue to finance
government's activities--you also oversee the growing number of
"programs" conducted through the tax code in the form of tax
preferences. By anyone's definitions, your oversight agenda is massive.
It is important that you take it seriously. Today's hearing is a
positive step in this regard.
And, of course, as everyone on this committee knows well, today
discretionary spending makes up less than 40 percent of the budget. Net
interest and other mandatory spending[Footnote 2]--including the
programs under your control--represent over 60 percent of the federal
budget. Figure 1 shows the composition of federal spending in 2003.
Including the Iraq war supplemental mandatory spending makes up 54
percent of the budget--up from 25 percent in 1963 before the creation
of Medicare and 45 percent in 1983.[Footnote 3] If you look only at
programmatic spending (i.e., excluding interest on the debt) the shares
are 58 percent mandatory and 42 percent discretionary.
Figure 1: Composition of Federal Spending, 2003:
[See PDF for image]
Source: GAO analysis of data from the Congressional Budget Office.
Note: Includes $41 billion in discretionary spending and about $1
billion in mandatory spending for the Iraq war supplemental. Includes
$11 billion in mandatory spending for the 2003 tax cut package.
[End of figure]
Direct, or mandatory, spending programs and tax preferences are by
definition assumed in the baseline and not automatically subject to
annual congressional decisions as are appropriated discretionary
programs. In our view, a periodic reassessment of these programs and
tax preferences is critical to achieving fiscal discipline in the
budget as a whole. Moreover, such a review can help ascertain whether
these programs are protected from the risk of fraud, waste, and abuse,
and are designed to be as economical, efficient, and effective as
possible.
As you know, the Budget Resolution directs GAO to prepare a report
identifying "instances in which the committees of jurisdiction may make
legislative changes to improve the economy, efficiency, and
effectiveness of programs within their jurisdiction." My testimony
draws in part on some of the items that will be included in that
report, which is due August 1, 2003. You asked me today to focus on
several areas within this Committee's jurisdiction: Social Security and
disability, unemployment insurance, Medicare, and tax preferences and
compliance activities.
With me today are four GAO Directors with detailed knowledge in these
areas: Barbara Bovbjerg of our Education, Workforce and Income Security
Team [Social security, disability], Leslie Aronovitz and Laura Dummit
of our Health Care Team [Medicare] and Michael Brostek who is a Tax
Director in our Strategic Issues Team.
In this testimony, I will discuss program reviews, oversight, and
stewardship of taxpayer funds on three levels:
First are those areas vulnerable to fraud, waste, abuse, and
mismanagement. Payments to ineligibles drain resources that could
otherwise go to the intended beneficiaries of a program. Everyone
should be concerned about the diversion of resources and subsequent
undermining of program integrity.
Second, and more broadly, policymakers and managers need to look at
ways to improve the economy, efficiency, and effectiveness of federal
functions, programs, and policies--including specific tax preferences.
Even where we agree on the goals, numerous opportunities exist to
streamline, target, and consolidate programs to improve their delivery.
This means looking at program consolidation, at overlap, and at
fragmentation. It means improved targeting in both spending programs
and tax preferences.
Finally, a fundamental reassessment of government programs, policies,
and activities can help weed out programs that are outdated,
ineffective, unsustainable, or simply a lower priority than they used
to be. In most federal mission areas national goals are achieved
through the use of a variety of tools and, increasingly, through the
participation of many organizations, such as state and local
governments and international organizations, that are beyond the direct
control of the federal government. Government cannot accept as "givens"
all of its existing major programs, policies, and operations. A
fundamental review, reassessment, and reprioritization of what the
federal government does, how it does it, and in some cases, who does
the government's business will be required, particularly given the
demographic tidal wave that is starting to show on our fiscal horizon.
Before turning to the three program areas on which you asked us to
focus today, let me briefly discuss each of the three levels of review.
Addressing Vulnerabilities to Fraud, Waste, Abuse, and Mismanagement:
Programs and functions central to national goals and objectives have
been hampered by daunting financial and program management problems,
exposing these activities to fraud, waste, abuse, and mismanagement.
These weaknesses have real consequences with large stakes that are
important and visible to many Americans. Some of the problems involve
the waste of scarce federal resources. Other problems compromise the
ability of the federal government to deliver critically needed
services, such as ensuring airline safety and efficiently collecting
taxes. Still others may undermine government's ability to safeguard
critical assets from theft and misuse.
In recent years, GAO's work across the many areas of government program
and operations has highlighted threats to the integrity of programs
which prompt potential for fraud, waste, abuse, and mismanagement. As
the sections in this testimony on social security programs and
unemployment insurance, health care, and tax issues illustrate, much of
our work for the Congress is n fact dedicated to helping redesign
programs and improve management to address these long standing
problems, in areas ranging from uncollected taxes--both corporate and
individual--to critical entitlement programs that provide health and
social services.
In 1990, GAO began a program to report on government operations we
identified as "high risk." This label has helped draw attention to
chronic, systemic performance and management shortfalls threatening
taxpayer dollars and the integrity of government operations. Over the
years GAO has made many recommendations to improve these high-risk
operations. We discovered that the label often inspired corrective
action--indeed 13 areas have come off the list since its inception. For
each of these areas, we focus on (1) why the area is high-risk; (2) the
actions that have been taken and that are under way to address the
problem since our last update report and the issues that are yet to be
resolved; and (3) what remains to be done to address the risk.
In January of this year we provided an update for the 108TH Congress,
giving the status of high-risk areas included in our January 2001
report and identifying new high-risk areas warranting attention by the
Congress and the administration.[Footnote 4] GAO's 2003 high-risk list
is shown in Attachment I. This Committee has jurisdiction over a number
of these areas. Lasting solutions to high-risk problems offer the
potential to save billions of dollars, dramatically improve service to
the American public, strengthen public confidence and trust in the
performance and accountability of our national government, and ensure
the ability of government to deliver on its promises. We have noted
that continued congressional interest and oversight, such as that
exemplified by this hearing today are of crucial importance. In
addition, perseverance by the administration in implementing needed
solutions is needed. The administration has looked to our
recommendations in shaping government-wide initiatives such as the
President's Management Agenda, which has at its base many of the areas
we have previously designated as high risk.
Clearly progress has been made in addressing most of the areas on our
current high risk list, both through executive actions and
congressional initiatives. However, many of these problems and risks
are chronic and long standing in nature and their ultimate solution
will require persistent and dedicated efforts on many fronts and by
many actors over a period of time. Some will require changes in laws to
simplify or change rules for eligibility, provide improved incentives
or to give federal agencies additional tools, such as additional tools
to track and correct improper payments. Continued progress in improving
agencies' financial systems, information technology, and human capital
management will be vital in attacking and mitigating risks to federal
program integrity. Some areas may indeed require additional investments
in people, process, and technology to provide effective information,
oversight, and enforcement that protects programs from abuse.
Ultimately, a transformation will be needed in the cultures and
operations of many agencies to permit them to manage risks and foster
the kind of sustained improvements in program operations that is called
for. Continued persistence and perseverance in addressing the high-risk
areas will ultimately yield significant benefits for the taxpayers over
time. Finding lasting solutions offers the potential to achieve
savings, improve services, and strengthen public trust in government.
Improving Economy, Efficiency, and Effectiveness:
Important as safeguarding funds from fraud, waste, abuse, and
mismanagement is, I believe that for long-lasting improvements in
government performance the federal government needs to move to the next
step: to pursue widespread opportunities to improve the economy,
efficiency, and effectiveness of existing federal goals and program
commitments. The basic goals of many federal programs--both mandatory
and discretionary--enjoy broad support. That support only makes it more
important for us to pay attention to the substantial opportunities to
improve cost effectiveness and the delivery of services and activities.
No activity should be exempt from some key questions about its design
and management.
Key Questions for Program Oversight: Is the program targeted
appropriately?; Does the program duplicate or even work at cross
purposes with related programs and tools?; Is the program financially
sustainable and are there opportunities for instituting appropriate
cost sharing and recovery from nonfederal parties including private
entities that benefit from federal activities?; Can the program be made
more efficient through reengineering or streamlining processes or
restructuring organizational roles and responsibilities?; Are there
clear goals, measures and data with which to track progress, results
costs, and benefits?.
GAO's work illustrates numerous examples where programs can and should
be changed to improve their impact and efficiency.
For example, our work has shown that scarce federal funds could have a
greater impact on program goals by improving their targeting to places
or people most in need of assistance. Poorly targeted funding can
result in providing assistance to recipients who have the resources and
interest to undertake the subsidized activity on their own without
federal financing. Moreover, lax eligibility rules and controls can
permit scarce funds to be diverted to clients with marginal needs for
program funds. Federal grant programs with formula distributions to
state and local governments could be better targeted to places with
high needs but low fiscal capacity. Other programs should be re-
examined for perverse incentives (e.g. flood insurance, which provides
an incentive to rebuild in areas vulnerable to flooding).
GAO's work over the years has also shown that numerous program areas
are characterized by significant program overlap and duplication. In
program area after program area, we have found that unfocused and
uncoordinated programs cutting across federal agency boundaries waste
scarce resources, confuse and frustrate taxpayers and beneficiaries and
limit program effectiveness.
And finally, the allocation of costs that once made sense when programs
were created needs to be periodically reexamined to keep up with the
evolution of markets. In some cases, private markets and program
beneficiaries can play greater roles in financing and delivery of
program services.
Reassessing What Government Does:
I have talked about the need to protect taxpayer dollars from fraud,
waste, abuse, and mismanagement and about the need to take actions
improving the economy, efficiency, and effectiveness of government
programs, policies, and activities. However, to meet the challenges of
today and the future, we must move beyond these levels to undertake a
more fundamental reassessment of what government does and how it does
it.
In part, this requires looking at current federal programs--both
spending and tax--in terms of their goals and results. Why does the
program/activity exist? Is the activity achieving its intended
objective? If not, can it be fixed? If so, how? If not, what other
approaches might succeed in achieving the goal/objective? More
fundamentally, even if a program or activity is achieving its stated
mission--or can be "fixed" so that it does so--where does it fit in
competition for federal resources? Are the taxpayers getting a good
"return on investment" from the program? Is its priority higher or
lower today given the nation's evolving challenges and fiscal
constraints?
A fundamental reassessment also requires asking whether an existing
program, policy, or activity "fits" the world that we face today and
will face in the future. It is important not to fall into the trap of
accepting all existing activities as "givens" while subjecting new
proposals to greater scrutiny than existing ones undergo. Think about
how much the world has changed in the past few decades and how much it
will change in future years. We need a fundamental reassessment and
reconsideration of "the base." We need to ask: What is the purpose?
What tools are used? What resources? What are the results? What are the
costs and benefits? Who benefits? What other programs or activities
exist in the same area or with the same goal? How do they compare?
I do not need to tell this Committee that any discussion about the role
of the federal government, about the design and performance of federal
activities, and about the near-term federal fiscal outlook takes place
within the context of two dominating facts: a demographic tidal wave is
on the horizon, and it, combined with rising health care costs,
threatens to overwhelm the nation's fiscal future. The numbers do not
add up. The fiscal gap is too great for any realistic expectation that
the country can grow its way out of the problem. Figure 2 is just one
illustration of this.
Figure 2: Composition of Spending as a Share of GDP:
[See PDF for image]
Source: GAO's March 2003 analysis.
Note: Assumes currently scheduled Social Security benefits are paid in
full throughout the simulation period.
[End of figure]
Now, Mr. Chairman, Mr. Rangel, members of the Committee, let me turn to
each of the areas that are the subject of this hearing: Social Security
programs and unemployment insurance, Medicare, and tax compliance
activities and preferences. In each of these areas the three levels of
review I described are relevant: vulnerability to fraud, waste, abuse,
and mismanagement; improvements in economy, efficiency, and
effectiveness; and, finally, re-examining what government does, how it
does business, and sometimes who does the government's business.
Needless to say, I will not be discussing all the challenges faced in
these program areas or by the departments and agencies that administer
them.
SOCIAL SECURITY PROGRAMS:
The Social Security Administration (SSA) faces a number of difficult
management and policy challenges. This Committee has shown great
leadership in pressing SSA to address such concerns, and indeed has
achieved many management improvements that have saved millions of
dollars, but much remains to be done. First, the agency needs to ensure
the integrity of its three programs--Old Age and Survivors Insurance
(OASI), Disability Insurance (DI), and Supplemental Security Income
(SSI). In particular, it needs to provide continuing management
attention to problems in the SSI program, including monitoring new
initiatives to correct program weaknesses, and addressing the
continuing problem of program complexity. Second, SSA must focus on
improving the economy, efficiency, and effectiveness of these programs.
SSA urgently needs to address the disappointing results of its efforts
to improve the disability claims process it currently uses. Further,
the Government Pension Offset (GPO) and the Windfall Elimination
Provision (WEP) both need attention to assure they are administered
effectively and equitably. Third and finally, SSA must focus on
modernizing its disability programs. GAO has placed modernizing federal
disability programs on its high-risk list in recognition of the
transformation these programs must undergo to serve the needs of 21st
century Americans.
SSA Needs to Continue to Strengthen the Integrity of the SSI Program of
SSA's Programs:
SSI is the nation's largest cash assistance program for the poor. The
SSI program poses a special challenge for SSA because, unlike its
insurance programs (OASI and DI), SSI is a means-tested program. For
this reason, SSA must collect and verify information on income,
resources, and recipient living arrangements to determine initial and
continuing eligibility for the program.
We designated SSI a high-risk program in 1997, after several years of
reporting on specific instances of abuse and mismanagement, increasing
overpayments, and poor recovery of outstanding SSI overpayments. In
response to our high-risk designation, SSA made sufficient progress in
improving SSI's financial integrity and management to warrant removing
its high-risk designation earlier this year. SSA's actions included
developing a major legislative proposal with numerous overpayment
deterrence and recovery provisions. Many of these provisions were
incorporated into the Foster Care Independence Act, which passed in
1999 thanks to the leadership of this Committee. The act directly
addresses a number of our prior recommendations and provides SSA with
additional tools to prevent and recover overpayments. SSA also took a
number of internal administrative actions to strengthen SSI program
integrity, many in response to GAO recommendations.[Footnote 5] These
include using tax refund offsets for collecting SSI overpayments and
more frequent automated matches to identify ineligible SSI recipients
living in nursing homes and other institutions.
Although SSA's current initiatives demonstrate a stronger management
commitment to SSI integrity and have the potential to significantly
improve program management, challenges remain. In prior work, we have
reported that SSI living arrangement and in-kind support and
maintenance policies used by SSA to calculate eligibility and benefit
amounts were complex, prone to error, and a major source of
overpayments.[Footnote 6] We also recommended that SSA develop options
for simplifying the program. Although SSA is considering various
options, it has not moved forward in recommending specific proposals
for change.
Our current work, to be issued by the end of this month for the Human
Resources Subcommittee, suggests that some of these complex policies--
such as living arrangements--remain a problem. In recent years, SSA has
identified a general increase in the amount of annual overpayments made
to (1) individuals who are found to have violated program residency
requirements, or (2) recipients who leave the United States and live
outside the country for more than 30 consecutive days without informing
SSA. The Social Security Act requires that an individual be a resident
of the United States to be eligible for SSI benefits.[Footnote 7] SSA
guidelines define a resident as a person who has established a dwelling
in the United States with the intent to live in the country. The Act
also stipulates that no individual is eligible for SSI benefits for any
full month that the individual is outside the United States.[Footnote
8] Further, an individual who is outside the United States for 30
consecutive days cannot be eligible for SSI benefits until he or she
has been back in the country for 30 days. SSA detected overpayments of
$118 million for residency violations between 1997 and 2001, but
interviews with OIG and agency officials suggest that the agency
detects only a portion of the violations that occur each year, at least
in some parts of the country.
We identified three kinds of weaknesses which impede SSA's ability to
detect and deter residency violations: First, in asking SSI recipients
about their current residence, field staff often rely on recipients'
own assertions and may accept only minimal documentation from them,
such as rent receipts and statements from neighbors or clergy.
Recipients who wish to misreport their residency can manipulate such
documents. Second, the agency makes limited use of tools at its
disposal to detect possible violators. For example, while SSA routinely
employs a risk analysis system to identify SSI recipients who are more
likely to incur overpayments, it does not use this tool to specifically
consider and target potential residency violators. Finally, SSA has not
adequately pursued the use of independent, third party data, such as
recipient bank account information, to help detect residency
violations. Although SSA is currently working with an independent
contractor to obtain access to SSI recipients' financial data, the
agency plans to use the information only to verify their financial
resources. It does not plan to use the information to detect those who
may be living and making financial transactions outside the United
States for extended periods of time.
As a consequence of the SSI program's problems, we believe that
sustained management attention continues to be necessary to improve SSI
program integrity. Following our most recent review of SSA's
progress,[Footnote 9] the agency agreed with our recommendations to (1)
sustain and expand its program integrity activities underway and
continue to develop additional tools to improve program operations and
management, (2) identify and move forward with implementing cost-
effective options for simplifying complex policies, (3) evaluate
current policies for applying penalties for individuals who fail to
report essential eligibility information and remove barriers to their
use and effectiveness, and (4) reexamine its policies for waiving
recovery of SSI overpayments:
Improving the Economy, Efficiency, and Effectiveness of SSA's Programs:
As important as ensuring the integrity of SSA's programs is, the agency
also faces difficult challenges in improving the economy, efficiency,
and effectiveness of its programs, including administering certain
provisions of the Social Security Act such as the Government Pension
Offset (GPO) and the Windfall Elimination Provision (WEP). Most
importantly, the agency must place greater emphasis on improving its
flawed disability claim process.
Administration of the Government Pension Offset and Windfall
Elimination Provision Remains a Concern:
The GPO and the WEP reduce Social Security benefits for those who
receive noncovered pension benefits.[Footnote 10] The GPO affects
spouse and survivor benefits and the WEP affects retired worker
benefits. Both provisions depend on having complete and accurate
information on receipt of noncovered pension benefits. However, such
information is not always available for the state and local pension
plans that do not participate in Social Security. In particular, our
prior work found that SSA is often unable to determine whether
applicants should be subject to the GPO and WEP because it does not
have access to any independent source of noncovered pension
information. Thus, both the GPO and WEP have proven difficult for SSA
to administer. To help correct this situation, we previously
recommended that SSA work with the Internal Revenue Service (IRS) to
revise the reporting of pension information on IRS Form 1099R, so that
SSA would be able to identify people receiving a pension from
noncovered employment, especially in state and local
governments.[Footnote 11] However, IRS does not believe it can make the
recommended change without new legislative authority. Thus, in a recent
testimony before the Ways and Means Social Security Subcommittee, we
recommended that the Congress consider giving the Service the authority
to collect this information.[Footnote 12] We estimate that millions of
dollars in reduced overpayments could be achieved by implementing such
payment controls.
In addition to this administrative problem, we continue to be concerned
about the GPO "last day" exemption. As you know, the GPO prevents
workers from receiving a full Social Security spousal benefit on top of
a pension earned from government employment not covered by Social
Security. However, the law provides an exemption from the GPO if an
individual's last day of state/local employment is in a position that
is covered by both Social Security and the state/local government's
pension system. In a recent study, we found instances where individuals
performed work in Social Security covered positions for short periods
to qualify for the GPO last-day exemption. The practices we identified
in Texas and Georgia alone could increase long-term benefit payments
from the Social Security Trust Fund by $450 million. In response to a
recommendation we made, this committee--and subsequently the full
House--passed the Social Security Protection Act of 2003 (H.R. 743),
which includes a provision to lengthen the time period to qualify for
the GPO exemption from 1 day to 5 years. The bill is still pending in
the Senate, and if passed, will narrow this loophole significantly.
Efforts to Improve the Disability Claims Process Have Been
Disappointing:
SSA's disability determination process is time-consuming, complex, and
expensive. Although the agency has been working for years to improve
this process, ensuring the quality and timeliness of its disability
decisions remains one of SSA's greatest unmet challenges. Individuals
initially denied benefits by SSA who appeal their claims may wait a
year or more for a final decision on their eligibility. These long
waits result, in part, from complex and fragmented decision-making
processes that are laden with many layers of reviews and multiple
handoffs from one person to another. The demanding nature of the
process can be seen in the cost of administering the DI and SSI
programs. Although SSI and DI program benefits account for less than 20
percent of SSA's total benefit payments, they consume nearly 55 percent
of the annual administrative resources.
SSA has also had difficulty ensuring accurate and consistent decisions
regarding a claimant's eligibility for disability benefits across all
levels of the decision-making process. Our work shows that in fiscal
year 2000, about 40 percent of the applicants whose cases were denied
at the initial level appealed this decision and about two-thirds of
those who appealed were awarded benefits at a hearing.[Footnote 13] The
large proportion of cases awarded benefits at the hearings level and
the potential inconsistency of decisions at these two levels has raised
questions about the fairness, integrity, and cost of SSA's disability
programs.
SSA is at a crossroads in its efforts to redesign and improve its
disability claims process. SSA's new Commissioner has acknowledged the
limited progress to date, has made the issue one of the agency's
priorities, and has taken the first steps to address this problem.
However, as we testified in May 2002, the agency's past experience may
argue for SSA to undertake a new and comprehensive analysis of the
fundamental issues impeding progress.[Footnote 14] Such an analysis
should include reassessing the root causes contributing to the
programmatic weaknesses in the agency's disability determination
process that we noted earlier. The outcome of this analysis may, in
some cases, require legislative changes to the disability determination
process.
Reassessing What Government Does: Disability Programs Must be
Modernized:
Although SSA's disability claims process requires urgent management
attention, the policies underlying federal disability programs also
require transformation. Federal disability programs represent an
example of a disconnect between program design and today's world--a
disconnect great enough to warrant our designation as a high-risk area
this year.[Footnote 15] Already growing, SSA's disability programs are
poised to surge as baby-boomers age, yet the programs remain mired in
outdated economic, workforce, and medical concepts and are not well
positioned to provide meaningful and timely support to Americans with
disabilities. These outdated concepts persist despite scientific
advances and economic and social changes that have redefined the
relationship between impairments and the ability to work. In addition,
while SSA has taken some steps in trying to return beneficiaries to
work, it has not developed, as we have recommended, a comprehensive
return-to-work strategy that focuses on identifying and enhancing
beneficiaries' work capacities.
Over the last 10 years, the number of working-age beneficiaries of the
DI and SSI programs has increased by 38 percent even as changes in
medicine, technology, society, and the nature of work have increased
the potential for some people with disabilities to return to, or remain
in, the labor force. In addition, legislative changes have also focused
on returning disability beneficiaries to work. Specifically, the
Americans with Disabilities Act of 1990 supports the premise that
people with disabilities can work and have the right to work and the
Ticket to Work and Work Incentives Improvement Act of 1999 increased
beneficiaries' access to vocational services.
About 12 years ago, SSA began reviewing relevant medical advances and
updating the criteria used to evaluate disability claims.[Footnote 16]
SSA's efforts to update the criteria were curtailed in the mid-1990s by
staff shortages, competing priorities, and lack of adequate research on
disability issues. The updates resumed in 1998, but progress has been
slow and the lengthy time frames could undermine the very purpose of an
update.
Using outdated information calls into question the validity of
disability decisions and raises the risk of overcompensating some
individuals while under compensating or inappropriately denying
compensation entirely to others. SSA needs to reexamine the criteria--
both medical and vocational--it uses to determine whether individuals
are eligible for benefits.
Even if SSA modernizes its criteria, it will continue to face
difficulties in returning beneficiaries to work, in part, due to
weaknesses in the design of the disability programs.[Footnote 17] The
current process produces a strong incentive for applicants to establish
their inability to work to qualify for benefits. Moreover, instead of
receiving assistance to stay in the workforce or return to work--and
thus to stay off the long-term disability rolls--an individual can
obtain assistance through DI or SSI only by proving his or her
inability to work. And even in its efforts to redesign the decision-
making process, SSA has yet to incorporate into these initiatives an
evaluation of what an individual may need to return to work.
Although the agency has taken a number of actions to improve its
return-to-work practices, it has achieved poor results in this arena
and few DI and SSI beneficiaries leave the disability rolls to work. As
we have recommended previously, SSA still needs to move forward in
developing a comprehensive return-to-work strategy that integrates, as
appropriate, earlier intervention, including earlier and more effective
identification of work capacities and the expansion of such capacities
by providing essential return-to-work assistance for applicants and
beneficiaries.[Footnote 18]
Modernizing and fully incorporating work-oriented policies in the
disability programs requires fundamental change, such as revisiting the
programs' basic orientation. Such a reorientation would require
examining complex program design issues such as beneficiaries' access
to medical care and assistive technologies, the benefits offered and
their associated costs, mechanisms to return beneficiaries to work, as
well as the integration of SSA's programs with other programs and
policies affecting people with disabilities. Success in implementing
fundamental change to the orientation of the disability programs will
be dependent upon consultation and cooperation between the executive
and legislative branches as well as cross-agency efforts, and will
likely require statutory as well as regulatory action.
UNEMPLOYMENT INSURANCE:
We have identified program integrity weaknesses similar to those we
have identified in the SSI program in another program that falls under
this committee's jurisdiction: the Department of Labor's (Labor)
Unemployment Insurance (UI) program. We found problems at both the
federal and state level that contribute to overpayments in this
program, including an insufficient balance between the need to process
and pay UI claims in a timely manner with the need to control program
payments.
Of the $30 billion in UI benefits paid in calendar year 2001, Labor
estimates that a total of about $2.4 billion in overpayments occurred,
including about $577 million (24 percent) attributable to fraud or
abuse. Overpayments in the UI program result from management and
operational practices we identified at both the state and federal
level. At the state level, we found that many states do not
sufficiently balance the need to quickly process and pay UI claims with
the need to control program payments. For example, we found that five
of the six states we visited had diverted staff from benefit payment
control operations to claims processing activities over the past year
in response to increases in the volume of UI claims. Moreover, while a
number of states we visited routinely use independent automated data
sources to verify key information that can affect claimants'
eligibility for benefits--such as an individual's wages and employment
status--they also rely heavily on self-reported information from
claimants for other important data, such as a claimant's receipt of
other federal or state program benefits and whether they are citizens
of the United States. Many of these states lack access to data sources
for verifying claimants' identity in a timely manner and thus rely on
verification processes that are incomplete or information sources that
are only checked periodically.
In addition to the practices we identified at the state level that
contribute to overpayments, we found that policies and directives from
the Department of Labor affect states' priorities and procedures in a
manner that makes overpayments more likely. For example, the
performance measures that Labor uses to gauge states' operations tend
to emphasize payment timeliness more heavily than payment accuracy.
Labor has also been reluctant to link the states' performance on
payment accuracy to the annual administrative budget as a way of
providing incentives or sanctions for good or poor performers. Despite
these problems, we found that Labor has taken actions to improve UI
program integrity by working to obtain data from additional sources
that could help states make more accurate eligibility decisions and
developing a performance measure in its fiscal year 2003 performance
plan for gauging state payment accuracy in future:
years. In addition, under the leadership of this committee, the House
recently passed the Welfare Reform bill of 2003 (H.R. 4), which
authorizes state unemployment insurance agencies to obtain wage and new
hire information from the Department of Health and Human Service's
National Directory of New Hires.[Footnote 19] These data could be used
to more effectively verify individuals' eligibility for UI benefits.
MEDICARE:
Medicare is one of the largest and most complex programs in the federal
government, making it highly vulnerable to waste, fraud, abuse, and
mismanagement. We placed Medicare on our list of high-risk programs
more than a decade ago and it remains on that list today. In fiscal
year 2002, Medicare paid about $257 billion for a wide variety of
inpatient and outpatient health care services for over 40 million
elderly and disabled Americans. The Centers for Medicare & Medicaid
Services (CMS) contracts with 38 health insurance companies to pay and
process about 1 billion fee-for-service claims submitted each year by
over 1 million hospitals, physicians, and other health care providers.
Over the years, we have reported on challenges the agency has faced to
safeguard billions of program dollars and obtain current and reliable
data to set payments and monitor its programs. While CMS has made
progress in improving Medicare's financial management, much more could
be done to improve Medicare's operations.
Oversight of Contractor Performance Critical to Program Integrity:
Medicare contractors are charged with ensuring that claims are paid
properly and that fraud or abuse is prevented or detected. However,
contractors' performance has varied and CMS has not always overseen
their efforts effectively, as the following illustrates:
Medical review--Medical review is a program safeguard designed to
detect improper billing and payment. Medical reviews involve detailed
examinations of a sample of claims by clinically trained staff and
require that physicians submit medical records to substantiate their
claims. Although our assessment found that claims administration
contractors' decisions to pay or deny claims were generally accurate,
contractors were less effective at targeting for review those claims
most likely to be billed inappropriately.[Footnote 20] Furthermore, CMS
did not guide the contractors in selecting the most effective criteria
for medical review or encourage them to share best practices--two steps
that could help reduce improper payments.
Communication with physicians--In order to bill Medicare correctly,
physicians need to understand program rules and how to implement
billing changes as they occur. We found that contractors'
communications with physicians were often incomplete, confusing,
untimely, or even incorrect--making it more difficult for physicians to
bill correctly.[Footnote 21] For example, only 15 percent of the calls
we placed to contractors' call centers asking "frequently asked
questions" were answered accurately and completely by contractors'
staff. CMS has set few standards to guide claims administration
contractors' communications with physicians.
Weaknesses in contractor performance and agency oversight increase the
risk of improper payment. Since 1996, the Department of Health and
Human Services' (HHS) Office of the Inspector General (OIG) has
estimated that Medicare's contractors improperly paid claims worth
billions of dollars each year--more than $13 billion in fiscal year
2002 alone. While useful to focus attention on the extent of the
problem, this error rate did not provide CMS with information to target
improvements. To address this shortcoming, in August 2000, CMS began
implementing a new error rate measurement methodology that will provide
national error rates beginning in fiscal year 2003, as well as error
rates by contractor, provider type, and benefit category. Better error
rate data is a first step toward enhancing CMS's ability to hold
individual Medicare contractors accountable or help contractors
identify and take steps to correct problematic billing practices.
Difficulties in Setting Appropriate Payment Rates Increase Medicare
Spending:
We have reported in many instances that Medicare has paid too much for
items and services provided to its beneficiaries. Such wasteful
spending is disturbing news for both the American taxpayer and Medicare
beneficiaries, who pay higher co-payments when the amount Medicare pays
is too high. While the problem of excessive Medicare payments has been
clearly identified, solutions may not be quick or easy.
Skilled nursing facilities and home health agencies--Medicare payments
are significantly more than the cost of caring for beneficiaries in
most skilled nursing facilities and by most home health
agencies.[Footnote 22] In 2000, Medicare paid nearly one quarter of
skilled nursing facility providers over 30 percent more than
costs.[Footnote 23] In the first 6 months of 2001, Medicare paid, on
average, 35 percent more than providers' costs for home health
care.[Footnote 24] We have recommended that CMS minimize excessive
payments to home health agencies by
introducing risk sharing.[Footnote 25] Risk sharing would limit the
total losses or gains a home health agency could experience by sharing
them with the federal government. Such an approach would protect the
Medicare program from overpaying for services and home health agencies
from the financial risk of serving beneficiaries with greater than
average needs, when those service costs are not accounted for under the
current payment system.
Medical equipment and supplies--Over the years, studies have shown that
Medicare has been paying too much--in some cases more than three times
suppliers' acquisition costs--for certain medical equipment and
supplies.[Footnote 26] For example, we estimated that Medicare could
have saved over $500 million in fiscal year 1996 if it paid rates for
home oxygen services comparable to those paid by the Department of
Veterans Affairs (VA).[Footnote 27] Since then, the Balanced Budget Act
of 1997 reduced oxygen payment rates by 25 percent effective in 1998,
and by an additional 5 percent effective in 1999. Nevertheless, in a
demonstration of competitive acquisition, CMS was able to reduce
Medicare's payments by at least 16 percent more in the demonstration
areas, while requiring suppliers to meet additional quality standards.
Medicare pricing for medical equipment and supplies is problematic
because payments are based on fee schedules that are generally tied to
suppliers' historical charges to the program--not to current actual or
market prices. Moreover, the process for adjusting these fees
nationally has been cumbersome and rarely used.
Covered prescription drugs--The pricing of covered prescription drugs-
-for which Medicare and its beneficiaries paid more than $8.2 billion
fiscal year 2002--is particularly
problematic. In 2000, Medicare paid over $1 billion more than other
purchasers for outpatient drugs that the program covers.[Footnote 28]
Medicare's method for establishing drug payments is flawed because it
is based on 95 percent of the average wholesale price (AWP), which is
neither an average, nor a price that wholesalers charge. For example,
in January 2003, we reported that Medicare paid significantly more than
the two major types of suppliers for blood clotting factor, which is
used to treat people with hemophilia. While Medicare received a 5
percent discount from AWP, one type of supplier acquired the clotting
factor at a discount of 35 percent to 48 percent.[Footnote 29]
Similarly, we reported in 2001 that pharmacy suppliers could acquire
the two most common inhalation drugs, which are among the five drugs
with the highest Medicare payments, for a 78 percent to 85 percent
discount from AWP.[Footnote 30] As a consequence of Medicare's pricing
method, its payments are not related to market prices that physicians
and suppliers actually pay.
We made two recommendations to improve drug pricing that could also be
applicable to pricing for medical equipment and supplies. They are to:
1) use information on market transactions already available to VA and
HHS as a benchmark for Medicare payment and 2) examine the benefits and
risks of expanding competitive bidding.
CMS's recent competitive bidding demonstration to set fees for selected
medical equipment, supplies, and covered outpatient drugs suggests that
such competition can lead to lower prices. Preliminary annual gross
savings from competitive bidding were estimated to range from 17
percent to 22 percent for the products bid compared to fee schedule
amounts. However, CMS would need statutory authority to use this method
of setting fees on a wider scale.
Current Legislation Introduces Operational Changes To Address Certain
Program Administration and Payment Issues:
In this session of the Congress, both Houses have passed major
legislation that--if reconciled and signed into law--would restructure
Medicare through adding a prescription drug benefit. Depending on how
it is finalized, this legislation may also introduce significant
operational changes to the Medicare program.
² Competitive contracting for claims administration--Under Medicare's
current statute and regulations, its contracting authority and
practices differ from those embodied in standard federal contracting
law and regulations. One key difference is that CMS generally does not
competitively bid for the services of its claims administration
contractors. Both the Senate and the House bills amend the Medicare
statute to require competitive contracting for claims administration.
This authority has the potential for significantly improving Medicare
program administration. Nevertheless, managing the transition to a
competitive contracting environment will be an enormous new challenge.
Federal agencies that manage large procurements of contracted services-
-such as the departments of Energy and Defense--have had problems with
cost and schedule overruns and have failed to hold their contractors
accountable for performance.[Footnote 31] CMS would need to carefully
manage its own contracting efforts to avoid some of the pitfalls
experienced by other agencies.
Setting payments for medical equipment and supplies and covered
outpatient drugs--The House and the Senate bills have taken different
approaches to this issue, but both have sections that are designed to
address payment-setting for medical equipment, supplies, and currently
covered prescription drugs. The House passed legislation that would
give CMS authority to use competitive bidding to set payments for
certain medical equipment, supplies, and certain drugs. It would also
allow market information from these efforts to be used as a benchmark
for national payments. The Senate bill continued to rely on AWP as a
pricing mechanism for currently covered outpatient drugs. However, it
allowed CMS to substitute payment amounts that differed from those
linked to AWP, using amounts developed through a new process and based
on market price information from a number of specified sources.
Medicare Reform Calls for Aligning Incentives and Strengthening
Accountability:
The 2003 Trustees' annual report reminds us that Medicare as it is
currently structured is not fiscally sustainable. The retirement of the
baby boom generation will place huge fiscal pressures on the program.
Between now and 2035, the number of people age 65 and older will
double. Federal health and retirement spending on Medicare and Social
Security are expected to increase, as people live longer and spend more
time in retirement, as shown in figure 3.
Figure 3: Medicare Is Projected to Grow Dramatically As A Share of GDP:
[See PDF for image]
Source: CMS, Office of the Actuary:
Notes: Projections are based on the intermediate assumptions of the
2003 Trustees' Reports for Hospital Insurance (HI) and Supplemental
Medical Insurance (SMI).
[End of figure]
Moreover, the baby boomers will have fewer workers to support them in
retirement. Further fiscal pressures will be placed on the program by a
new prescription drug benefit, although adding coverage that includes
protection against financially devastating drug costs will help
beneficiaries who lack prescription drug coverage.
While the demographic trends will affect both Medicare and Social
Security, Medicare spending growth also reflects rising health care
costs. The growth of medical technology has contributed to the number
and quality of health care services, but has helped increase health
care costs, which have risen faster than inflation. Consumers are less
sensitive to those costs when third parties pay most of the price tag.
As figure 4 shows, the percentage of health care costs paid through
out-of-pocket spending has declined in the last 40 years, with private
and public insurance paying a larger share.
Figure 4: Out-of-Pocket Spending Has Declined Substantially Over The
Last Four Decades:
[See PDF for image]
Source: CMS, Office of the Actuary, National Health Statistics Group:
Note: The figure for 2002 is estimated. Out-of-pocket spending includes
direct spending by consumers on coinsurance, deductibles, and any
amounts not covered by insurance. Out-of-pocket premiums paid by
individuals are not counted here, but are counted as part of Private
Health Insurance.
[End of figure]
Providing tax preferences for health insurance further masks the full
costs of care and can work at cross purposes to the goal of moderating
health care spending. This suggests that some of the solutions to
Medicare's dilemma reside outside the program--in the larger arena of
the health care system, its cost drivers, and the tax preferences that
support them.
Given this context, aligning incentives to restrain spending growth and
strengthen accountability within the program--while not sufficient by
themselves--are still necessary. This is an ongoing effort that has to
be accomplished in myriad small and large steps in the current program
and as changes are made to it. At present, 84 percent of beneficiaries
are in the traditional fee-for-service Medicare program. As a
consequence, traditional Medicare is likely to have a significant role
for years. Addressing its flaws--such as billions in improper payments
and sometimes overly generous payments--is critical to any effort to
restrain spending growth.
Unfortunately, addressing these flaws is unlikely to be sufficient to
restrain Medicare's growth. Substantive financing and programmatic
reforms will be necessary to put Medicare on a sustainable footing for
the future. Without such fundamental reforms, Medicare's growth
threatens to absorb ever-increasing shares of the nation's budgetary
and economic resources. As we seek to bring our government in line with
21ST century challenges, we must be mindful that health care costs
compete with other legitimate priorities in the federal budget, and
their projected growth threatens to crowd out future generation's
flexibility to decide which competing priorities will be met. The
public sector can play an important role in educating the nation about
the limits of public support. In this regard, we are preparing a health
care framework that includes a set of principles to help policymakers
in their efforts to assess various health financing reform options. By
facilitating debate, the framework can encourage acceptance of changes
necessary to put us on a path to fiscal sustainability.
TAX COMPLIANCE AND PREFERENCES:
Ensuring that taxpayers meet their tax obligations under an
increasingly complex tax code has long presented the IRS with daunting
challenges. Although the majority of taxpayers voluntarily and timely
pay the taxes they owe, regrettably high levels of noncompliance by
some taxpayers persist. Some noncompliance is intentional and may be
due to outright fraud and the use of abusive tax shelters or schemes.
In other cases, noncompliance stems from unintentional errors and
taxpayers' misunderstanding of their obligations. Regardless of the
cause or type of taxpayer--corporate, individual, or other--we have
designated the collection of unpaid taxes as a high-risk area. This
high-risk area includes detecting noncompliance and collecting taxes
due but not paid. More broadly, Congress has created an increasing
number of tax preferences that IRS must administer. In some cases,
those tax preferences are among the largest federal efforts to address
social and other problems. Yet the economy, efficiency, and
effectiveness of those preferences in achieving their purposes are
often not well understood. A better understanding of how well these
preferences work would both support improving them as well as
reconsidering whether certain preferences should be retained.
Tax Compliance and Collection Activity Declines Are Of Increasing
Concern:
Because of the potential revenue losses and the threat to voluntary
compliance, the collection of unpaid taxes is a high-risk area.
Collecting taxes due the government has always been a challenge for
IRS, but in recent years the challenge has grown. Collecting taxes due
includes both compliance programs, like audits, that identify those who
owe more than they self-report, and collection programs that seek
payment of taxes assessed but not timely paid. However, IRS compliance
and collections programs have seen larger workloads, less staffing, and
fewer cases closed per employee.
For the last several years, Congress and others have been concerned
that the declines in IRS's enforcement programs are eroding taxpayers'
confidence that their friends, neighbors, and business competitors are
also paying their fair share of taxes, which may put at risk their
willingness to voluntarily comply with the tax laws. Further, there is
some evidence that willingness to voluntarily comply with the tax laws
may be declining. A survey conducted by the IRS Oversight Board in 2001
found that the percentage of respondents who thought it was never
acceptable to cheat on their income taxes was 76 percent, which was
down from 87 percent who felt that way in a 1999 survey. Also, 42
percent of respondents to the 2001 survey said that they believed it
was more likely than in it was in the past that people do not report
and pay their fair amount of taxes and 9 percent said that they were
more likely to take a chance on being audited than they had been
before.[Footnote 32]
Unfortunately, not enough is known at present about the extent of
noncompliance and where problems are the most serious. IRS only
recently restarted the research program necessary to develop this
information after many years without such research. When last IRS last
conducted detailed compliance research using tax year 1988 data, some
types of taxpayers were found to have especially serious compliance
problems. For example, small business noncompliance was about 40
percent, farm and non-farm sole proprietor noncompliance was about 32
percent, and informal suppliers' noncompliance was about 81
percent.[Footnote 33] While specific, current data is not yet
available, the IRS Commissioner said in May 2002 congressional hearings
that IRS was not providing taxpayers with adequate assurance that their
neighbors or competitors were complying with the tax laws and paying
what they owed.
The number of tax returns increases every year. Between 1993 and 2002,
the number of individual returns filed went from 114.7 million to
approximately 130 million--a 13 percent increase over those 10 years.
IRS projects the number of total individual returns filed will be 132.3
million in 2003 and continue to increase at an annual rate of 1.5
percent until 2009. Such a rate of increase would lead to 145.3 million
total individual returns filed in 2009. Returns from businesses and
other entities have also increased substantially.
While the number of tax returns has increased, key compliance program
rates have declined. In testimonies and reports, GAO has highlighted
large and pervasive declines in IRS's compliance programs. These
programs, not all of which have seen declines, include computerized
checks for nonfiling and underreported income as well as audits of both
individual taxpayers and business entities. Between 1996 and 2001, key
programs generally experienced growing workloads, decreased staffing,
and decreases in the number of cases closed per employee. Figure 5
shows the decline in audit rates for different types of taxpayers.
Figure 5: Change in Percentage of Returns Audited, 1996 - 2001:
[See PDF for image]
[End of figure]
Even as these audit rates decline, IRS has faced new challenges in
ensuring that individuals, small businesses, and corporations pay the
taxes they owe. IRS's Chief Counsel has said that, in the 1990s,
thousands of corporations and wealthy individuals participated in
abusive tax shelters promoted by accounting firms, law firms,
investment banks, and others, and the tax benefits claimed per taxpayer
were significant. To deal with this and other problems, the President's
fiscal year 2004 budget proposal noted that IRS is shifting enforcement
resources from the tax returns of lower-income individuals and small
corporations. One recent IRS initiative resulted in 1,206 taxpayers
disclosing transactions involving $30 billion in claimed losses and
deductions.
IRS faces challenges in executing its strategy for dealing with tax
shelters and schemes. As the former Commissioner of Internal Revenue
noted, abusive shelters have been factually and legally complex,
accompanied by tax opinions legitimizing transactions and encouraging
litigation. Also, in a September 2001 report, the Treasury Inspector
General for Tax Administration recommended that IRS start laying a
better foundation for its strategy by more precisely estimating the
shelter problem. IRS agreed to estimate abusive corporate shelters'
potential tax revenue effect.
Another increasingly challenging area is that of corporate inversions.
According to a 2002 Department of a Treasury report, corporate
inversions are transactions that change a U.S.-based multinational
group's structure "so that a new foreign corporation, typically located
in a low-or no-tax country, replaces the existing U.S. parent
corporation as the parent of the corporate group."[Footnote 34] The
report stated that although such transactions were not new, they were
growing in frequency, size, and profile. Instead of being motivated by
market conditions, they were motivated largely by available tax savings
and involved little or no immediate operational change. According to
Treasury, the fact that our tax law operates so that substantial tax
reductions are available through transactions of more form than
substance is troubling to both policymakers and the public.
IRS collections programs are also increasingly stressed. As we reported
in May 2002, between fiscal years 1996 and 2001 trends in the
collection of delinquent taxes showed almost universal declines in
collection program performance in terms of coverage of workload, cases
closed, direct staff time used, productivity, and dollars of unpaid
taxes collected.[Footnote 35] Although the number of delinquent cases
assigned to collectors went down during this period, the number of
collections cases closed declined more rapidly, creating an increasing
gap. During that 6-year period, the gap between the new collection
workload and collection cases closed grew at an average annual rate of
about 31 percent, as shown in figure 6.[Footnote 36]
Figure 6: Percentage Gap Between New Collection Workload and Work
Completed, Fiscal Years 1996-2002:
[See PDF for image]
[End of figure]
The increasing gap between collection workload and collection work
completed led IRS in March 1999 to start deferring collection action on
billions of dollars in delinquencies. Officials recognized that they
could not work all collection cases, and they believed that they needed
to be able to deal with taxpayers more quickly; particularly taxpayers
who were still in business and owed employment taxes.[Footnote 37]
By the end of fiscal year 2002, after the deferral policy had been in
place for about 3 and one-half years, IRS had deferred taking
collection action on about $15 billion in unpaid taxes, interest, and
penalties that are likely collectable. IRS's deferral of collection
action has declined somewhat since the deferral policy was adopted.
Although the rate has declined from 45 percent in 2000, in 2002 IRS was
still deferring collection action on about one out of three collection
cases--about 32 percent.
IRS is working to reverse these declines. One key element of improving
IRS's compliance programs is obtaining current measures of compliance
to use in targeting IRS's scarce resources to known compliance
problems. The National Research Program (NRP) is a major effort now
underway at IRS to identify the extent and sources of noncompliance.
The current NRP initiative includes individual returns, including
taxpayers reporting income from small businesses. IRS plans to conduct
future iterations of NRP for different types of returns and to return
to individual filers every 3 years. We have reported that the program's
design is likely to yield the detailed information IRS needs about the
extent and causes of noncompliance and enable IRS to improve its
targeting of compliance programs.[Footnote 38]
Another key to improving IRS's compliance and collections programs is
to make more efficient use of its resources. IRS has a number of
reengineering efforts underway to improve its compliance and collection
processes. These efforts range from relatively small-scale improvements
to much more ambitious changes. For example, IRS is seeking to
substantially increase the amount of information available to its
auditors before they first contact a taxpayer. The goal is to make the
best use of the information IRS already has available to it before
commencing an audit. IRS is also seeking to change the way it
identifies collections cases to pursue in order to improve targeting of
scarce collections resources towards cases that it is most worthwhile
to pursue.
Yet another key to ensuring that taxpayers meet their obligations is
adequately staffing IRS's compliance and collections programs. Since
2001, IRS's budget requests have made increasing its compliance and
collection staff one of several key priorities. However, staffing in
two key compliance and collection occupations - revenue agents and
revenue officers - was lower in 2002 than in 2000. This continues a
general trend of declining staffing in these occupations for a number
of years.
While tax compliance and collection issues can be found in many areas,
I would like to give a few examples of persistent compliance issues.
This is by no means an inclusive list. For example, compliance issues
are also pervasive in the area of excise taxes, such as fuel tax
evasion.
Employment Tax Compliance:
In fiscal year 2000, IRS collected $1.3 trillion in amounts withheld by
employers from employees' salaries to cover individual federal income
tax, Social Security, and Medicare taxes; and in employers' matching
amounts for Social Security and Medicare taxes. Although the majority
of employers withhold, match, and deposit these taxes as required, for
those who fail to do so, the amount of unpaid employment taxes, penalty
and interest has grown significantly. As of September 30, 2001, IRS
data showed that employers owed about $49 billion in delinquent
employment taxes, penalties and interest.
The businesses that failed to remit payroll taxes were typically in
wage-based industries and had few available assets from which IRS could
recover these taxes. They were usually small, closely held businesses
using a corporate structure. The most common types of businesses or
industries with unpaid payroll taxes included construction companies
and restaurants, although other types of businesses (including computer
software, child care, and professional services such as legal, medical,
and accounting firms) also have unpaid payroll taxes. Most unpaid
payroll taxes are not fully collectible, and there is often no recovery
potential as many of the businesses are insolvent, defunct, and
otherwise unable to pay.
To the extent that withholdings are not forwarded to the federal
government, the business is liable for these amounts, as well as its
matching contributions. Under the Internal Revenue Code, individuals--
typically officers of a corporation such as a president or treasurer--
who are determined by IRS to be "willful and responsible" for the
nonpayment of federal income taxes and the employee's Social Security
and Medicare taxes can be held personally liable for the unpaid taxes
and assessed penalties. More than one individual can be found willful
and responsible for a business's failure to pay the federal government
withheld payroll taxes and can be assessed a penalty. IRS considers
employment tax compliance to among the most challenging issues for
small businesses, since delinquent tax may rapidly compound beyond the
employers' ability to pay--ultimately placing their business in
financial jeopardy.
In 2002, we reported that IRS had four programs to prevent or reduce
employers' tax delinquencies. Two of these programs were designed to
achieve early contact with employers and two were designed to identify
employers with existing, multiple employment tax delinquencies and help
them to return to compliance. However, we found that IRS had not
successfully evaluated these programs. We recommended IRS do so since
without an evaluation IRS does not know the benefits, if any, of the
programs, whether they need to be improved, or whether the programs
should even be continued.[Footnote 39]
Levies of Federal Payments:
Many taxpayers who are delinquent in paying their federal taxes are
receiving billions of dollars in federal payments annually. IRS and
federal payment records indicate that nearly 1 million taxpayers owed
about $26 billion in delinquent taxes as of February 2002 and were
receiving some type of federal payments. To help the IRS collect these
delinquent tax debts, provisions in the Taxpayer Relief Act of 1997
gave IRS authority to continuously levy[Footnote 40] up to 15 percent
of certain federal payments made to delinquent taxpayers.[Footnote 41]
Payments subject to IRS's continuous levy program include Social
Security, federal salary and retirement payments, and federal vendor
payments. According to IRS, the program resulted in collecting over $60
million in fiscal year 2002 by directly levying federal payments.
GAO has issued three reports including several recommendations focused
on increasing collections and assuring that safeguards are in place so
that only taxpayers with valid tax debts are levied. Although progress
has been made in establishing the continuous levy program, several
changes to the continuous levy program, which have yet to be
implemented, could yield millions of dollars in additional revenue. For
example, in our 2000 report we estimated that as much as $77.7
million[Footnote 42] annually in additional revenue could be generated
if IRS broadened the program to include spouses held by IRS to be
liable for joint tax delinquencies and individuals with multiple IRS
identification numbers.[Footnote 43] IRS has not yet implemented this
recommendation.
In our 2001 report, we found that several large agencies were not
included in the continuous levy program.[Footnote 44] We found, that as
of June 30, 2000, about 70,400 individuals and businesses that received
an estimated $8.2 billion annually in federal payments collectively
from three large agencies--the United States Postal Service, the
Department of Defense, and CMS, which disburses Medicare fee-for-
service payments--owed over $1 billion in federal taxes. We estimated
that IRS could recover at least $270 million annually in delinquent
federal taxes if these payments were included in the continuous levy
program.
In our 2003 report we found that IRS blocks many eligible delinquent
accounts from being included in the Federal Payment Levy Program,
missing an opportunity to gather information on which debtors are
receiving federal payments.[Footnote 45] IRS officials imposed these
blocks because of concerns that the potential volume of levies--about
1.4 million taxpayer accounts--would disrupt ongoing collection
activities. However, we estimate that about 112,000 would actually
qualify for levy. These taxpayers were collectively receiving about
$6.7 billion in federal payments and owed about $1.5 billion in
delinquent taxes. In January 2003, IRS unblocked and began matching
delinquent taxpayer accounts identified as receiving a federal salary
or annuity payment. IRS officials will not unblock the remaining
delinquent accounts until sometime in 2005.
Earned Income Credit (EIC) Noncompliance:
For tax year 2001, about $31 billion was paid to about 19 million EIC
claimants. Although researchers have reported that the EIC has
generally been a successful incentive-based antipoverty program, IRS
has reported high levels of EIC overpayments going back to 1985. IRS's
most recent study, released in 2002, estimated that between $8.5 and
$9.9 billion should not have been paid out to EIC claimants for tax
year 1999, and earlier IRS studies also found significant problems with
the program. Table 1 shows the rates of EIC overclaims estimated by IRS
in three EIC compliance studies.
Table 1: EIC Overclaim Rates for Selected Years:
[See PDF for image]
Source: IRS reports.
Notes: All overclaim rates were adjusted by IRS to reflect dollars
recovered from ineligible recipients. For 1994 only a single estimate
was available. In 1997 and 1999, because not all individuals responded
to audit contacts, IRS used certain assumptions to estimate an
overclaim rate range. The lower bound assumes that the overclaim rate
for nonrespondents is the same as for the respondents, while the upper
bound assumes that all nonrespondents are overclaims.
[End of table]
Administering the EIC is not an easy task--IRS has to balance its
efforts to help ensure that all qualified persons claim the credit with
its efforts to protect the integrity of the tax system and guard
against fraud and other forms of noncompliance associated with the
credit. Further, the complexity of the EIC may contribute to
noncompliance. The EIC is among the more complex provisions of the tax
code, which can contribute to unintentional errors by taxpayers. In
addition, unlike other income transfer programs, the EIC relies more on
self-reported qualifications of individuals than on program staff
reviewing documents and other evidence before judging claimants to be
qualified for assistance.
Early in 2002, the Assistant Secretary of the Treasury and the IRS
commissioner established a joint task force to seek new approaches to
reduce EIC noncompliance. The task force sought to develop an approach
to validate EIC claimants' eligibility before refunds are made, while
minimizing claimants' burden and any impact on the EIC's relatively
high participation rate. Through this initiative, administration of the
EIC program would become more like that of a social service program for
which proof of eligibility is required prior to receipt of any benefit.
According to IRS, three areas--qualifying child eligibility, improper
filing status, and income misreporting (i.e., underreporting)--account
for nearly 70 percent of all EIC refund errors. Although the task force
initiative is designed to address each of these sources of EIC
noncompliance, many of the details about its implementation are still
to be settled. A significant change to the initiative was announced on
June 13, 2003, when IRS said that its pilot effort to precertify the
eligibility of qualifying children for the EIC would not include
requesting claimants to show their relationship to the qualifying
child. Because planning and implementation for the EIC initiative will
proceed simultaneously, its success will depend on careful planning and
close management attention.
As with other tax compliance issues such as corporate tax evasion,
Congress has focused oversight attention on the EIC initiative and
continued oversight can help ensure that the initiative balances
efforts to reduce EIC overpayments with continued efforts to maintain
or increase the portion of the EIC-eligible population that receives
the credit. Further, Congress can consider making the several
definitions of children in the tax code more uniform. The differing
definitions contribute to the complexity taxpayers face and complexity
is widely believed to contribute to errors taxpayers make in claiming
the EIC. As early as 1993 we had suggested that Congress consider
changes that would have made the definitions for children more similar
for several tax purposes. More recently, IRS's Taxpayer Advocate, the
Joint Committee on Taxation, and the Department of the Treasury have
made proposals as well.
The Economy, Efficiency, or Effectiveness of Tax Preferences Are Often
Not Well Understood:
Tax preferences are often intended to achieve policy goals that may be
similar to those of federal spending programs. However, data on the
economy efficiency, and effectiveness of tax preferences is often
lacking. Further, tax preferences are not subject to some review
processes that would support more integrated and informed decisions
about what the government does and how it does it.
Tax preferences refer to departures from the normal tax structure
designed to favor a particular industry, activity, or class of persons
through special deductions, credits, and other tax benefits. Tax
preferences currently in place include programs to encourage economic
development in disadvantaged areas, build affordable housing, make
education more accessible, reduce pollution, and stimulate capital
investment, research, and development. Many tax preferences have
counterparts in direct spending programs created to accomplish similar
goals. In some cases, a tax preference may be among the largest federal
efforts dealing with a social issue. For instance, we reported in 1997
that the Low-Income Housing Tax Credit was the largest federal source
of federal funds to develop or substantially rehabilitate rental
housing for low-income households.
Tax preferences have become a growing part of the federal fiscal
picture over the past 30 years. Based on Joint Committee on Taxation
estimates, the total revenue loss due to tax preferences increased by
twice the rate of overall federal outlays over the last 10 years. Tax
preferences grew about 50 percent, from about $488 billion in 1993 to
about $730 billion in 2003, while federal outlays grew about 25
percent, from $1.7 trillion to $2.1 trillion over the same
period.[Footnote 46]
Not only has the dollar sum associated with these tax preferences grown
over the past 10 years, but the number of programs has also increased.
The number of tax preference programs has doubled since the Joint
Committee on Taxation started reporting on them in 1974, growing from
74 to 148. As shown in figure 7, this growth continued over the past 10
years, from 124 tax preference programs in 1993 to 148 programs in
2002.[Footnote 47] Table 2 lists the ten largest tax preference
programs in terms of dollars claimed in 2002.
Figure 7: Growth in the Number of Tax Preference Programs Listed in
Joint Committee on Taxation Reports, 1993 through 2002:
[See PDF for image]
[End of figure]
Table 2: 10 Largest Tax Preferences by Estimated Dollars Claimed in
2003:
[See PDF for image]
Briefing Book, Individual Capital Gains Tax Issues; and Federal Taxes:
Information on Payroll Taxes and Earned Income Tax Credit
Noncompliance, GAO-01-487T, March 7, 2001.
Note (a): This is the single largest health-related tax preference
reported by the Joint Committee on Taxation. The Joint Committee on
Taxation reports also includes other health-related tax preferences.
Note (b): The tax preference figure for the EIC only includes the
portion of the EIC that offsets income taxes paid.
[End of table]
Despite the importance of tax preferences, the economy, efficiency, and
effectiveness of tax preferences in achieving their purposes is often
not well understood, in part because data on their use and
effectiveness may not be available. For example, we recently studied
business tax preferences to encourage the hiring, retention, and
accommodation of workers with disabilities and found that information
on the effectiveness of the programs was limited and
inconclusive.[Footnote 48] In 2002, we studied the use of tax
preferences intended to help families meet the costs of postsecondary
education and found that Congress did not have the information it
needed to weigh the relative effectiveness of the range of tools
created to accomplish this goal.[Footnote 49] In 1999 we reviewed
businesses' use of empowerment zone tax preferences and had to conduct
our own survey to find information about businesses that were and were
not using the preferences.[Footnote 50]
When critical information about the economy, efficiency, and
effectiveness of tax preferences is made available, it can be very
valuable to congressional decision makers. For example, in 1993 we
described the impacts of a tax credit designed to encourage investment
in Puerto Rico.[Footnote 51] This tax preference effectively exempted
income earned by U.S. firms from operations in U.S. possessions from
federal corporate income taxes. We found that the credit per employee
was, on average, slightly higher than the wages paid per employee and
in some industries was considerably higher. Congress subsequently chose
to phase out the tax credit program.
A decade ago we concluded that greater scrutiny of tax preferences is
warranted. We made a number of recommendations intended to achieve that
end, including recommendations to OMB to incorporate tax preferences,
to the extent possible, into the annual budget review process. Our
intent was that tax preferences be assessed and considered along with
related federal efforts so that the relative effectiveness of both
spending and tax preferences could be considered jointly.
However, tax preferences are still excluded from important review
processes that apply to spending programs. Tax preferences are not
explicitly covered by the Government Performance and Results Act (GPRA)
of 1993 and therefore are not subject to its requirements that are
intended to help ensure that federal programs are achieving their
intended results. However, the Senate Governmental Affairs Committee
Report on GPRA says that tax preferences should be taken into
consideration in a comprehensive examination of government
performance.[Footnote 52] Nevertheless, tax preferences often are not
currently covered by agencies or executive branch processes that
consider the effectiveness of government programs. For example the new
program performance reviews conducted by OMB in connection with the
annual budget process generally do not cover tax preferences.
According to OMB, the Executive Branch is continuing to focus on the
availability of data needed to assess the effects of the tax
expenditures designed to increase savings.[Footnote 53] Treasury's
Office of Tax Analysis and IRS's Statistics of Income Division have
developed a new sample of individual income tax filers as one part of
this effort. This new "panel" sample will follow the same taxpayers
over a period of at least 10 years. Data from this sample will enhance
OMB's ability to analyze the effect of tax expenditures designed to
increase savings. Other efforts by OMB, Treasury, and other agencies to
improve data available for the analysis of tax expenditures are
expected to continue over the next several years, according to OMB. In
practice, data availability is likely to be a major challenge, and data
constraints may limit the assessment of the effectiveness of many
provisions. In addition, such assessments can raise significant
challenges in economic modeling.
REASSESSING WHAT THE GOVERNMENT DOES SHOULD INCLUDE TAX PREFERENCES:
Given their growth and importance, tax preferences must be part of any
comprehensive review of existing programs and activities to adapt
government for the challenges of this century. Any reassessment of
federal missions and strategies should include the entire set of tools
the federal government can use to address national objectives. These
tools include discretionary and mandatory spending, tax provisions,
loans and loan guarantees, and regulations. Spending is most visible
and it is all too easy when we look to define federal support for an
activity to only look at the spending side of the budget. Federal
support, however, may come in the form of exclusions or credits in the
tax code. It may come in the form of direct loans or loan guarantees.
It may come in the design of regulations. Yet none of these tools
should be ignored if we are to get a true picture of federal activity
in an area. So, for example, if we are evaluating federal support for
health care we need to look not only at spending, but also at tax
preferences. Figure 8 shows federal activity in health care and
Medicare budget functions in FY 2003: $48 billion in discretionary BA,
$419 billion in entitlement outlays, $177 million in loan guarantees,
and $129 billion in tax expenditures.[Footnote 54]
Figure 8: Relative Reliance on Policy Tools in the Health Care Budget
Functions (FY 2003):
[See PDF for image]
Source: GAO analysis of data from the Office of Management and Budget.
Note: Loan guarantees account for about $177 million or 0.03 percent of
the approximately $597 billion in total federal health care resources.
[End of figure]
CONCLUDING REMARKS:
There is a Chinese curse that goes "May you live in interesting times."
We clearly do. I would prefer to see this not as a curse--but as a
challenge and an opportunity.
Tackling areas at risk for fraud, waste, abuse, and mismanagement will
require determination, persistence and sustained attention by both
agency managers and Congressional committees. Large and complex federal
agencies must effectively use a mixture of critical resources and
improved processes to improve their economy, efficiency, and
effectiveness, Congressional oversight will be key.
We should be striving to maintain a government that is effective and
relevant to a changing society--a government that is as free as
possible of outmoded commitments and operations that can
inappropriately encumber the future. The difference between "wants,"
"needs," and overall "affordability" and long-term "sustainability" is
an important consideration when setting overall priorities and
allocating limited resources.
Government must operate in the context of broader trends shaping the
United States and its place in the world. These include:
National and global response to terrorism and other threats to personal
and national security;
Increasing interdependence of enterprises, economies, civil society,
and national governments--also know as globalization;
The shift to market-oriented, knowledge-based economies;
An aging and more diverse U.S. population;
Advances in science & technology and the opportunities & challenges
created by these changes;
Challenges and opportunities to maintain & improve the quality of life
for the nation, communities, families & individuals; and:
The increasingly diverse nature of governance structures and tools.
In addition to the above trends, large and growing fiscal challenges at
the federal, state, and local levels are of great concern. Furthermore,
known demographic trends, and rising health care costs and other health
care related challenges (e.g., access, quality) are of growing concern
crossing all sectors of the economy and all geopolitical boundaries.
Government leaders are responsible and accountable for making needed
changes to position the federal government to take advantage of
emerging opportunities and to meet future challenges. Focusing on
accountable, results-oriented management can help the federal
government operate effectively within a broad network that includes
other governmental organizations, nongovernmental organizations, and
the private sector.
In view of the broad trends and large and growing fiscal challenges
facing the nation, there is a need to fundamentally review, reassess,
and reprioritize the proper role of the federal government, how the
government should do business in the future, and--in some instances--
who should do the government's business in the 21ST century. It is also
increasingly important that federal programs use properly designed and
aligned tools to manage effectively across boundaries work with
individual citizens, other levels of government, and other sectors.
Evaluating the role of government and the programs it delivers is key
in considering how best to address the nation's most pressing
priorities. Existing programs, policies and activities cannot be taken
as "givens." We need to look at "the base" across the board--mandatory
and discretionary spending and tax preferences/incentives. Such
periodic reviews of programs can prompt not only a healthy reassessment
of our priorities but also changes needed in program design, resources
and management to get the results we collectively decide we want from
government.
Needless to say, we at GAO are pleased to help Congress in this very
important work.
CONTACTS AND ACKNOWLEDGMENTS:
For further information regarding this testimony, please contact
Barbara D. Bovbjerg, Director, Education, Workforce, and Income
Security Issues, at (202) 512-7215 or bovbjergb@gao.gov regarding
Social Security and disability issues; Leslie G. Aronovitz, Director,
Health Care, at (312) 220-7600, or aronovitzl@gao.gov and Laura A.
Dummit, Director Health Care, at (202) 512-7119, or dummitl@gao.gov
regarding Medicare; Michael Brostek, Director for Tax, Strategic
Issues, at (202) 512-9110, or brostekm@gao.gov regarding tax issues; or
Susan J. Irving, Director for Federal Budget Analysis, Strategic
Issues, at (202) 512-9142 or irvings@gao.gov regarding general budget
and oversight issues in this testimony.
Individuals making key contributions to this testimony included Sheila
Avruch, Sabrina Birnbaum, Jeremy Cox, Carlos Diz, Sandra Gove, Leon
Green, David Lewis, Carol Dawn Petersen, Susan Ragland, Tamara Stenzel,
Melissa Wolf, and Robert Yetvin.
Attachment I: GAO's 2003 High-Risk List:
2003 High-Risk Areas; Year Designated High Risk.
Addressing Challenges In Broad-based Transformations:
Strategic Human Capital Management*; 2001.
U.S. Postal Service Transformation Efforts and Long-Term Outlook*;
2001.
Protecting Information Systems Supporting the Federal Government and
the Nation's Critical Infrastructures; 1997.
Implementing and Transforming the New Department of Homeland Security;
2003.
Modernizing Federal Disability Programs*; 2003.
Federal Real Property*; 2003.
Ensuring Major Technology Investments Improve Services:
FAA Air Traffic Control Modernization; 1995.
IRS Business Systems Modernization; 1995.
DOD Systems Modernization; 1995.
Providing Basic Financial Accountability:
DOD Financial Management; 1995.
Forest Service Financial Management; 1999.
FAA Financial Management; 1999.
IRS Financial Management; 1995.
Reducing Inordinate Program Management Risks:
Medicare Program*; 1990.
Medicaid Program*; 2003.
Earned Income Credit Noncompliance; 1995.
Collection of Unpaid Taxes; 1990.
DOD Support Infrastructure Management; 1997.
DOD Inventory Management; 1990.
HUD Single-Family Mortgage Insurance and Rental Assistance Programs;
1994.
Student Financial Aid Programs; 1990.
Managing Large Procurement Operations More Efficiently:
DOD Weapon Systems Acquisition; 1990.
DOD Contract Management; 1992.
Department of Energy Contract Management; 1990.
NASA Contract Management; 1990.
Source: GAO:
*Additional authorizing legislation is likely to be required as one
element of addressing this high-risk area.
[End of table]
Attachment II: Selected Reports Regarding Specific Areas in Testimony:
Overall:
Federal Budget: Opportunities for Oversight and Improved Use of
Taxpayer Funds. GAO-03-922T. Washington, D.C.: June 18, 2003.
Social Security Programs:
Social Security Administration: Revision to the Government Pension
Offset Exemption Should Be Reconsidered. GAO-02-950, Washington, D.C.:
August 15, 2002.
Social Security: Congress Should Consider Revising the Government
Pension Offset "Loophole." GAO-03-498T. Washington, D.C.: February 27,
2002.
Supplemental Security Income: SSA Could Enhance Its Ability to Detect
Residency Violations. GAO-03-724. Washington, D.C.: July 31, 2003.
Social Security: Issues Relating to Noncoverage of Public Employees.
GAO-03-710T. Washington, D.C.: May 1, 2003.
Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117. Washington, D.C.: January 2003.
High Risk Series: An Update. GAO-03-119. Washington, D.C.: January
2003.
Supplemental Security Income: Progress Made in Detecting and Recovering
Overpayments, but Management Attention Should Continue. GAO-02-849.
Washington, D.C.: September 16, 2002.
Social Security Administration: Agency Must Position Itself Now to Meet
Profound Challenges. GAO-02-289T. Washington, D.C.: May 2, 2002.
SSA and VA Disability Programs: Re-Examination of Disability Criteria
Needed to Help Ensure Program Integrity. GAO-02-597. Washington, D.C.:
August 9, 2002.
Social Security Disability: Efforts to Improve Claims Process Have
Fallen Short and Further Action is Needed. GAO-02-826T. Washington,
D.C.: June 11, 2002.
SSA Disability: Other Programs May Provide Lessons for Improving
Return-to-Work Efforts. GAO-01-153. Washington, D.C.: January 12, 2001.
Supplemental Security Income: Action Needed on Long-Standing Problems
Affecting Program Integrity. GAO/HEHS-98-158. Washington, D.C.:
September 14, 1998.
Social Security: Better Payment Controls for Benefit Reduction
Provisions Could Save Millions. GAO/HEHS-98-76. Washington, D.C.: Apr.
30, 1998.
SSA Disability: Return-to-Work Strategies From Other Systems May
Improve Federal Programs. GAO/HEHS-96-133. Washington, D.C.: July 11,
1996.
SSA Disability: Program Redesign Necessary to Encourage Return to Work.
GAO/HEHS-96-62. Washington, D.C.: April 24, 1996.
Unemployment Insurance:
Unemployment Insurance: Increased Focus on Program Integrity Could
Reduce Billions in Overpayments. GAO-02-697. Washington, D.C.: July 12,
2002.
Medicare:
Medicare: Financial Challenges and Considerations for Reform. GAO-03-
577T. Washington, D.C.: April 10, 2003.
Medicare: Observations on Program Sustainability and Strategies to
Control Spending on Any Proposed Drug Benefit. GAO-03-650T. Washington,
D.C.: April 9, 2003.
Medicare: Payment for Blood Clotting Factor Exceeds Providers'
Acquisition Cost. GAO-03-184. Washington, D.C.: January 10, 2003.
Major Management Challenges and Program Risks: Department of Health and
Human Services. GAO-03-101. Washington, D.C.: January 2003.
High-Risk Series: An Update. GAO-03-119. Washington, D.C.: January
2003.
Skilled Nursing Facilities: Medicare Payments Exceed Costs for Most but
Not All Facilities. GAO-03-183. Washington, D.C.: December 31, 2002.
Medicare Financial Management: Significant Progress Made to Enhance
Financial Accountability. GAO-03-151R. Washington, D.C.: October 31,
2002.
Skilled Nursing Facilities: Providers Have Responded to Medicare
Payment System by Changing Practices. GAO-02-841. Washington, D.C.:
August 23, 2002.
Medicare: Challenges Remain in Setting Payments for Medical Equipment
and Supplies and Covered Drugs. GAO-02-833T. Washington, D.C.: June 12,
2002.
Medicare: Recent CMS Reforms Address Carrier Scrutiny of Physicians'
Claims for Payment. GAO-02-693. Washington, D.C.: May 28, 2002.
Medicare: Using Education and Claims Scrutiny to Minimize Physician
Billing Errors. GAO-02-778T. Washington, D.C.: May 28, 2002.
Medicare Home Health Care: Payments to Home Health Agencies Are
Considerably Higher than Costs. GAO-02-663. Washington, D.C.: May 6,
2002.
Medicare: Communications With Physicians Can Be Improved. GAO-02-249.
Washington, D.C.: February 27, 2002.
Medicare: Payments for Covered Outpatient Drugs Exceed Providers' Cost.
GAO-01-1118. Washington, D.C.: September 21, 2001.
Medicare: Comments on HHS' Claims Administration Contracting Reform
Proposal. GAO-01-1046R. Washington, D.C.: August 17, 2001.
Medicare Management: CMS Faces Challenges to Sustain Progress and
Address Weaknesses. GAO-01-817. Washington, D.C.: July 31, 2001.
Medicare: Successful Reform Requires Meeting Key Management Challenges.
GAO-01-1006T. Washington, D.C.: July 25, 2001.
Medicare Contracting Reform: Opportunities and Challenges in
Contracting for Claims Administration Services. GAO-01-918T.
Washington, D.C.: June 28, 2001.
Medicare: Higher Expected Spending and Call for New Benefit Underscore
Need for Meaningful Reform. GAO-01-539T. Washington, D.C.: March 22,
2001.
Medicare Management: Current and Future Challenges. GAO-01-878T.
Washington, D.C.: June 19, 2001.
Medicare Reform: Modernization Requires Comprehensive Program View.
GAO-01-862T. Washington, D.C.: June 14, 2001.
Medicare: Opportunities and Challenges in Contracting for Program
Safeguards. GAO-01-616. Washington, D.C.: May 18, 2001.
Nursing Homes: Aggregate Medicare Payments Are Adequate Despite
Bankruptcies. GAO/T-HEHS-00-192. Washington, D.C.: September 5, 2000.
Tax Policy and Administration Issues:
IRS Modernization: Continued Progress Necessary for Improving Service
to Taxpayers and Ensuring Compliance. GAO-03-769T. Washington, D.C.:
May 20, 2003.
Compliance and Collection: Challenges for IRS in Reversing Trends and
Implementing New Initiatives. GAO-03-732T. Washington, D.C.: May 7,
2003.
Internal Revenue Service: Assessment of fiscal year 2004 Budget Request
and 2003 Filing Season Performance to Date. GAO-03-641T. Washington,
D.C.: April 8, 2003.
Tax Administration: Federal Payment Levy Program Measures, Performance,
and Equity Can Be Improved. GAO-03-356. Washington, D.C.: March 6,
2003.
Tax Administration: IRS Should Continue to Expand Reporting on Its
Enforcement Efforts. GAO-03-378. Washington, D.C.: January 31, 2003.
Performance and Accountability Series: Major Management Challenges and
Program Risks--Department of the Treasury. GAO-03-109. Washington,
D.C.: January 2003.
Business Tax Incentives: Incentives to Employ Workers with Disabilities
Receive Limited Use and Have an Uncertain Impact. GAO-03-39.
Washington, D.C.: December 11, 2002.
Student Aid and Tax Benefits: Better Research and Guidance Will
Facilitate Comparison of Effectiveness and Student Use. GAO-02-751.
Washington, D.C.: September 13, 2002.
Tax Administration: New Compliance Research Effort is on Track, but
Important Work Remains. GAO-02-769. Washington, D.C.: June 27, 2002.
Tax Administration: Impact of Compliance and Collection Program
Declines on Taxpayers. GAO-02-674. Washington, D.C.: May 22, 2002.
Tax Administration: IRS's Efforts to Improve Compliance with Employment
Tax Requirements Should Be Evaluated. GAO-02-92. Washington, D.C.:
January 15, 2002.
Tax Administration: Millions of Dollars Could Be Collected If IRS
Levied More Federal Payments. GAO-01-711. Washington, D.C.: July 20,
2001.
Tax Administration: IRS' Levy of Federal Payments Could Generate
Millions of Dollars. GAO/GGD-00-65. Washington, D.C.: April 7, 2000.
Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty
Assessments are owed. GAO/AIMD/GGD-99-211. Washington, D.C.: August 2,
1999.
Community Development: Business Use of Empowerment Zones Tax
Incentives. GAO/RCED-99-253. Washington, D.C.: September 30, 1999.
Tax Credits: Opportunities to Improve Oversight of the Low-Income
Housing Program. GAO/T-GGD/RCED-97-149. Washington, D.C.: April 23,
1997.
Tax Credits: Opportunities to Improve Oversight of the Low-Income
Housing Program. GAO/GGD/RCED-97-55. Washington, D.C.: March 28, 1997.
Tax Policy: Tax Expenditures Deserve More Scrutiny. GAO/GGD/AIMD-94-
122. Washington, D.C.: June 3, 1994.
Tax Policy: Puerto Rico and the Section 936 Tax Credit. GAO/GGD/-93-
109. Washington, D.C.: June 8, 1993.
Child Support Enforcement:
Child Support Enforcement: Clear Guidance Would Help Ensure Proper
Access to Information and Use of Wage Withholding by Private Firms.
GAO-02-349, March 26, 2002.
Child Support Enforcement: Effects of Declining Welfare Caseloads Are
Beginning to Emerge. GAO/HEHS-99-105. Washington, D.C.: June 30, 1999.
Welfare Reform: Child Support an Uncertain Income Supplement for
Families Leaving Welfare. GAO/HEHS-98-168. Washington, D.C.: August 3,
1998.
Child Support Enforcement: Early Results on Comparability of Privatized
and Public Offices. GAO/HEHS-97-4. Washington, D.C.: December 16, 1996.
Child Support Enforcement: Reorienting Management Toward Achieving
Better Program Results. GAO/HEHS/GGD-97-14. Washington, D.C.: October
25, 1996.
Child Support Enforcement: States' Experience with Private Agencies'
Collection of Support Payments. GAO/HEHS-97-11. Washington, D.C.:
October 23, 1996.
Child Support Enforcement: States and Localities Move to Privatized
Services. GAO/HEHS-96-43FS. Washington, D.C.: November 20, 1995.
Child Support Enforcement: Opportunity to Reduce Federal and State
Costs. GAO/T-HEHS-95-181. Washington, D.C.: June 13, 1995.
Grant Programs:
Formula Grants: Effects of Adjusted Population Counts on Federal
Funding to States. GAO/HEHS-99-69. Washington, D.C.: February 26, 1999.
Medicaid Formula: Effects of Proposed Formula on Federal Shares of
State Spending. GAO/HEHS-99-29R. Washington, D.C.: February 19, 1999.
Welfare Reform: Early Fiscal Effect of the TANF Block Grant. GAO/AIMD-
98-137. Washington, D.C.: August 22, 1998.
Public Housing Subsidies: Revisions to HUD's Performance Funding System
Could Improve Adequacy of Funding. GAO/RCED-98-174. Washington, D.C.:
June 19, 1998.
School Finance: State Efforts to Equalize Funding Between Wealthy and
Poor School Districts. GAO/HEHS-98-92. Washington, D.C.: June 16, 1998.
School Finance: State and Federal Efforts to Target Poor Students. GAO/
HEHS-98-36. Washington, D.C.: January 28, 1998.
School Finance: State Efforts to Reduce Funding Gaps Between Poor and
Wealthy Districts. GAO/HEHS-97-31. Washington, D.C.: February 5, 1997.
Federal Grants: Design Improvements Could Help Federal Resources Go
Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996.
Public Health: A Health Status Indicator for Targeting Federal Aid to
States. GAO/HEHS-97-13. Washington, D.C.: November 13, 1996.
School Finance: Options for Improving Measures of Effort and Equity in
Title I. GAO/HEHS-96-142. Washington, D.C.: August 30, 1996.
Highway Funding: Alternatives for Distributing Federal Funds. GAO/RCED-
96-6. Washington, D.C.: November 28, 1995.
Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity.
GAO/HEHS-96-26. Washington, D.C.: November 13, 1995.
Department of Labor: Senior Community Service Employment Program
Delivery Could Be Improved Through Legislative and Administrative
Action. GAO/HEHS-96-4. Washington, D.C.: November 2, 1995.
Federal Assistance: Grant System Continues to Be Highly Fragmented.
GAO-03-718T. Washington, D.C.: April 29, 2003.
Multiple Employment and Training Programs: Funding and Performance
Measures for Major Programs. GAO-03-589. Washington, D.C.: April 18,
2003.
Managing for Results: Continuing Challenges to Effective GPRA
Implementation. GAO/T-GGD-00-178. Washington, D.C.: July 20, 2000.
Workforce Investment Act: States and Localities Increasingly Coordinate
Services for TANF Clients, but Better Information Needed on Effective
Approaches. GAO-02-696. Washington, D.C.: July 3, 2002.
Fundamental Changes are Needed in Federal Assistance to State and Local
Governments. GAO/GGD-75-75. Washington, D.C.: August 19, 1975.
Flood Insurance Losses:
Flood Insurance: Information on Financial Aspects of the National Flood
Insurance Program. GAO/T-RCED-00-23. Washington, D.C.: October 27,
1999.
Flood Insurance: Information on Financial Aspects of the National Flood
Insurance Program. GAO/T-RCED-99-280. Washington, D.C.: August 25,
1999.
Flood Insurance: Financial Resources May Not Be Sufficient to Meet
Future Expected Losses. GAO/RCED-94-80. Washington, D.C.: March 21,
1994.
(450240):
FOOTNOTES
[1] In this testimony the term "tax preferences" is used to describe
provisions in the tax code sometimes referred to as "tax incentives" or
"tax expenditures." "Tax expenditures" are defined under the
Congressional Budget and Impoundment Control Act of 1974 as "revenue
losses attributable to provisions of the Federal tax laws which allow a
special exclusion, exemption, or deduction from gross income or which
provide a special credit, a preferential rate of tax, or a deferral of
tax liability." The Joint Committee on Taxation describes tax
expenditures as including any reductions of income tax liabilities that
result from special tax provisions or regulations that provide tax
benefits to particular taxpayers.
[2] While Social Security and Medicare are the largest direct spending
or mandatory programs, this category also includes such others as farm
price supports, insurance programs, food stamps, TANF block grants to
the states, federal civilian and military pension and health.
[3] Excluding the Iraq war supplemental the figures are 56 percent
mandatory and 37 percent discretionary.
[4] U.S. General Accounting Office, High-Risk Series: An Update, GAO-
03-119 (Washington, D.C.: January 2003).
[5] U.S. General Accounting Office, Supplemental Security Income:
Action Needed on Long-Standing Problems Affecting Program Integrity,
GAO/HEHS-98-158 (Washington, D.C.: Sept. 14, 1998).
[6] GAO/HEHS-98-158.
[7] See 42 U.S.C. sec. 1382c(a)(1)(B)(i).
[8] See 42 U.S.C. sec. 1382(f).
[9] U.S. General Accounting Office, Supplemental Security Income:
Progress Made in Detecting and Recovering Overpayments, but Management
Attention Should Continue, GAO-02-849 (Washington, D.C.: Sept. 16,
2002).
[10] Social Security's provisions regarding public employees are rooted
in the fact that about one-fourth of them do not pay Social Security
taxes on the earnings from their government jobs. Even though these
noncovered employees may have many years of earnings on which they do
not pay Social Security taxes, they can still be eligible for Social
Security benefits based on their spouses' or their own earnings in
covered employment.
[11] See U.S. General Accounting Office, Social Security
Administration: Better Payment Controls for Benefit Reduction
Provisions Could Save Millions, GAO/HEHS-98-76 (Washington, D.C.: Apr.
30, 1998).
[12] See U.S. General Accounting Office, Social Security: Issues
Relating to Noncoverage of Public Employees, GAO-03-710T (Washington,
D.C.: May 1, 2003).
[13] U.S. General Accounting Office, Social Security Disability:
Efforts to Improve Claims Process Have Fallen Short and Further Action
is Needed, GAO-02-826T (Washington, D.C.: June 11, 2002).
[14] U.S. General Accounting Office, Social Security Administration:
Agency Must Position Itself Now to Meet Profound Challenges, GAO-02-
289T (Washington, D.C.: May 2, 2002).
[15] GAO-03-119.
[16] These updates include adding or dropping conditions that qualify
one for benefits, modifying the criteria needed to establish the
presence and severity of certain medical conditions, and wording
changes for clarification and guidance in decision making.
[17] U.S. General Accounting Office, SSA Disability: Program Redesign
Necessary to Encourage Return to Work, GAO/HEHS-96-62 (Washington,
D.C.: Apr. 24, 1996).
[18] U.S. General Accounting Office, SSA Disability: Return-to-Work
Strategies From Other Systems May Improve Federal Programs, GAO/HEHS-
96-133 (Washington, D.C.: July 11, 1996).
[19] This bill is currently pending in the Senate.
[20] U.S. General Accounting Office, Medicare: Recent CMS Reforms
Address Carrier Scrutiny of Physicians' Claims for Payment, GAO-02-693
(Washington, D.C.: May 28, 2002).
[21] U.S. General Accounting Office, Medicare: Communications With
Physicians Can Be Improved, GAO-02-249 (Washington, D.C.: Feb. 27,
2002).
[22] In fiscal year 2001, Medicare paid $13 billion to skilled nursing
facilities and $9 billion for home health services.
[23] U.S. General Accounting Office, Skilled Nursing Facilities:
Medicare Payments Exceed Costs for Most but Not All Facilities, GAO-03-
183 (Washington, D.C.: Dec. 31, 2002).
[24] U.S. General Accounting Office, Medicare Home Health Care:
Payments to Home Health Agencies Are Considerably Higher than Costs,
GAO-02-663 (Washington, D.C.: May 6, 2002).
[25] U.S. General Accounting Office, Medicare Home Health Care:
Prospective Payment System Will Need Refinement as Data Become
Available, GAO/HEHS-00-9 (Washington, D.C.: Apr. 7, 2000) and U.S.
General Accounting Office, Medicare Home Health Care: Prospective
Payment System Could Reverse Recent Declines in Spending, GAO/HEHS-00-
176 (Washington, D.C.: Sept. 8, 2000).
[26] Medicare fee payments and beneficiary cost sharing for medical
equipment and supplies, which includes prosthetics (or artificial limbs
or other body parts) and orthotics (or braces) totaled approximately $9
billion for calendar year 2002. This category includes some drugs
covered under part B, such as drugs used in a piece of equipment--for
example, a nebulizer or an infusion pump.
[27] U.S. General Accounting Office, Medicare: Home Oxygen Program
Warrants Continued HCFA Attention, GAO/HEHS-98-17 (Washington, D.C.:
Nov. 7. 1997).
[28] While Medicare does not have a comprehensive outpatient drug
benefit, certain drugs and biologicals are covered under part B of the
program, which also provides coverage for certain physician, outpatient
hospital, laboratory, and other services to beneficiaries who pay
monthly premiums. See U.S. General Accounting Office, Medicare:
Payments for Covered Outpatient Drugs Exceed Providers' Cost, GAO-01-
1118 (Washington, D.C.: Sept. 21, 2001).
[29] Hemophilia treatment centers and homecare companies are the two
major providers of clotting factors to beneficiaries. See U.S. General
Accounting Office, Medicare: Payment for Blood Clotting Factor Exceeds
Providers' Acquisition Cost, GAO-03-184 (Washington, D.C.: Jan. 10,
2003).
[30] GAO-01-1118.
[31] U.S. General Accounting Office, High-Risk Series: An Update, GAO-
01-263 (Washington, D.C.: January 2001).
[32] These two questions were new in the 2001 survey so there are not
comparative figures from 1999.
[33] Informal suppliers are sole proprietors who operate in an informal
business style, such as door-to-door sales and individuals who
moonlight to augment their wage income.
[34] Department of the Treasury, Office of Tax Policy, Corporate
Inversion Transactions: Tax Policy Implications, (Washington, D.C.: May
17, 2002).
[35] U.S. General Accounting Office, Tax Administration: Impact of
Compliance and Collection Program Declines on Taxpayers, GAO-02-674
(Washington, D.C.: May 22, 2002).
[36] Workload is the number of delinquent accounts assigned to field
and telephone collection. Work completed is the number of delinquent
accounts worked to closure, excluding accounts for which collection
work has been deferred.
[37] IRS considers employment tax compliance to be among the most
challenging issues for small business, since delinquent tax can rapidly
compound beyond the employer's ability to pay. See U.S. General
Accounting Office, Tax Administration: IRS's Efforts to Improve
Compliance with Employment Tax Requirements Should Be Evaluated, GAO-
02-92, (Washington, D.C.; Jan. 15, 2002).
[38] U.S. General Accounting Office, Tax Administration: New Compliance
Research Effort is on Track, but Important Work Remains, GAO-02-769,
(Washington, D.C.: June 27, 2002); and U.S. General Accounting Office,
Internal Revenue Service: Assessment of Fiscal Year 2004 Budget Request
and 2003 Filing Season Performance to Date, GAO-03-641T, (Washington,
D.C.: Apr. 8, 2003).
[39]
U.S. General Accounting Office, Tax Administration: IRS's Efforts to
Improve Compliance with Employment Tax Requirements Should Be
Evaluated, GAO-02-92 (Washington, D.C.: Jan. 15, 2002).
[40] Levy is the legal process by which IRS orders a third party to
turn over property in its possession that belongs to the delinquent
taxpayer named in a notice of levy. A continuous levy remains in effect
from the date such levy is first made until the tax debt is fully paid
or IRS releases the levy.
[41] Specifically, the 1997 legislation allows continuous levy of
"specified payments," including nonmeans-tested federal payments, as
well as certain previously exempt payments.
[42] The 95-percent confidence interval for the $77.7 million ranges
from $73.5 million to $81.9 million.
[43] U.S. General Accounting Office, Tax Administration: IRS's Levy of
Federal Payments Could Generate Millions of Dollars, GAO/GGD-00-65,
(Washington, D.C.: Apr. 7, 2000).
[44] U.S. General Accounting Office, Tax Administration: Millions of
Dollars Could be Collected if IRS Levied More Federal Payments, GAO-01-
711, (Washington, D.C.: July 20, 2001).
[45] U.S. General Accounting Office, Tax Administration: Federal
Payment Levy Program Measures, Performance, and Equity Can Be Improved,
GAO-03-356, (Washington, D.C.: Mar. 6, 2003).
[46] All dollar figures are reported in 2003 adjusted dollars. Though
it is not precisely correct to add up all tax expenditures because some
have interactive effects though they are reported individually, these
figures provide a useful gauge of the general magnitude of these
provisions. The tax preference figures only include the portions of the
refundable child tax credit and EIC that offset income taxes paid.
[47] Although we refer to them as tax preferences, these annual figures
come from the Joint Committee on Taxation's annual reports on tax
expenditures.
[48] U.S. General Accounting Office, Business Tax Incentives:
Incentives to Employ Workers with Disabilities Receive Limited Use and
Have an Uncertain Impact, GAO-03-39, (Washington, D.C.: Dec. 11, 2002).
[49] U.S. General Accounting Office, Student Aid and Tax Benefits:
Better Research and Guidance will Facilitate Comparison of
Effectiveness and Student Use, GAO-02-751, (Washington, D.C.: Sept. 13,
2002).
[50] U.S. General Accounting Office, Community Development: Businesses'
Use of Empowerment Zone Tax Incentives, GAO/RCED-99-253, (Washington,
D.C.: Sept. 30, 1999).
[51] U.S. General Accounting Office, Tax Policy; Puerto Rico and the
Section 936 Tax Credit, GAO/GGD-93-109, (Washington, D.C.: June 8,
1993).
[52] Report of the Committee on Governmental Affairs, United States
Senate, Government Performance and Results Act of 1993, (June 16, 1993,
Report 103-58).
[53] U.S. Office of Management and Budget, Analytical Perspectives,
Budget of the United States Government, Fiscal Year 2004 (Washington,
DC: Government Printing Office) 2003.
[54] This represents the sum of a number of different tax provisions.
