[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
FAILURES OF FISCAL MANAGEMENT: A VIEW FROM THE COMPTROLLER GENERAL
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HEARING
BEFORE THE
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, D.C., MAY 3, 2017
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Serial No. 115-4
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Printed for the use of the Committee on the Budget
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Available on the Internet:
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COMMITTEE ON THE BUDGET
DIANE BLACK, Tennessee, Chairman
TODD ROKITA, Indiana, Vice Chairman JOHN A. YARMUTH, Kentucky,
MARIO DIAZ-BALART, Florida Ranking Minority Member
TOM COLE, Oklahoma BARBARA LEE, California
TOM McCLINTOCK, California MICHELLE LUJAN GRISHAM, New Mexico
ROB WOODALL, Georgia SETH MOULTON, Massachusetts
MARK SANFORD, South Carolina HAKEEM S. JEFFRIES, New York
STEVE WOMACK, Arkansas BRIAN HIGGINS, New York
DAVE BRAT, Virginia SUZAN K. DelBENE, Washington
GLENN GROTHMAN, Wisconsin DEBBIE WASSERMAN SCHULTZ, Florida
GARY J. PALMER, Alabama BRENDAN F. BOYLE, Pennsylvania
BRUCE WESTERMAN, Arkansas RO KHANNA, California
JAMES B. RENACCI, Ohio PRAMILA JAYAPAL, Washington,
BILL JOHNSON, Ohio Vice Ranking Minority Member
JASON SMITH, Missouri SALUD O. CARBAJAL, California
JASON LEWIS, Minnesota SHEILA JACKSON LEE, Texas
JACK BERGMAN, Michigan JANICE D. SCHAKOWSKY, Illinois
JOHN J. FASO, New York
LLOYD SMUCKER, Pennsylvania
MATT GAETZ, Florida
JODEY C. ARRINGTON, Texas
A. DREW FERGUSON IV, Georgia
Professional Staff
Richard E. May, Staff Director
Ellen Balis, Minority Staff Director
CONTENTS
Page
Hearing held in Washington, D.C., May 3, 2017.................... 1
Hon. Diane Black, Chairman, Committee on the Budget.......... 1
Prepared statement of.................................... 3
Hon. John A. Yarmuth, Ranking Member, Committee on the Budget 5
Prepared statement of.................................... 7
Hon. Gene L. Dodaro, Comptroller General of the United States 9
Prepared statement of.................................... 11
Hon. Pramila Jayapal, Vice Ranking Minority Member, Committee
on the Budget, questions submitted for the record.......... 106
Hon. Barbara Lee, Member, Committee on the Budget, questions
submitted for the record................................... 107
Hon. Gene L. Dodaro's response to questions submitted for the
record..................................................... 109
FAILURES OF FISCAL MANAGEMENT: A VIEW FROM THE COMPTROLLER GENERAL
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WEDNESDAY, MAY 3, 2017
House of Representatives,
Committee on the Budget,
Washington, D.C.
The Committee met, pursuant to call, at 10:00 a.m., in 1334
Longworth House Office Building, Hon. Diane Black, [chairman of
the committee] presiding.
Present: Representatives Black, McClintock, Grothman,
Lewis, Bergman, Faso, Smucker, Ferguson, Arrington, Woodall,
Johnson, Westerman, Smith, Sanford, Renacci, Palmer, Brat,
DelBene, Jayapal, Carbajal, Schakowsky, Higgins, Jackson Lee,
and Lujan Grisham.
Chairman Black. The hearing will come to order. I want to
welcome the Committee on the Budget to the hearing of failures
of fiscal management. Today, we will hear testimony from the
Comptroller General of the United States, the Honorable Gene
Dodaro. I want to welcome everybody back today.
As I am sure everyone is aware, we will be introducing the
fiscal year 2018 budget later this spring, and the challenges
we face are enormous. Deficits are set to start rising again.
Many government programs are in dire need of reform. And our
economy is being held back by the policies of the previous
administration.
And while these problems are daunting, we are elected by
our constituents to make the hard decisions and confront the
challenges head on. And that is exactly what we plan to do in
this year's House Budget Committee. That is also why we are
having this hearing today on the failures of fiscal management,
and it is so important and so timely to what we are called to
do. We need to do better to understand how the government,
Federal Government, is failing to effectively manage taxpayer
dollars and how that is affecting our long-term fiscal
solvency.
I am happy to welcome our witness today, the Honorable Gene
L. Dodaro. He is the Comptroller General of the United States
and the director of the Government Accountability Office.
The GAO possesses a wealth of information about the
government's fiscal condition and the operation of its
programs. Three areas we plan to examine today are the
disturbing rise of improper payments by the government
agencies; the programs GAO considers as high risk for waste,
fraud, and abuse and mismanagement; and the government's long-
term fiscal outlook, which, as all of you are aware, is not
good.
Mr. Dodaro, thank you for taking time out of your busy
schedule to be here with us today. The Committee is looking
forward to your testimony.
But before we build solutions, we need to understand the
core of the problem, and Mr. Dodaro's testimony will be vital
to that. First, are the improper payments made by the Federal
Government. Improper payments are defined as any government
payment that was made in an incorrect amount to the wrong
individual or entity or for the wrong person. For example, an
improper payment would be an unemployment check going to a
person who has already returned to work. According to the GAO,
improper payments surged to $144 billion in just 2016. That is
a 35 percent increase from the $107 billion in 2012.
This is a problem that is government wide, including 112
programs across 22 agencies. Even worse, those numbers probably
underestimate the extent of the problem since 18 government
programs deemed susceptible to improper payments did not even
submit error estimates last year. $144 billion is the minimum
of the problem, not the maximum.
Second, we want to examine the government's high-risk
programs. Every 2 years, GAO publishes an updated list of
programs that it covers especially vulnerable to waste, fraud,
abuse, and mismanagement. This year, GAO identified 34 programs
that matched this description. The programs that demand further
review are Medicare, Medicaid, Federal disability programs,
Pension Benefit Guaranty Corporation, insurance programs, and
the National Flood Insurance Program and veterans' health care.
Third, we want to focus on our long-term fiscal outlook. In
January, GAO released a report examining government spending,
revenues, deficits, and debt. The conclusion was all too
familiar. Our fiscal path is unsustainable, and if we fail to
get control of debt and deficits, we are putting our country at
risk of a fiscal and economic crisis. GAO's simulation shows
our debt-to-GDP ratio would pass its all-time historical high
of 106 percent in the next 15-20 years and that Social Security
disability insurance, the Medicare Hospital Insurance Trust
Fund, and the Social Security Old-Age and Survivors Trust Funds
will be depleted, and, therefore, forced to pay reduced
benefits.
A failure to solve these problems means seniors, who have
worked their whole lives, and those truly in need of help, can
no longer count on these vital safety net programs. Improper
payments, high-risk programs, and our growing debt all pose an
enormous challenge, and we need to take real, tangible steps to
reduce the amount of money that is being wasted to help keep
our fiscal house in order.
Mr. Dodaro, once again, thank you for being here. I know
you and your staff have worked very hard to prepare for this
hearing today. And thank you for taking your job as a
government watchdog so seriously. I look forward to hearing
your testimony and your recommendations on how we can all be
better stewards of the taxpayer dollars. And thank you for
that, and I now yield to the ranking member, Mr.Yarmuth.
[The prepared statement of Chairman Diane Black follows:]
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Mr. Yarmuth. Thank you, Madam Chairman, and thank you, Mr.
Dodaro, for being here today to give us your views on the
country's fiscal challenges and on the important work the GAO
performs to ensure that the Federal Government is held
accountable and continues to improve its performance. We all
agree that we should look for ways to make government agencies
and programs more efficient. And I look forward to hearing your
views on these issues. This hearing is titled Failures of
Fiscal Management.
I certainly agree with the chairman that we need to be
doing all we can to root out improper payments and ineffective
programs. In fact, I would argue that this should be a greater
priority for Democrats because of the important value we
believe government plays in the lives of the American people.
This is certainly a reasonable hearing to have. It is a
reasonable topic. But we are in a situation that is anything
but reasonable.
Yesterday, President Trump called for a shutdown of the
Federal Government. The President of the United States stated
that, ``Our country needs a good shutdown.'' No, our country
needs a responsible President, one who understands you do not
begin the 2018 budget negotiations by threatening the economic
security of our Nation. This administration is already off to a
rocky start. Their initial budget failed to include any
information on revenues and well more than half of Federal
spending. The only detail provided called for severe cuts to
discretionary investments that the American people need and
deserve. That was followed by a plan to enact deficit-busting
tax cuts for the rich that the American people overwhelmingly
oppose. And then there is a plan to repeal the Affordable Care
Act that has failed three times and counting.
After a 4-month delay requested by the Trump
administration, which put important new programs on hold,
postponed contracts, and impeded the work of our Federal
agencies, we are just now passing a fiscal year 2017 omnibus
appropriations bill. That is for the fiscal year that started
seven months ago. We can now move to the fiscal year 2018
budget, which brings me back to President Trump and his
comments yesterday. I come back to that because it is so
important to the credibility of every member of this Committee,
as well as our colleagues on the Appropriations Committee.
Calling for a shutdown of the Federal Government is
irresponsible and reckless. The last shutdown took billions of
dollars out of the economy and was entirely avoidable.
As members of the House Budget Committee, it is our job to
craft a congressional budget, a budget for our Nation. It is
our responsibility to treat this process seriously in a way
that respects the gravity of the decisions made by this
Committee, regardless of whether we agree or disagree on
priorities or policy. We have a responsibility to protect the
seriousness of the work we are charged with and this must
include condemning reckless calls for shutting down the Federal
Government. On this, we need to speak as a unified voice.
So, I ask my colleagues on the other side of the aisle,
when are you going to say something? When are you going to push
back against these statements about President Trump that
threaten our economic and national security, that erodes even
further the American people's confidence in our government?
Please find that courage. We cannot let these statements go
unchecked any longer. As members of the Budget Committee, we
must be a stabilizing force in these debates. With that, I once
again welcome you, Mr. Dodaro, I look forward to your
testimony, and I yield back.
[The prepared statement of John Yarmuth follows:]
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Chairman Black. Thank you, Mr. Yarmuth. And in the interest
of time, if any other members have opening statements, I ask
that you submit them for the record.
Chairman Black. I would now like to recognize the
Comptroller General of the United States, the Honorable Gene
Dodaro. Mr. Dodaro, thank you, again, for your time today. The
Committee has received your written statement and it will be
made part of the formal hearing. You have 5 minutes to deliver
your oral remarks and you may begin when you are ready.
STATEMENT OF GENE L. DODARO, COMPTROLLER GENERAL OF THE UNITED
STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Dodaro. Thank you very much, Madam Chairman, Ranking
Member Yarmuth, members of the Committee. I am very pleased to
be here today to discuss GAO's work related to the fiscal
health of the Federal Government.
In January, we issued a report outlining our views on the
current fiscal condition of the Federal Government and its
outlook for the future. In that report, we recognized that the
Congress and the country face a number of serious economic,
security, and social issues and need to make short-term
investment decisions and difficult policy options to be
considered. But we also underscore the fact that the Congress
and the administration face a situation where the government is
heavily leveraged in debt by historic norms and, in our view,
on an unsustainable fiscal path.
The deficit for 2016 rose to $580 billion. It was the first
time in the last 6 years the annual deficit rose. That took the
cumulative debt held by the public as a percent of gross
domestic product from 74 percent to 77 percent. Now, that
compares to an average since 1946 of 44 percent. So, we are,
you know, much more indebted than by the historical averages as
a percent of gross domestic product. If you look into the
future, our projections, the projections of Treasury and OMB
and CBO all show that the Federal Government, absent a fiscal
change in policies, would exceed the historic average of debt-
to-GDP ratio of over 106 percent that accrued during World War
II. And it would keep rising in the out years to 200 percent
and beyond.
So, something has to change. The key drivers here are
health care costs, the rapid growth of Medicare and Medicaid
programs. Health care costs are still growing faster than the
economy, and demographic changes are adding additional people
to the rolls as our population ages and as people's life spans
extend. Also, interest on the debt is another long-term driver.
In 2016, we paid over $250 billion in just the interest to
service the debt. The interest rate costs are going to rise,
and if we continue to add to the debt combined with interest
rates accruing, that is going to be a key driver in driving
this deficit up much further. You know, compound interest is
great when you are saving, but it is not so good when you are
borrowing. And that is the position, unfortunately, that we are
in.
Now, in order to resolve these problems, I believe the
Congress needs to pass a plan to deal with these long-term
situations. The sooner we take action, the better, so people
can adjust because you are going to have to grapple with the
entitlement programs, discretionary spending, and the revenue
side of the government. So, it would introduce a number of
changes, and the sooner action is taken, the easier it will be
to introduce these changes and give people time to adjust. Now,
while solving this problem requires these difficult fiscal
policy decisions, there are other things that could be done to
help make the government more efficient and effective.
You mentioned, Madam Chairman, in your opening statements,
improper payments. Since the Congress required improper
payments to be estimated by Federal departments and agencies
and reported to the Congress in 2003, the estimated number of
improper payments reported has exceeded $1.2 trillion. In the
last few years, as you mentioned, the last 3 years, it has gone
from $125 billion, to $137, to now $144 billion. And so, this
situation requires attention and focus. We have many
recommendations for how it could be handled. The figure is an
underestimated figure because, as you mentioned, 18 major
federal programs did not report improper payment estimates in
2016, including the Temporary Assistance for Needy Families
Program and the Supplemental Nutrition Assistance Program, both
large programs. So, the number is much larger, and a number of
things could be done.
We also have recommendations, about almost 400
recommendations, where tens of billions of dollars could be
saved by eliminating overlap duplication and fragmentation,
taking other cost-saving options to deal with these issues, so
I look forward to working with this Committee.
I appreciate this hearing today so that we could discuss
GAO's work. I believe it can help the Congress deal and grapple
with these very important issues to the future of our country.
Thank you very much for the opportunity. I look forward to
answering questions.
[The prepared statement of Gene L. Dodaro follows:]
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Chairman Black. Wow, you were right on the dot there. I
would expect nothing less from the Comptroller General to be
right on the dot when it comes to numbers. Again, we so much
appreciate you being here and the work that you and all of the
folks in your office have done. I do not disagree at all that
we have to have a better plan, and we have not done as good a
job as we need to do with controlling many of those costs,
including the growing interest, which you have already
indicated is a big part of our expenses and will only grow if
we do not get cost control on the other side.
But let me go to the government wide improper payments. As
has already been said in my comments and again with you that it
totaled $144 billion. And I do not know, when we talk about
millions and billions and trillions of dollars around here, it
is almost like a Monopoly game. But this is real money: $144
billion dollars. I think about what could be done with that
money instead of being an improper payment that goes out the
door, and we do not really have a good way of retrieving that.
But you also said this may be an understated problem, so
some of 18 government programs did not even report the estimate
for their improper payments last year. Does this suggest that
the problem of improper payments is even larger than what you
are reporting? In other words, $144 billion really might just
be a floor, rather than a ceiling, and if you could give us
some kind of, even, just ballpark? I know that is difficult to
be done, but just kind of a ballpark of where that difference
may be?
Mr. Dodaro. First, it is definitely an underestimate, what
the total scope of the problem is. Every year, when we issue
our statement on our audit of the Federal Government's
financial statements, we list this material weakness that the
Federal Government is unable to report for staff an improper
payment problem and, thus, is not in the position to
effectively manage the results of those programs. When we first
started doing our audits of the Federal Government financial
statements, and those audits were not required by the Congress
until 1996. So, we went for 200 years in this country without
the discipline of annual financial statement preparation and
audit, like it occurs in the private sector and, of course, at
the state and local levels. The auditors estimated the improper
payment estimates and then, finally, Congress passed a law
requiring the management of the departments and agencies to do
this.
You know, unfortunately, I cannot find you a figure on what
I think the total would be, but I think it to be materially
understated at this point, which would lead to an additional
billions of dollars. I know for a fact, when the Supplemental
Nutrition Assistance Program did report improper payments,
their improper payments were over $3 billion. So, when they
start resuming making their estimates, I expect it to be, you
know, billions of dollars understated.
The problem is pervasive, as you mentioned, so 112 programs
in 22 different agencies. The biggest three, though, are
Medicare, which is about $60 billion; Medicaid, $36 billion,
and I believe Medicaid to be understated because it does not
specifically focus on the managed care portion of Medicaid yet;
and the earned income tax credit, which is close to $17 billion
for 2016.
Chairman Black. Could I ask to have figure 1, slide 1 put
up on the charts? And if we could just refer to this. Over the
past 5 years, the GAO has made nearly 130 program specific
recommendations to various agencies to reduce these improper
payments that have not been adopted or implemented. And so, we
see the dollars go out the door. You make recommendations; they
are not adopted; they are not implemented. Can you give us some
kind of an idea about why that is? Is this the case of the
agency just not wanting to do it? Are there other barriers at
play that prevent the agencies from acting on the GAO
recommendations?
Mr. Dodaro. Yeah, there are a couple factors. One, I feel
this is a cultural shift. Most of the programs in the agencies
believe their job is to make sure they do not miss anybody that
should be paid. And so, as a result, the tendency is to, when
in doubt, pay, and then worry about it later. And we are trying
to shift that culture to making sure there are not payments
made inappropriately in the first situation. Ninety percent,
over 90 percent of these figures are overpayments. Now, some of
them are underpayments, which is a problem, too, because that
means somebody who should be getting the money is not. But the
big problem is overpayments. There is not enough checking
before the payments that are made up front in the first place.
We have a recommendation to the Congress, for example, to
match against the complete Social Security Death Master File to
make sure people are not taking advantage of people who died in
filing false claims. This has been a problem. We have
identified this, the IGs and others in the past. But it will
take a requirement change, amendment to the Social Security
Act, in order to allow Social Security to share that full Death
Master File with the agencies.
I have also been working with the State auditors,
particularly as it relates to Medicaid, because, in some
States, Medicaid is \1/3\ or more of the entire State budget to
get the State auditors involved. This may require help from the
Congress in order to provide some funding, which I think would
have a good return on investment there as well.
The other thing is I think there needs to be greater
congressional oversight. There are at least 7 agencies that are
out of compliance with the law. The law says you have to keep
your improper payment rates below 10 percent. There are 14
agencies, I believe, or maybe 11 that are above 10 percent. And
some are extraordinarily high. And if you are out of compliance
with that for 3 straight years, you are out of compliance with
the law. And they are required, the agencies are required, to
submit to Congress proposed legislative changes to bring them
into compliance with the law.
But there needs to be more oversight by the Congress and
attention made to these areas. And we have a number of other
open recommendations I list in my written testimony for
specific areas and programs and other areas. And Medicare, for
example, we have recommended that the CMS seek the authority to
allow recovery auditors to do audit before the payments are
made in the first place. They did a pilot. It was demonstrated
successful. But they have not submitted that legislative
proposal to the Congress. So, there is much that can be done.
Chairman Black. Well, and I appreciate that because, once
the dollars are out the door, they are very hard to get back.
But as you have indicated, there has to be some kind of
consequence, rather than just a good-faith effort to fix or
because we see how this has continued to grow, and if there
were an effort to be done where there were actually teeth
behind it, consequence, some sort of a tangible penalty to
sanction, that seems to be what would be a whole lot more
effective than just good-faith effort because, if we continue
to see this grow, that is ultimately affecting the taxpayer.
I know we talk about these dollars as though they somehow
belong to the Federal Government, and they do not. These are
taxpayer dollars. I only have a brief period of time left, but
I am looking at the long-term fiscal outlook, and GAO has been
doing its long-term simulations since 1992 about a quarter of
the century. How much worse is the outlook now compared to what
it was then, and is it worse now than GAO projected in 1992?
So, in other words, what you project in 1992, is that true, or
is it worse than what you had projected?
Mr. Dodaro. Yeah. Yeah. I would have to go back and check
the 1992 projections, but I would believe they would show the
situation now is worse because I do not think, at that time, we
anticipated the Great Recession that occurred during the global
financial crisis. And that worsened the situation considerably.
We were on an unsustainable path before the global financial
crisis. But after that, when we borrowed money to help
stabilize the financial institutions and resume credit lending,
we had the American Recovery and Reinvestment Act to provide
stimulus funding; all that added additional money. And there
are a number of things that have been added over time: part D,
paying for prescription drugs without funding it. And so, all
those things have added to the debt. So, I will double check
compared exactly to our 1992 estimates and submit that for the
record, but my overall feeling is it is worse.
Chairman Black. Thank you. Well, I sure do appreciate that.
And again, I appreciate you being here. I do want to highlight
one of our colleagues who brought this to our attention, so
that we could have this most interesting and important
conversation, and that is Mr. Palmer. And I know he will be
here in just a bit to ask some questions. But I do not know
that there is much else that is more important than our fiscal
sustainability and the fact that we can say to the American
people, when you send your taxpayer dollars, they are being
used for the best use and that there is not a waste in that.
So, such an important conversation, one that I do not
believe many of my other colleagues outside of this Committee
have any idea. And so, we hope to highlight it through this
hearing and other measures that we do going forward. So, thank
you again. Now, we can begin our question and answer period,
and I will turn to the ranking member, Mr. Yarmuth, for your
questions.
Mr. Yarmuth. Thank you, Madam Chairman. Once again, Mr.
Dodaro, thank you for your testimony, and you and I had a very
good conversation in my office several months ago, and I
appreciate the work that you do and that your organization
does. As I said in my opening statement, I truly believe that
this is something that we Democrats should be even more
vigilant on than Republicans because I accept the moniker that
we are the party of government and ought to make sure that we
do what we can to create the most efficient government possible
and that, certainly, when you have abuse of programs that we
believe in, we would be much more credible if we worked to make
sure that those programs were as efficient and effective as
possible.
So, I look forward to working with you as we move forward.
Chairman Black asked the question about what is responsible,
and you gave some answers, but I am wondering whether it is a
larger problem with personnel or in the agencies, or whether it
is with structural problems. Is there any way to characterize
that?
Mr. Dodaro. I think it is a multifaceted problem, and quite
frankly, the agencies have not really identified all the root
causes necessary to identify what the specific problem is. I
think it is part people; it is part technology. You know,
technology is really one of the ways to be able to do this.
Part of it is legal barriers and that there is not enough
sharing of information between the departments and agencies
that could check.
You know, a lot of these programs are based on income
requirements. And there could be more checking. Right now, it
is mostly self-reporting by people about what their income
levels are. So, there could be more checking up front before
payments are made. So, it is people, it is technology, it is
incentives and it is culture.
Mr. Yarmuth. I appreciate that. And I know the lawyers say
never ask a question you do not know the answer to. I am not a
lawyer and I am not that disciplined so I tend to ask questions
that I could be surprised about, but I am curious as to whether
you have done any analysis as to whether a lot of this ends up
being a cost-shifting situation in which if you were to
actually stringently enforce all of the guidelines of these
programs whether you would not shift costs onto either State
and Local governments or some other area of the Federal
Government?
Mr. Dodaro. Yeah. The only cost shifting that we have
reported on I am aware of is actually the reverse. And it is in
the Medicaid program where the States are shifting more of the
cost to the Federal Government. They have to provide a non-
Federal Government share of their Medicaid spending, and a lot
of them are taxing and using other means for local providers
and then they are compensating, making payments back to those
local providers that are high, which, in effect, shifts the
cost because it increases the Federal matching requirement
there. In most of the programs, the Federal Government bears
most of the fiscal responsibility in the outcome through the
program, so the responsibility really lies at the federal
level.
There could be incentive issues at the state and local
level, particularly in the Medicaid program, you know, where
the Federal Government does so much matching. In the Food Stamp
Program or the Supplemental Nutrition Assistance Program, it is
all federal money that is administered at the State level. So,
the only shifting I am aware of is within the Medicaid program.
And we have made recommendations to CMS to collect better
information to prevent that cost shifting from inappropriately
effecting the Federal Government's share.
Mr. Yarmuth. How much of the inappropriate payments that
you have analyzed are the result of criminal behavior?
Mr. Dodaro. It is hard to determine, you know. Not all
improper payments are fraud by a long shot, but all fraud is
improper payments. And just to give you some examples, in the
health care area alone, you know, the Justice Department has a
special task force; they had almost 900 cases that they have
opened up, and the HHS inspector general has completed over 700
criminal cases just in 2016 alone and almost 700 civil cases as
well.
So, it is clear there is fraud in the health care area in
particular. The other area is in the earned income tax credit
area, and we have made a number of recommendations to the
Congress. In that area, you have a very complex program with a
lot of complex rules that are difficult to follow about
residency and dependency of the children movements between
families. But we found, you know, most of the earned income tax
credit people go to have their returns prepared by unenrolled
tax preparers at IRS, and about /1/3/ of the overpayments are
due to errors by these unenrolled tax preparers. And, actually,
for refundable tax credits, people who do their own taxes have
a much higher accuracy rate than if they go and they use an
unenrolled tax preparer.
So, we have recommended that the IRS provide some
certification requirements and training requirements in this
area, which we think would really help reduce the error rates
in earned income tax credit. They are close to 25 percent of
the program. And they also take up a lot of IRS's time in doing
the audits. They do more audits in that than almost any other
area.
And, also, I have been talking with several members,
Congressman Renacci and others. There is a way to give IRS more
authority to correct errors when the returns are there.
Congress could act to do that. That would solve part of this
problem too rather than happen to have a full-blown audit to
address the issues.
So, there are a lot of things that we have made
recommendations to the Congress. One area that Congress already
acted on, and I am very pleased, is they are now requiring the
W-2 information by employers to be sent to IRS by the end of
January, previously had been March and April. So, IRS did not
have that information to match against returns that were filed.
Mr. Yarmuth. Right. While we are on the subject of tax
exempt, when you throw out the figure of $450 billion a year in
uncollected, but due, tax revenue, that is a pretty frightening
figure because you are talking about, in some years, the entire
federal deficit, essentially and a good share, even, of it
today. What are the key factors that we need to consider in
Congress to reduce that number significantly?
Mr. Dodaro. Yeah. The number is an annual number. So, you
know, like improper payments, we have money going out the door
that probably should not in some cases and a lot of revenue
that should be coming in, and it is not. We are about 84
percent compliance, voluntary compliance rate. We have
encouraged the IRS to do more third-party reporting. If you
look at where the tax gap is, about 84 percent of it is people
who un-report their income, about 10 percent; 10 percent is
people who have reported properly, but just do not pay the tax.
And then you have about 6 percent of people who do not file at
all.
And so, in targeting, you look at where the gaps are, where
there is withholding at the source, like, for most people,
their taxes get withheld by their employer and remitted to the
IRS; there is very high compliance rates. But when you get to
small businesses, partnerships, and corporations and others,
there is less compliance rate at these areas.
So, if IRS has better third party reporting information
that they compare to the tax returns that are submitted, the
compliance rates go up. So, we think there is more third party
reporting that can be done. We believe this correctable error
authority at IRS would help a lot, not only in earned income
tax credits, but in other tax returns. And also, we believe
that their giving IRS the authority to ensure that anybody who
is a tax preparer is credible, well-educated, and is going to
make good-faith efforts to comply.
Mr. Yarmuth. Okay, one obvious question I have and then
probably is a very simple answer, but if a lot of this is
income that we do not know about, the government does not know
about it, how do you know about it?
Mr. Dodaro. Yeah, well, IRS does studies. The estimates are
all based upon, actually, it was a GAO recommendation years
ago, and nobody knew what the size of the tax gap was. So, IRS
has a research effort there they use all their tools and
results of all their audits where they found these things. They
have whistleblower programs that we have recommended be
streamlined, so people call them with tips all the time. So,
you know, while, you know, we do not know or IRS does not know,
somebody knows. And they inform the IRS, and there are other
ways for them to find out these measures, but these are well-
informed estimates by IRS.
Mr. Yarmuth. Great, I appreciate that. Thank you for your
responses, and I yield back.
Chairman Black. Thank you, Mr. Yarmuth. I now recognize the
gentleman from California, Mr. McClintock, for 5 minutes.
Mr. McClintock. Thank you, Madam Chairman. First, of all, I
would like to correct the misrepresentation that we heard from
the ranking member that the President was calling for a
government shutdown. And, in fact, he has been bending over
backwards to avoid a government shutdown. There are some on our
side of the aisle who think that maybe he has gone too far in
bending over backwards to avoid a government shutdown.
What he called for was for the Senate to reform its closure
rule on fiscal bills that has completely gridlocked Congress'
ability to control spending and exert its power of the purse.
He suggested it might end up taking a shutdown before the
Senate finally realizes how serious the problem is and decides
to fix it. So, I want to make that clear. Mr. Dodaro, does the
omnibus spending bill that is now pending before the Congress
improve or degrade our government solvency?
Mr. Dodaro. Well, I believe the current estimate for this
year by CBO, the deficit, is over $500 billion, so it is still
not, you know, or we are still spending more than we are----
Mr. McClintock. Well, does the current spending bill make
it better, worse, or keep us on the current trajectory?
Mr. Dodaro. I think the deficit would go up a tad. I would
have to check and go back to see----
Mr. McClintock. So, it would increase our debt picture even
further?
Mr. Dodaro. Yes, yes.
Mr. McClintock. So, you would put the revenue gross up $18
billion. Our spending is up $166 /1/2/ billion, you know, that
is certainly a prescription for disaster. It seems to me, from
your report, that the increase in spending is all being driven
by mandatory spending?
Mr. Dodaro. Mandatory spending, including interest on the
debt. But what you are seeing now is a harbinger of what is
going to happen with the demographic changes in the country and
the baby boomer retirement. Between now and 2029, every day in
the United States on average, 10,000 turn 65, so we are almost
going to double the number of people enrolled in Medicare and
Social Security.
Mr. McClintock. Well, let's go to that question for a
second because you said the debt held by the public is going to
exceed our previous high of 106 percent of GDP in the next 15-
20 years. But is not our total debt intergovernmental and debt
held by the public already approaching or exceeding that all-
time record high?
Mr. Dodaro. Yeah, that is correct.
Mr. McClintock. And that record high occurred at the very
end of World War II when we completely exhausted our Nation's
resources fighting against the two most powerful military
forces on the planet. And there was serious concern whether we
could even continue the war into fiscal 1946 because we were
out of money.
Mr. Dodaro. Right.
Mr. McClintock. And we are actually there right now in
terms of the total amount of debt being held by the Federal
Government, both by the public and intergovernmental debt. And
is not the distinction between debt held by the public and
intergovernmental debt largely due to the government repaying
loans it has taken out from the Social Security Trust Fund?
Mr. Dodaro. Yes.
Mr. McClintock. So, as it does so, it converts
intergovernmental debt into public debt; is not that right?
Mr. Dodaro. That is right; that is right.
Mr. McClintock. So, is not this a distinction without a
difference? Intergovernmental debt will automatically convert
into public debt over the next few years, so really, are not we
already at that all-time limit?
Mr. Dodaro. Well, it is a timing issue. It is a timing
issue. In fairness, we are using the debt held by the public to
compare to the current GDP ratio. And as this intergovernmental
debt plays out over the coming years, there will be different
GDP estimates. So, it is the classic way to compare this----
Mr. McClintock. Going to the issue of revenues, where do we
stand right now on revenues as a percentage of our GDP as
compared to our post-war average?
Mr. Dodaro. We are lower.
Mr. McClintock. We are lower in----
Mr. Dodaro. Yes.
Mr. McClintock.----revenues than our post-war average?
Mr. Dodaro. Yes.
Mr. McClintock. Okay, where are we on our spending?
Mr. Dodaro. Higher.
Mr. McClintock. And is not spending really the critical
issue here? I mean, to me, I think there are really only 2 ways
to pay for spending. You either tax it now as revenue, or you
tax it in the future as debt. And if you tax it as debt, you
end up paying interest on that debt, and you borrow from the
same capital market that would otherwise be available for
consumer purchases when two-thirds of economic growth is driven
by consumer spending. Or loans to businesses seeking to expand
jobs.
Mr. Dodaro. Yeah. The gap, that structural problem between
revenues and expenditures, is so large, if you just keep the
debt held by the public at the current average of GDP over the
next 75 years, you would have to, on average, cut spending 25
percent from current levels on average, over the 25-year
period, if you were to do spending alone. If you were to do
revenue alone, it would be 36 percent increase in taxes in
order to generate more revenue. The closest gap----
Mr. McClintock. Minus the negative impact.
Mr. Dodaro.----would just stay even.
Mr. McClintock. Minus the negative impact on the economy
that would suppress revenues.
Mr. Dodaro. Yeah, you would have all sort of attendant, you
know, factors that would cascade from those decisions. But I
think the problem is so big, eventually, there is going to have
to be a combination of spending reductions and attendant to
revenues in order to solve this problem in an equitable way.
Mr. McClintock. Or revenue growth----
Chairman Black. The gentleman----
Mr. McClintock.----or economic expansion.
Mr. Dodaro. Yes, that always helps.
Chairman Black. The gentleman's time has expired. The
gentleman's time has expired.
The gentleman from California, Mr. Carbajal, is recognized
for 5 minutes.
Mr. Carbajal. Thank you very much, Chairman Black and
Ranking Member Yarmuth. Thank you, Mr. Dodaro for coming today
to provide us your nonpartisan, unbiased opinion and feedback
today. The CBO has told us that of the 10 largest tax
expenditures, the top 1 income percent of income earners reap
17 percent of the tax benefit. And some are massively favoring
the wealthy.
68 percent of the benefit from the preferential rate on
capital gains and dividends goes to just the top 1 percent.
Others favor well-connected special interests, like the carried
interest for hedge fund partners, special depreciation for
corporate jets, and subsidies for big oil. Would reexamining
and closing some of these loopholes and provisions be a way to
improve our fiscal situation?
Mr. Dodaro. Yes, we have an outstanding recommendation that
the tax expenditures be regularly reviewed just like the agency
operations or appropriations decisions are made every year. The
amount of tax expenditures in any 1 year of revenue forgoes
over a trillion dollars. So, it is almost as much money as
discretionary spending in as many years.
And we have recommended that more disclosures be made in
the budget process and that, in OMB implementing the program
inventories, you look at a set of programs and related tax
expenditures together because tax expenditures are another
Federal tool for delivering services. Programs are one; tax
expenditures are another; loans are another, but a lot of them
are in similar areas, where you are trying to achieve multiple
objectives. So, regular review of tax expenditures ought to be
a normal practice of our government. It has not been.
Mr. Carbajal. Thank you. In your report on page 21, it
shows that the highest improper payments go to 4 major
programs: Medicare Fee-for-Service, Medicare Advantage part C,
Medicaid and earned income tax credits. I am wondering if there
has been a deeper dive of trying to understand the profile of
who the recipients of these improper payments are.
Mr. Dodaro. Yes, there has been. For example, in the
Medicare Fee-for-Service area, there is higher improper
payments rates for home health services and durable medical
equipment. And so, there are, you know, some additional
information, probably not everything that needs to be done
eventually. But there are some indicators of where there are
higher improper payment rates in place.
Most of the improper payment rates in Medicaid are in the
Fee-for-Service portion. The managed care portion, now, is
about 40 percent and that we have recommended that the State
start auditing the managed care providers in the Medicaid
programs, and CMS has passed the rule to require that, so that
will start soon. That will provide additional insights into the
Medicare managed care portion.
Mr. Carbajal. Thank you. And the last observation that I
wanted to share is that, in 2009, the improper payment error
noted in the 2016 financial report for the U.S. government
noted that, in 2009, the improper error rate was 5.42 percent.
When sequestration came into effect, it was 3.53 percent. In
2016, it has come up to 4.67 percent. I only throw that
observation out because it seems that there might be a
correlation with sequestration; any thoughts?
Mr. Dodaro. I find it difficult to draw that correlation
myself. I think a lot of this is driven by the growth in the
programs. And, you know, Medicaid or Medicare are growing at 6
to 8 percent a year and are projected to grow. And so, some of
the increase is just by the fact that programs are growing
faster. Most of this needs to be resolved through technology,
you know, changes, as well. Maybe there was some effect of the
changes, but I do not think, over time, that that is really the
driver.
Mr. Carbajal. I was referring to the error rate, but I am
almost out of time.
Mr. Dodaro. Right. Yeah.
Mr. Carbajal. But thank you so much.
Mr. Dodaro. But my answer applies to that, too.
Mr. Carbajal. Okay. Thank you very much.
Mr. Dodaro. Sure.
Mr. Carbajal. I yield back.
Chairman Black. The gentleman yields back. I now recognize
the gentleman from Wisconsin, Mr. Grothman, for 5 minutes.
Mr. Grothman. Thank you. I am looking at the table we
looked at that you mentioned programs reporting improper
payments. I would like to zero-in on a couple of them.
Mr. Dodaro. Sure.
Mr. Grothman. One is the earned income tax credit. You show
here that, shockingly, 24 percent of the payments are improper.
And I wondered what that means, ``improper,'' or whether you
are catching everything. How do they determine that 24 percent
number?
Mr. Dodaro. It is based upon a statistical sample that they
take of error rates they take later and a closer examination.
Mr. Grothman. Is it error rates on the return, or is that
going into somebody's house and seeing whether the child is
really with them, or is it actually, you know, going through
and seeing whether they have income that is cash off the books?
Mr. Dodaro. Yeah.
Mr. Grothman. I mean, I hear so much evidence, especially
from kind of the more liberal people in my district, who, you
know, maybe administer the low-income housing, this is a broken
program. I just wondered what that 24 percent means. How hard
do we look to see----
Mr. Dodaro. Yeah. I believe it is mostly through audits
that the IRS does through the EITC program. The EITC audits
account for 39 percent of all the audits IRS does of individual
tax returns. So, this is an area that is heavily audited by the
IRS because of the error rate. And I will give you a detailed
answer for the record about exactly how they develop the rate,
but it is a heavily audited area by IRS.
Mr. Grothman. I realize it is audited, but I wonder, when
they audit, what they pick up on, you know? I mean, do they go
into somebody's house if somebody puts down, you know, Mary
Smith, Social Security number 123-45-6789, do they confirm that
Mary Smith is there? Do they go into the house and make sure?
Because a lot of people make money off of the books, and there
is certainly a lot of evidence that people are using their
income tax credit for things other than children's shoes. I
mean, would the audit pick up on those things, or would those
be additional examples of fraud?
Mr. Dodaro. Yeah. Yeah, I do not know off hand. And I will
give you an answer for the record on that.
Mr. Grothman. Can you look into that for us?
Mr. Dodaro. Sure, sure.
Mr. Grothman. Because I have a feeling it is even higher,
and, you know, any program, if 24 percent was going out the
window, we would look for a different program.
Mr. Dodaro. Right.
Mr. Grothman. Next question I have for you is on Medicare
and Medicaid. I recently talked to a guy from my district whose
business includes auditing payments for companies that self-
insure. And he found shockingly high overpayments. When he went
out of network to an emergency room, I am reluctant to even
give you the numbers because I am afraid somebody will question
them, and they are just so high, it is beyond belief. But when
you talk about errors in Medicare Fee-for-Service, again, how
deep a dive are you doing? Are you going deep in depth of the
individual bills? Like if a Medicare patient goes to an
emergency room, are they really going through those bills? Or
how do they get at that 11 percent number?
Mr. Dodaro. Yeah. Yeah, well, in those cases, I know they
take a statistical sample to claims, and they ask for all the
medical documentation. So, sometimes they will determine that
the medical procedure charge was not really needed. During that
period of time, they will find that there is not adequate
documentation, that the doctor actually ordered the particular
service. There are a lot of different reasons. So, they go
through a pretty thorough job. We are going to take a look at
that area. I want us to understand a little bit more about
exactly what they are doing and how they are making the
decisions in these estimates.
Mr. Grothman. Because this guy tells me and it puts you in
kind of, you know, in excess of 30 percent, which is kind of
scary. I do not know. Obviously, you know, you are talking when
you get out of network, but kind of scary stuff.
Let's see. Where is our clock in this room? Oh, there it
is. I cannot see, okay. I will come back to the income tax
credit one more time. It seems to be the problem there is that
it is refundable. Do you have any opinion as to what high an
error rate you considered satisfactory?
Mr. Dodaro. Well, I think it would vary by individual
program, but the Congress has already statutorily determined,
if you are below 10 percent, you are in compliance with the
law; if you are above, you are not. And I would not have any
reason to say that that is not a reasonable basis to start
with.
Mr. Grothman. Can you dig in to that number and let us know
whether the IRS checks into cash off the books and whether the
IRS literally--because I do not even know how they would be
able to do it. I mean, you say the kids are at school; what are
you going to do? Does the IRS do something to confirm that
those children are genuinely with the people who are claiming
the credit?
Mr. Dodaro. Yeah. Yeah, I think they do some checks, as I
am thinking back now in terms of checking school records or
have people give them documentation about school records and
other things. So, but I will give you a thorough answer to
that.
Mr. Grothman. Thank you.
Mr. Dodaro. And it is an important area. And I think, you
know, our overall conclusion along the line of your questioning
is the problem is bigger than what is being stated already.
Chairman Black. The gentleman's time is expired. The
gentlelady from Illinois, Ms. Schakowsky, is recognized for 5
minutes.
Ms. Schakowsky. I want to thank you, Comptroller General,
for being here today. You talked about the cost of health care,
and within health care spending overall, prescription drug
costs are really a driver in the growth of costs for both
consumers and the Federal Government. Medicare part D
prescription drug costs nearly doubled from $61 billion in 2007
to $121 billion in 2014 and more since then. Prescription drug
costs and Medicare part B doubled from $11 billion in 2007 to
$22 billion in 2015. So, I wanted to know if you thought that,
and this is, by the way, an issue that the President has
raised, to get a handle on prescription drug costs. So, do you
believe that slowing the growth of prescription drug costs
could help reduce health care spending and improve our long-
term budget outlook?
Mr. Dodaro. Yes. Yes, definitely.
Ms. Schakowsky. So, the President has mentioned reforms
like letting Medicare negotiate drug prices like the VA has
done. And then, additionally, we could end anti-competitive
practices in the pharmaceutical industry, promote greater
transparency in drug pricing, so that consumers and taxpayers
can get a best deal. Do you agree that those are options?
Mr. Dodaro. Yes. Yes, I think now, for example, in
Medicaid, there are some rebates negotiated. But this is an
area where you do not only have Medicare and Medicaid, but you
have two of the largest healthcare systems in the country, and
Veterans Administration and DOD also purchase a lot of these
drugs. So, I think there are a lot of opportunities for the
Federal Government to better leverage its purchasing power.
Now, it is a complicated area and requires a lot of study, but
I think it is a worthwhile area to pursue.
Ms. Schakowsky. Thank you. I agree. I wanted to ask you
about the Defense Department. Years ago, I was on the
government efficiency Subcommittee of Government Reform along
with Steve Horn from California.
Mr. Dodaro. Steve Horn, yes. Yes, I spent many hours before
that Committee.
Ms. Schakowsky. Yes, exactly. And so, I remember, at that
time, we were saying that the Department of Defense could not
account for a trillion dollars at the time of expenditures. And
that number, I believe, has gone up. Am I right? The Department
of Defense has never had an audit or been able to perform an
audit?
Mr. Dodaro. That is exactly right. They are the only major
agency that has never been able to pass the test of an
independent audit. Right now, they are trying to audit 1 year's
budget expectation numbers, and they have not been able to do
that yet satisfactorily. A third of the areas on our high-risk
list that the chairwoman mentioned in the beginning are DOD
business practices: financial management, contract management,
weapons systems, acquisition, information technology,
management, and their business modernization efforts. I mean,
we have a wonderful military; it is the best in the world, but
their business practices need to be reformed.
Ms. Schakowsky. But it was $600 billion last year, 15
percent of the Federal spending. So, how much should we focus
on that? It seems to me that, at the very least, we should ask
for the Department of Defense to pass an audit like every other
department.
Mr. Dodaro. I agree, I agree. I think Congress should focus
more on it. The Armed Services Committees have been. They
passed laws saying they should be auditable by 2017. So, they
are planning a full-blown audit for 2018. But they have already
said that they do not believe that they are likely to pass the
audit. But I think we need to keep the pressure on to impose
the fiscal discipline necessary at the Defense Department.
Ms. Schakowsky. I have a little time left, but I just want
to raise this issue of Social Security. In 1983, \3/4\ of
employee compensation in the country was subject to payroll
taxes. In 2015, less than \2/3\ of employee compensation was
subject to payroll taxes. There has been a lot of concern about
the long-term viability of Social Security. Would not it
raising or eliminating the cap to capture more income make
sense?
Mr. Dodaro. The programs are in jeopardy. The disability
portion is expected by 2023 to only have enough money to pay 89
cents on the dollar of promised benefits. The Old-Age,
Survivors portion of Social Security is expected, by 2035, to
only be able to pay 77 cents on the dollar.
One of the options that people have suggested is raising
the cap. I think that is a viable option to pursue. It depends
on whether, though, if you raise the cap, whether you delink
benefits. And so, in other words, if people were paying more,
their benefits do not go up above a certain level. If the
benefits go up as a percent of what they are contributing, it
will not solve as much of a problem.
Ms. Schakowsky. Thank you, I yield back.
Chairman Black. The gentlelady yields back. The gentleman
from Michigan, Mr. Bergman, is recognized for 5 minutes.
Mr. Bergman. Thank you, Madam Chairman. Comptroller
General, first of all, thanks for being here today because you
are painting a realistic picture, and that is what this country
needs at all levels is a realistic picture. Your written
testimony shows how agencies' improper payment estimates have
steadily grown every year, almost doubling over the last 8
years, not only the total dollar amounts, but also the rate of
improper payments. What factors have driven this growth, and is
it a matter of examining more programs, doing the analysis more
accurately, more government spending, or all of the above?
Mr. Dodaro. It is basically all of the above. The estimates
need to be better. Like we found, for example, I will give you
one good example. The Tricare program and the DOD area. We were
just talking about DOD. Their estimate does not go as deep as
the Medicare estimates do in the fact that they do not check
whether the payment was made for something that was medically
necessary; whereas Medicare does do that check.
So, the error rate in Tricare is way low. And so, we have
asked them to change their methodology. A number of programs
and departments do not report at all because they have assessed
their risk of improper payments as not a high-risk area. And
so, that needs to be examined. In other cases, there needs to
be more pressure on the agencies to find a root cause of the
problem and correct it and bring the error rates down, so they
are in compliance with the law.
Mr. Bergman. So, it is fair to say, then, that, the more we
look for improper payments at this point, the more we are
probably going to find?
Mr. Dodaro. Definitely, definitely. And that accounts for
some of the growth, actually, and the reported amounts and the
error rates.
Mr. Bergman. Well, there are 18 programs across the Federal
Government that agencies have determined are at risk for
significant improper payments, yet no estimates were reported.
I chair the Veterans' Affairs Committee on Oversight and
Investigations Subcommittee and 4 of those programs belong to
the VA. VA has pledged to report estimates this year. Have the
other agencies who are in control of those programs pledged to
do the same?
Mr. Dodaro. The prior administration was focused on this
area in trying to get the agencies to develop plans. I met
recently with the new OMB director, Mick Mulvaney, and
expressed my concern about this area and the need to focus on
it within the administration. So, I think it is important for
this administration to focus on this important area. The
agencies, by law, are supposed to make that pledge. They are
supposed to set goals and work hard to achieve those goals in
good faith, but there needs to be more oversight within the
administration, by OMB, and within the Congress.
Mr. Bergman. And as you know, the VA Committee, the VA
Community Care has the highest improper payment rate in the
Federal Government at almost 76 percent. The reason for that
technically is because the Community Care spending is not
backed up by contracts that comply with the Federal acquisition
regulation. There is debate about whether all those
arrangements with doctors need to be contracts or something
else. Once that technical cause is determined, are VA and GAO
looking deeper into how much is actually paid out in the wrong
amount or to the wrong person?
Mr. Dodaro. Yeah, we will look more carefully at that area
once that issue gets resolved. You know, I am very concerned
about the Veterans Administration. We placed them on our high-
risk list back in 2015, veterans' health care, because a lot of
inadequate policies and procedures that were ambiguous, there
is not good oversight and accountability; their information
technology systems are way outdated.
The scheduling system now that is being used to schedule
appointments with doctors is over 30 years old, for example.
And there are problems with use of resources to make sure that
they are properly--there is a lot of lack of clarity between
the requirements and resources that are needed. So, we are very
focused. I met with Secretary Shulkin about them coming up with
a plan to address the high-risk areas which would include, you
know, taking a look at these improper payment issues.
Mr. Bergman. Thank you for your very direct candor, and I
yield back.
Chairman Black. The gentleman yields back. The gentleman
from New York, Mr. Higgins, is recognized for 5 minutes.
Mr. Higgins. Thank you, Madam Chair. So, you indicate in
your report that Federal spending is driven disproportionately
by Social Security, Medicare, and Medicaid. The stated
objective of health care reform, the Affordable Care Act,
Obamacare, call it what you will, was to do two things. One was
to increase the number of people who would have health
insurance, and I think that objective has been met in the
aggregate by some 20 million additional.
The other was to slow the growth of health care spending as
it relates to Medicare and Medicaid. Economists would call that
bending the cost curve. Your assessment as to the success of
that since the enactment of the Affordable Care Act as it
relates to annual increases in Medicare spending per
beneficiary.
Mr. Dodaro. Yeah, I need to give you a technical answer for
the record. But what I will say is that the Trustees Report--
now this is the secretary of HHS, or Social Security
administrator, and a secretary of treasury, and a CMS actuary
have real questions about whether or not the reforms put in
place by the Affordable Care Act will hold over a period of
time and actually reduce costs both in terms of productivity,
expenditures, as well as the subsequent legislation that
Congress passed changing provider payments to physicians and
whether that will hold over time.
So, there are real questions about it. But I will give you
a specific answer, you know, for the record. But one of the
differences between our report is estimates of whether or not
health care costs follow this alternative path that the CMS
actuary has put in place. If that happens and these reforms do
not hold over a period of time, you have much more escalating
costs in the future for Medicare and Medicaid. And you get to a
point where our debt grows faster as a result of that.
Mr. Higgins. Okay, the Congressional Budget Office report
that I read recently indicated that, prior to the Affordable
Care Act, Medicare was growing at between 7 and 9 \1/2\ percent
a year. And since the enactment, full enactment, of the
Affordable Care Act, it is growing at about 1.4 percent per
beneficiary. And when you take into consideration 57 million
people getting their health care from Medicare, that seems to
be an objective, at least in the short-term, that has been met.
Would you disagree with that?
Mr. Dodaro. Yeah, well, I will take a look at that issue.
Mr. Higgins. Okay.
Mr. Dodaro. I have no doubt there might be some short-term
effects on those changes.
Mr. Higgins. Let me just throw something else out at you.
And, as you know, there is a lot of discussion in the air here
about health care reform and new iterations of it. And
Democrats and Republicans are always going to disagree the
extent to which government should be involved. And that is a
fair public disagreement and argument.
But the fact of the matter is the United States Government
is a massive provider of health coverage for people. Fifty-
seven million people under the Medicare Program, 70 million
people under the Medicaid Program, 28 million under the
Veterans' Program. That is a lot of leverage. That is a lot of
leverage to drive down the cost, not only of prescription
drugs, because you are buying medical services generally.
So, driving down that cost and driving up the quality of
that care. And it seems to me that the Federal Government
should be a lot wiser in using the leverage that it has that it
seems to just defer to private insurance companies that really
screw people. You know their business model is to jack up
premiums and to reduce the payouts. So, any thoughts on a
bipartisan effort to recognize the strength that we do have in
the Federal Government by purchasing, not only prescription
drugs, but also medical services, generally, toward the goal of
reducing costs, increasing quality, and addressing the
fundamental issue that you point to in your assessment?
Mr. Dodaro. Yeah, so, I mean, I think that area has a lot
of potential merit. There has been a shift recently by the
Congress to make a move to not pay for quantity of services,
but to pay for quality of services. And CMS is in the early
stages of trying to figure out how they could change the
payment programs to emphasize quality and, hopefully, reduce
costs, but get away from the quantity benefits. And I think
that has promise, but it is very early in the implementation of
that change.
Chairman Black. The gentleman's time has expired. The
gentleman from New York, Mr. Faso, is recognized for 5 minutes.
Mr. Faso. Madam Chairman, thank you. And I thank you and
Mr. Palmer for the idea of bringing the Comptroller General
here before the Committee to discuss this very important topic.
Listening to your testimony and reading through a number of the
pages of your written testimony questions strikes me. Do our
agencies, particularly the IRS and CMS, do they have the
technological capacity to truly address the question of
improper payments? And have you examined that issue thoroughly?
Mr. Dodaro. Yes, and I am very concerned. In fact, in 2015,
I labeled information technology and acquisitions across the
Federal Government a high-risk area. Most of the $80 billion
that the Federal Government spends every year on IT services,
almost 75 percent of it goes to support legacy systems that are
in place, old systems. And that percent has been growing, which
means we are investing less proportionally in new technology
and new investments.
I mean, we took a look lately at the oldest systems in the
Federal Government. There are a couple of them at the VA over
50 years old. The DOD is still using one system operating off a
floppy disc. I mean, so there is need for more technology. And
there----
Mr. Faso. Could you----
Mr. Dodaro. Yeah.
Mr. Faso. Comptroller General, could you, for the record,
supply the Committee with an analysis of this? Your current
best thinking of your agency on this topic and something that
we could consider? On the topic, you mentioned that EITC has
been subject to discussion here. Let me just relate to you a
meeting I had with a CPA in my district over the recent break.
And he related that he believes there is massive fraud in
the EITC. He related a current situation where a couple came to
him, and the gentleman made $60,000 a year; the woman made
about $12,000 a year. There were two or three kids in the
household. The couple were not married. And EITC, as I
understand it, requires a household income as a determination
for eligibility.
And they specifically said they want you to put on the IRS
return for the man a separate address from where he actually
lives. And he said this is rampant. He said he refused to do
it. And he said the value of the EITC to this woman would be
about $14,000 cash. And he refused to do it. They went to one
of the nationally-known income tax preparers. And he said he is
certain that they got the EITC payment with an improper
address.
Does the IRS have the capacity to truly check the addresses
of people? And should an EITC be subject to a pre-audit, which
you alluded to also in your testimony?
Mr. Dodaro. Yeah. Yes, it definitely should be. The other
issue that we have identified, you know, we have sent
undercover teams into 19 paid tax preparers with different tax
scenarios. Only 2 of the 19 gave us the right answers out of
that approach. And, as I mentioned----
Mr. Faso. On EITC? Or on anything?
Mr. Dodaro. On not only EITC, on anything.
Mr. Faso. Okay.
Mr. Dodaro. All right? On EITC, though, IRS records show
that there are more errors made by people who use tax preparers
for this refundable tax credit than people who prepare their
returns themselves.
Mr. Faso. And who are the unenrolled tax preparers that you
mentioned earlier in your testimony?
Mr. Dodaro. That would be some of the chains that are in
place. The ones that are enrolled are usually with tax
practices or public accounting firms.
Mr. Faso. So, would it not be better to restrict the EITC
to only those who have the return prepared by an enrolled tax
preparer?
Mr. Dodaro. I do not know if there is enough capacity to do
that. But if not, what we have recommended, and the IRS
actually implemented our recommendation, to have certification
training requirements of these unenrolled tax preparers, but
the courts ruled they did not have the legal authority. So, we
recommend that Congress give them legal authority to do it.
Mr. Faso. One last question. You mentioned SNAP, and I am
interested in this, as I serve on the Agriculture Committee and
the Nutrition Subcommittee, and we have to do the Farm Bill
next year. You mentioned improper payments of over $3 billion
in SNAP. Could you just briefly describe those?
Mr. Dodaro. Yeah, that was what they reported in 2015. They
did not report any estimate in 2016 because they became
concerned about the quality of the information at some of the
state levels. And so, I am trying to delve into it and find out
exactly what is wrong, which leads me to believe that maybe
some of the prior estimates were not entirely accurate.
Mr. Faso. Thank you so much. And I would like it if you
could give us some more information on SNAP. And I yield back.
Thank you, Madam Chairman.
Mr. Dodaro. Yeah, we will do that.
Chairman Black. The gentleman yields back. I now recognize,
for 5 minutes, the gentleman from Pennsylvania, Mr. Smucker.
Mr. Smucker. Thank you, Madam Chair. Good morning, General.
Mr. Dodaro. Good morning.
Mr. Smucker. I am having a little trouble wrapping my head
around the idea that agencies can identify improper payments
after the fact, but not before. So, I guess, could you just
explain to me a little more what exactly the improper payments
estimate is? Is it based on actual findings of improper
payments that have been made? Or is it an estimate based on
some other way of achieving that estimate?
Mr. Dodaro. Yeah, in most cases, it is an estimate that is
made, an after-the-fact estimate, where they draw statistical
sample. Let's say, for example, on Medicare, they will pull a
statistical sample of claims. And then they will ask for all
the documentation and examine the claim after the fact. A lot
of these payments are made without documentation being
submitted other than a provider number or whatever because, in
Medicare, there are over a billion claims paid every year by
over a million different providers. And so, the volume of
activity would not--unless you are using technology and you
have it, you know, properly, with good screening.
Mr. Smucker. Right.
Mr. Dodaro. So they are made based on that. And like in the
case of Medicare----
Mr. Smucker. So in----
Mr. Dodaro. Yeah.
Mr. Smucker. I am sorry.
Mr. Dodaro. Yeah, go ahead please. Yeah.
Mr. Smucker. So, in your estimate, how much of the improper
payment in Medicare/Medicaid, for instance, which you
identified as the two largest----
Mr. Dodaro. Right.
Mr. Smucker.----sources of improper payment, how much of
that could be stopped by stronger controls before the payment
is made?
Mr. Dodaro. I think a significant amount. I cannot give you
a specific number. But I think it would be the only way to
prevent these things from happening in the first place. That is
where we are trying to move the agencies to is to----
Mr. Smucker. Yeah, it seems to be that that would be a
place of great opportunity if we can do that.
Mr. Dodaro. Yes. And I have joined recently with a group of
private sector providers that are working with the government
to identify technological ways to address this issue. So, I am
hopeful that we will get some good ideas from the private
sector to be able to implement in the government programs.
Mr. Smucker. I am going to change the subject on you
briefly.
Mr. Dodaro. Sure.
Mr. Smucker. I want to ask you a question on that. I have
been asking others and trying to get a good answer to, you
mentioned the long-term economic picture, or the fiscal
picture, and the deficits and the growing debt, which I share
your concern for that. In 2015, the economic growth rate slowed
to 1.6 percent. What is the impact of that economic growth rate
on our national debt projection?
Mr. Dodaro. Well, it has an impact. I am sure CBO, I mean,
that is really the area that they focus on, has some way of
calculating the impact of it. But the point I would make is
that this problem that we have right now is so big, we will
never grow our way out of it.
Mr. Smucker. Yeah, how much would that impact? So I think
CBO right now is forecasting a 1.9 percent growth rate over the
next 10 years. If we were able to move that, for instance,
through a tax policy or whatever it may be to an average of
closer to 3 percent, how would that change over that 10-year
period our economic picture?
Mr. Dodaro. Yeah, well, it would definitely improve it. I
would have to go back and give you, you know, more detail to
answer after we, you know, we would do it and whether or not
CBO has all the models. We do not duplicate what they do. We
use what they do. So, they would have the models to answer that
question for you.
Mr. Smucker. Yeah, but you believe it would have a
significant impact?
Mr. Dodaro. I believe it will have an impact, yeah. But it
depends on what you do on the spending side. You know, if the
spending side is going to keep going up.
Mr. Smucker. Yeah, sure.
Mr. Dodaro. I mean, that is the issue. And interest on the
debt is going to keep going up. So you can have economic growth
and get some additional revenues, but you already have a
structural imbalance between revenues and spending. So through
economic growth, you may catch up a little bit, but it is not
going to be enough as long as spending is growing faster than
the economy is growing?
Mr. Smucker. Yeah.
Mr. Dodaro. And right now it is.
Mr. Smucker. Yeah. Okay, thank you. I yield back.
Chairman Black. The gentleman yields back. I now recognize
the gentlelady from Washington, Ms. Jayapal.
Ms. Jayapal. Thank you so much, Mrs. Chairwoman. And thank
you for your testimony, Mr. Dodaro. I am sorry I missed the
last few minutes of this hearing for other votes.
I wanted to go back to something you said at the very
beginning when you were talking about a fiscal plan and the
recommendation around a fiscal plan. And our distinguished
ranking member, Mr. Yarmuth, spoke also about the President's
comments on a shutdown. And I wanted to ask you about the
necessity of being able to plan and the specific fiscal impacts
of not being able to plan, not being able to purchase in bulk,
not being able to actually bring about efficiencies that might
come about when you can do that kind of planning.
The appropriations work for 2017 was nearly complete last
December when then President-elect Trump convinced
congressional Republicans to instead pass a long-term
continuing resolution through April, 7 months into the fiscal
year. Continuing resolutions, in my view, disrupt agency
operations. People have told us over and over again they cannot
start new projects. They cannot implement any kind of planning
that has any sort of certainty. And funding ends up being
misallocated based on previous year requirements.
Can you comment on how a breakdown, this kind of breakdown
in the appropriations process, has hurt the efficient
administration of vital government services? And specifically,
on both the lack of an overall plan, but also the lack of
ability on a regular basis to approve a budget and to not rely
on continuing resolutions?
Mr. Dodaro. Continuing resolutions have been a problem for
years. Only 3 times in the last 28 years have part of the
Federal Government not operated on a continuing resolution,
some short-term, some longer-term. They disrupt hiring,
contracting, orderly planning practices. And they also compress
spending because, when you do receive the final appropriation
for the year, as in this particular case this year, there are
only a few months left in the end of the fiscal year.
So, it suppresses things earlier and compresses things
later. It is a problem. You know, I have told the Appropriation
Committees when I testified about GAO's own appropriation, one
of the things I never aspire to be in the Federal Government is
an expert managing under continuing resolutions. I mean, it is
a problem in that area.
Now the fiscal plan, not having a fiscal plan there, you
know, Congress, you know, we have this debt ceiling; it was
never intended to control the debt, and it does not control the
debt. All it does is authorize Treasury to pay the bills that
Congress has already authorized. So there is no up-front
decision Congress makes about how much do we want to have in
national debt as a percent of gross domestic product.
You know, in the European Union, they say 60 percent, you
know, and states set different levels of how much debt they
want to have. But the Federal Government does not do that. So I
recommended that we change the debt ceiling approach because
the way we are doing it right now, when there is a debt ceiling
impasse, actually, the markets have adjusted to this.
So, they are avoiding Treasury securities that would occur
during a dead impasse period. And the Federal Government is
paying more money. During the 2013 debt impasse and the
government shut down period, we estimate between $38 and $70
billion was paid in additional interest costs just because
people were nervous we were not go to pay our debts in time.
I cannot emphasize how important the full faith in credit
of the Federal Government is to the effective functioning of
our country and our Nation. And I believe we need a better, not
only a fiscal plan, but a better way to manage our overall debt
to make conscious decisions at the time revenue and spending
decisions are made up front. So, we need much more fiscal
discipline in our approach, both on the annual basis but also
the long term.
Ms. Jayapal. Well, you actually went right into my next
question, which was about the debt ceiling. And you mentioned
specifically that your analysis says that the brinkmanship
around that using the debt limit increase on the impasses that
we get to actually hurt us substantially, $38 to $70 million.
Is there a reason to think that these costs might be higher
later this year if we delay action on the debt limit until
Treasury approaches the limit of the extraordinary measures?
And what would that be?
Mr. Dodaro. Yes. Well, it depends on how long it would be.
But I think, number one, Congress should pass the debt ceiling
limit on time, so there is not concern about whether or not the
Federal Government is going to pay its bills on time. I mean,
the last time this occurred, Standard & Poor's reduced our
sovereign credit rating.
Ms. Jayapal. Right.
Mr. Dodaro. And it is still lower than the top. Moody's and
Fitch have us at still at the top. All three bond raters have
expressed concerns about the credit risk that we have from our
debt burden. And they are concerned, and they have said, in
some cases, if that debt burden continues to increase, that
will lower the Federal Government's credit rating, which will
raise interest rates and costs and alarm investors.
What we found is that, based on the global financial crisis
and lessons learned out of that, but also this debt impasse
thing, that investors in Treasury securities already have
contingency plans to not buy these investments that might
mature around a dead impasse ceiling. And that is depressing
the Treasury securities markets. And we are paying additional
interest costs, but it is affecting liquidity in the secondary
markets because treasuries are used to trade for financial
capital. So not only are we paying more, we are distorting the
markets by not having a rational process for approach to
authorize this debt to be paid in a timely manner. I am very
concerned that we never do anything to affect the full faith
and credit of the Federal Government.
Ms. Jayapal. Excellent advice, thank you. And I yield back.
Chairman Black. The gentlelady yields back. The gentleman
from Georgia, Mr. Ferguson, is recognized for 5 minutes.
Mr. Ferguson. Madam Chairwoman, thank you so much, and to
the Comptroller General, thank you for being here today. This
has been incredibly helpful to listen to not only the questions
that have been asked by both sides, but also your answers. And
I thank you for your candor in delivering those.
You know, one of the things that I look at, and we have
looked at on the Budget Committee, is looking at the growing
size of mandatory spending. And I think that we would all agree
that as we approach the next 12 to 15 years, and we look at
that number moving from somewhere close to 70 percent to over
80 percent. Would you agree that we are going to be very
limited in our ability to meet our obligations, the promises
that have been made, particularly related to Social Security,
Medicare, and Medicaid?
Mr. Dodaro. Yeah, definitely. I mean, this situation will
limit the flexibility, not only to deal with known problems in
mandatory spending. There are some fiscal exposures, the
Pension Benefit Guaranty Corporation; $74 billion liabilities
exceed their assets. The Multiemployer Pension Fund is expected
to go insolvent in 2025.
These things are not even included in the estimates that I
have given you about the long-term fiscal exposure. Fannie Mae
and Freddie Mac are still under Federal conservatorship. Since
the global financial crisis, the Federal Government has been
either directly or indirectly insuring about \2/3\ of all
single-family mortgages. And so, if there is a downturn in the
housing economy, the risk will accrue to the Federal
Government. That is not considered in these costs.
So, you are absolutely right. They are mandatory programs,
but there are other fiscal exposures. And the more we borrow,
the less flexibility we will have later on to deal with these
situations.
Mr. Ferguson. Okay. To that point, I think we are fast
approaching an environment where we simply cannot cut our way
out of a program. We cannot spend our way out of a program. We
cannot simply reform our way out of a program. We are going to
reach the point where we have to have a very honest
conversation with ourselves, but most importantly with the
American people, about where these programs are.
One of the reasons that I was so glad to have this
particular meeting is that I think, before we go into a
discussion about Social Security and Medicare, I think we owe
it to the American public to do everything that we can to make
sure that we are spending every dime as wisely as we can.
Getting rid of the waste, the wrongful payments, the fraud,
whether it is intentional or unintentional, we have to be good
stewards of the money. And so I thank you for your time here.
I have one final question. And do you believe that the
processes that we have followed on budgeting and
appropriations, let's say, for the last decade, and even our
current omnibus and appropriations bill, does that mechanism
address the spending reforms needed to actually get at deficit
reduction?
Mr. Dodaro. No.
Mr. Ferguson. Okay, thank you. Madam Chairman, I yield
back.
Chairman Black. The gentleman yields back. I now recognize
Mr. Westerman from Arkansas for 5 minutes.
Mr. Westerman. Thank you, Madam Chairman. And thank you,
Mr. Dodaro, for being here today and for your very insightful
comments, and for the report that you provided to us. Having
served in a state legislature before I came here I first
started reading about improper payments through a GAO report
that was done around 2010 or 2011 on Medicaid payments, so we
did a little audit back in my state to see if we could find any
improper payments in the Medicaid System.
And sure enough, our state auditors found that there were
improper payments in our Medicaid System, pretty much in line
with the numbers that the GAO had projected, but also learned
something very interesting about Medicaid. Because it is a
Federal match program, that there really is not a lot of
incentive in states to stop the improper payments. You could
almost, I hate to say this, but look at it where it is viewed
as economic development where you put a small percentage of
state dollars in, and you get a large percentage of Federal
dollars flowing into the state.
So, I am a proponent of block grant-type of funding. But do
you see other ways that we could address the Medicaid System to
put more incentive in the states to stop these improper
payments?
Mr. Dodaro. Yes, there are 2 ways. One, we made a number of
recommendations for CMS to collect more information from the
state. A good example of this is that the Federal Government
makes payments to the states for uncompensated care. These are,
you know, if somebody goes in and they do not have insurance or
whatever.
But they do not base it on the actual uncompensated cost of
the hospitals. They base it based on Medicaid workload, which,
in this case, more people are being covered by Medicaid, so it
is not a good proxy for uncompensated care. And when they go to
make uncompensated care payments for Medicare, they do not even
consider what they have already paid the state for Medicaid.
So, they need more information. This is a big problem.
Number two, I have been working with the state auditors
around the country. I have got about 37 state auditors to agree
to do more work looking at the Medicaid area. They see, and
they are independent. But CMS has not had a relationship with
the state auditors. So I brought them together in a meeting,
along with OMB, and I have now connected that state audit
community to the Federal agency that has responsibility. They
are meeting this month in South Carolina to talk more about
what could be done by the state auditors. So, those are two,
you know, just good examples.
Also, the state auditors need to audit more of the managed
care portion of Medicaid, not just the Fee-for-Service portion.
Mr. Westerman. All right, we also set up a State Office of
Medicaid Inspector General that was out from under the
Department of Human Services in the state, which had the
program integrity layered underneath in kind of a middle
management role within, and that helped expose more of the
waste, fraud, and----
Mr. Dodaro. Yeah, you need to have an independent look.
Mr. Westerman. So, moving on to a different topic. Last
year, our deficit was $587 billion according to CBO. And the
terminology we use around here is if we had zero deficit
spending we would have a balanced budget. But if we look at
CBO's numbers last year, the debt actually increased over a
trillion dollars. So, there is another approximately $500
billion that went towards debt that was not in the deficit.
And it gets complicated, but it comes back to the debt
limit and financing. And one of the CBO notes says, ``Debt
subject to limit differs from growth Federal debt, mainly
because most debt issued by agencies other than the Treasury
and the Federal Financing Bank is excluded from the debt limit.
That limit was most recently set at $18.4 trillion but has been
suspended through March 15, 2017. On March 16, 2017, the debt
limit will be raised to its previous level, plus the amount of
Federal borrowing that occurred while the limit was
suspended.''
CBO says that the growth of Federal debt is projected to
rise $9.7 trillion over the next 10 years or about a trillion
dollars per year. And I notice you addressed the debt limit on
page 14 of your report. And you said, ``We recommend that
decisions about giving Treasury the authority to borrow be made
when decisions about spending and revenues are made.'' And you
gave us about three.
Can you briefly tell us how that will help lower the debt
if we move that decision point to when spending decisions are
made?
Mr. Dodaro. Well, number one, it will focus the attention
of the Congress up front, rather than just on the spending and
the appropriations. In a way, you know, you have to remember,
almost \2/3\ of the Federal Government spending is on
autopilot. It does not involve the appropriation process. The
appropriation process only covers about \1/3\ of the Federal
Government's total spending.
So, other than the budget resolution process, there really
is not any definitive congressional focus on total Federal
Government spending and total revenue that is expended and how
much of a deficit are we going to have to finance up front
before that decision is made.
So, forcing that decision to be made up front will do it.
Now, that alone will not solve the problem. I also think there
needs to be a way to have a fiscal rule on how much debt that
the Federal Government wants to incur over a period of time.
There would have to be exceptions for exigencies and other
things that occur. But right now, there is not a conscious
decision made about how much debt we want to have as a country.
It just sort of happens as it happens and, you know, then there
is the result. And I do not think that that is good fiscal
discipline.
Mr. Westerman. Thank you.
Chairman Black. The gentleman's time has expired. The
gentleman from Texas, Mr. Arrington, is now recognized for 5
minutes.
Mr. Arrington. Thank you, Madam Chair and Comptroller
General, thank you for your time. And thank you for your clear
and extremely sobering insight as we prepare to vote on this
omnibus. But more importantly, you know, most of the freshman,
we showed up 100 days ago, really did not have a lot of input
into that, if any. Let me just say it another way. We had no
input into that. And we will have input now going forward on
this 2018 budget. And we are having really good discussions
along the lines of what you have laid out and some of the
things you have mentioned.
And, you know, for me, I think this is the biggest threat
to the future of our country. I think it is the biggest threat
to my children's future. My acid test is to uphold the
Constitution and hand this country, safer, stronger, and freer,
to my 6-year-old, 4-year-old, and 2-year-old. This is the one
that keeps me up at night.
Mr. Dodaro. Yeah.
Mr. Arrington. You know, we cannot have all the discussion
that this deserves in the 5 minutes. But quantify for me, if
you could, the implications of the interest rate risk. That is,
if it moves up a percentage point, what is the impact?
Mr. Dodaro. Right. Yeah, CBO estimates that a 1 percent
increase in the interest rate over 10 years would add about
$1.7 trillion to the debt. And the other point I would make
along this line here is we are very exposed because a lot of
the borrowing is in short-term borrowing in bills and notes.
So, that borrowing has to be refinanced on a fairly regular
basis. For example, last year, there was $8 trillion in new
financing. And that was to pay $7 trillion of debt that we had
to refinance over a period of time, plus financing new debt
that occurred during that period of time. So our interest rate
exposure is very significant.
Mr. Arrington. You know, when you look at this, and I do
not think the American people fully appreciate the extent or
the depth of the debt hole that we are in and the spiral, the
vicious cycle, and how we get out of it. It almost feels like
Mission Impossible at times, but we did not get here overnight;
we will not get out of it overnight. What is a meaningful way
to get us on a path going forward? And mainly on the mandatory
spending side because we know those are the drivers. And we
have not----
Mr. Dodaro. Right.
Mr. Arrington.----touched it, and nobody wants to talk
about it or do anything about it. But I hope our class,
especially, we invigorate the body here with the political
courage to do something about it. So with that, tell me what is
a reasonable and responsible reduction in spending on mandatory
to get us to balance.
Mr. Dodaro. Right. I think there are two fundamental
decisions. What does government want to do? And how do you want
to pay for it, other than borrowing? All right? A good place to
start, in my opinion, is the Social Security system. I issued a
special report, which I am glad to give to this Committee, last
year because the disability portion of the Social Security
program was projected to go bankrupt last year.
Now, the way that was solved was to just redirect some of
the payroll taxes that were going into the Old-Age portion of
Social Security to the Disability Fund. But that only props it
up for the next 6 years.
By 2023, the Disability Fund will only have enough money to
pay 89 cents on the dollar. By 2035, Social Security will only
have 77 cents to pay on the dollar. And so there are known
options for addressing the Social Security problem. We lay them
all out in our report and give the pros and cons of the
options. So I think that is there. Health care is a more
difficult----
Mr. Arrington. Let me push pause on that if you do not
mind.
Mr. Dodaro. Yeah, sure.
Mr. Arrington. I have got just a little time. Real quick
answer on this. I was not here and I do not know if this was
asked. But this omnibus that we were prepared to vote on, is
that doing anything to get at the structural reforms and the
spending reforms that you are recommending, or that we are
talking about here?
Mr. Dodaro. No.
Mr. Arrington. Okay. You know, another thing that I hear a
lot because, again, I am new, and I had a year and a half to
talk to folks in west Texas and listen to them. But this notion
of Washington playing by a different set of rules. You said 10
agencies or more are below the 10 percent threshold or above
the----
Mr. Dodaro. No, above.
Mr. Arrington.----10 percent.
Mr. Dodaro. Yeah, right.
Mr. Arrington. Tell me about that a little bit, and what
can we do about it as members of Congress and this Committee?
Mr. Dodaro. I think there ought to be more oversight
hearings. I mean, there ought to be the agencies that are
responsible for these overpayments here, either along with me
or in lieu of me, to question them about what they are doing
and to hold them responsible, not just the lower-level people;
I think you have got to hold the heads of the agencies
responsible for this problem.
And the tone at the top needs to be set appropriately, and
there needs to be focus on this because, if that leadership
occurs, I believe you will see a drop in there. And if there is
some potential consequences, other than a public hearing and
the risk of embarrassment, there needs to be some decisions by
the appropriators about, you know, how we are going to allocate
money if people are not providing proper financial stewardship.
Mr. Arrington. Thank you very much.
Chairman Black. The gentleman's time has expired. The
gentleman from Pennsylvania or, excuse me, the gentleman from
Ohio, Mr. Renacci, is recognized for 5 minutes.
Mr. Renacci. Thank you, Madam Chairman, and I thank you for
holding this hearing, as well. I know we were looking at
improper payments, but I was actually asking the chairman, the
previous chairman, to bring Mr. Dodaro before the Budget
Committee because I do think your insight is important,
especially for people that are designing a budget.
I thank you for being here as a father of three myself. And
I know you and I have spoken many times. What I really loved
about the first conversation you and I had, you said that you
were in this to try and make sure we turn this country in the
right fiscal direction. It is one of the reasons why I dropped
the bill last cycle to bring you before the complete House and
Senate. It was a resolution that got 160 cosponsors because I
do believe the starting point should be you coming before the
House and Senate and explaining our fiscal situation. So, I am
going to continue to push for that resolution this year.
In your testimony you indicate, ``We cannot continue to
ignore the fiscal constraints facing our country. We have an
obligation to our constituents and future generations of
Americans to make tough decisions and put our fiscal house in
order.'' You stated that the current debt, as a share of the
economy, is the highest it has been since 1950. And under
current law, the debt-to-GDP ratio is projected to exceed its
historical high of 106 percent in the next 15-20 years.
I was a businessman and a mayor of a city, which had fiscal
issues. And the first thing we did was we drove everything
based on our fiscal issues. So from a top line picture, would
you agree that the current drivers of our debt are Medicaid,
Medicare, Social Security, and interest on our debt?
Mr. Dodaro. Yes.
Mr. Renacci. Okay, would you also agree that these programs
are unsustainable based on the current demographics in our
country and the current program payouts?
Mr. Dodaro. Yes.
Mr. Renacci. Thank you. And these drivers are growing
rapidly each year, correct?
Mr. Dodaro. Yes.
Mr. Renacci. If you were reporting to Congress and the
American people your greatest fiscal concern for our Nation,
would you report that our spending is unsustainable?
Mr. Dodaro. I would say our fiscal condition is
unsustainable because we are not generating enough revenue to
meet the commitments that we have. And we either have to
generate more revenue or cut spending. But that is a policy
decision by the Congress. I would never advise Congress on what
to do, but it is a spending and a revenue issue, in my opinion.
Mr. Renacci. Okay, and is our debt growth unsustainable as
well?
Mr. Dodaro. Yes, definitely.
Mr. Renacci. Okay, how much of our debt is held by foreign
countries?
Mr. Dodaro. About 40-45 percent.
Mr. Renacci. What happens if those countries decide they no
longer want to lend this money to the United States?
Mr. Dodaro. We will either have to pay probably higher
interest rates to domestic savers. And we do not have a lot of
domestic savings to begin with. And whatever the Federal
Government takes up from domestic savings, that is less for
capital investment for economic growth. So we would be in
trouble.
Mr. Renacci. Yeah, and there has been a couple ideas driven
out, which I realize. But let's talk about spending. You said,
the average, we need to cut spending by is 25 percent on the
average over the next 10 years. Today 70 percent of our
spending is Medicare, Medicaid, Social Security interests. And
you also said that is on autopilot. And 15 percent is military,
and 15 percent is discretionary. If you cut 25 percent, I am
just looking at the spending side.
Mr. Dodaro. Yeah, right.
Mr. Renacci. If you cut 25 percent, you would basically
have to gut our military and gut every bit of discretionary
spending, because the 70 percent is on autopilot. So, if it is
just the spending side, would you agree with that?
Mr. Dodaro. Yeah, if you did not change the mandatory
programs, that is what you would have to do.
Mr. Renacci. All right, so----
Mr. Dodaro. And I would not recommend it, but----
Mr. Renacci. No, I would not recommend it either, but it is
kind of interesting----
Mr. Dodaro. Yeah, right. Yeah, right.
Mr. Renacci.----because if you are going to cut 25 percent,
you would cut everybody's salary here, too.
Mr. Dodaro. Yeah, but it shows the magnitude of the problem
that we have.
Mr. Renacci. Absolutely. Now, on the income side of the
issue--and I realize that. I mean, I heard one of the members
say, ``Well, if you increase the Social Security tax on the
payout, the problem is you would also be increasing the expense
to the corporation.'' Because, you know, that is 6 \1/2\
percent more of an expense to the corporation, which will slow
their ability to grow as well. Would you agree?
Mr. Dodaro. Yes, it would have implications. In particular,
the only way it would help solve the problem is if you delink
it to their benefits, so if their benefits did not rise based
on their payments. And that would have other consequences for
people, as well.
Mr. Renacci. Sure. So, I want to look; we went to the
expense side, which was kind of drastic to fix this. On the
income side, we also have the highest corporate tax rate in the
world. Would you agree with that?
Mr. Dodaro. On a statutory basis, not necessarily on an
effective tax rate basis.
Mr. Renacci. But corporations are leaving and going
overseas because they can get a lower corporate rate. So we are
losing businesses to overseas markets.
Mr. Dodaro. Yeah, well, that is a problem. But our study
shows that the effective tax rate, after all the tax
expenditures are in place, is an average of about 14 percent.
Mr. Renacci. Okay, so again, the real key here is, and I
agree it has to be a mix of expenses and probably have to look
at some issues with our tax rate. But in the end, and I am just
hoping we can get to the bottom of this. I mean, our spending
is out of control; our debt is out of control, and we have 70
percent of our spending, which is on autopilot.
Interest rates, I heard if it just goes up 1 percentage
point our debt increase is $1.6 trillion over 10 years. I sure
hope the Congress members are listening today because these are
the issues that we face every day. So I thank you again for
being here, and Madam Chairman, I yield back and thank you for
having this hearing.
Chairman Black. The gentleman yields back. Now the
gentlelady from Texas, Ms. Sheila Jackson Lee, is recognized
for 5 minutes.
Ms. Jackson Lee. I thank the Chairman and the ranking
member and Mr. Dodaro. I thank you for the years of service
that you have given. It is a privilege to serve on the Budget
Committee with my colleagues. And I get a chance to see the
gentleman who is behind so many good studies that come before
our Committees on responsible management.
And I wanted to make sure that I put on the record that the
essential agency, this agency, to support the fiscal management
of agencies. You carry out audits, evaluative and investigative
assignments, provide legal analysis for the Congress, which I
think is very important.
I think another important element of your work, of course,
is that you deal with the issue of audited financial
[inaudible]. And that we raise a concern about ensuring that
our agencies can get to that point, that they can do that. But
more importantly, you have found that the consolidated
financial statements for fiscal year 2016 and 2015 indicate
that the Federal Government make more strides in improving
Federal financial management.
But to say all that is to say that we also have to have the
dollars, the balanced dollars, to be able to be fiscally
responsible. And I think that that is something that I want to
pursue in a line of questioning. We are in tax season, and
there are a number of proposals. One, in particular, that has
come forward that has a list of eliminating the AMT,
eliminating the estate tax. And the calculated number is about
$2 trillion in debt or deficit that will be increased.
So, my question is the biggest tax cut a person could
receive is not paying any Federal income taxes at all. That is,
of course, under the jurisdiction of the IRS. In your 40 years
of experience at GAO, have you come across any evidence that,
when a person avoids paying taxes for 20 years, they are
helping the economy? And their tax avoidance activities, some
will say tax avoidance festivities actually pay for themselves,
so that when individuals do not pay their taxes and if someone
has not paid it for 20 years, that it actually pays for itself.
Mr. Dodaro. I am not sure. In terms of an individual, on an
individual basis----
Ms. Jackson Lee. It could be a corporation or----
Mr. Dodaro. Yeah. If it is a corporation, whatever, I
mean----
Ms. Jackson Lee. A person of wealth.
Mr. Dodaro. Yeah, well, they are definitely not in
compliance with the law, and it is not helping fund the Federal
Government. So they are not fulfilling their legal
responsibilities. And, therefore, it is not helping anyone
other than themselves.
Ms. Jackson Lee. Another quick question. Can the IRS, in
your perception now, adequately address tax compliance without
additional staff? And will the tax gap widen if we continue to
cut IRS staff, actual staff?
Mr. Dodaro. Yeah, well, I think the record is pretty clear.
If you add additional resources to the IRS, they will produce
additional revenue. We have made a lot of recommendations
though, too, that they could do more with the revenue that they
have to have a better comprehensive plan. And I would recommend
that the Congress, if they decide to make a policy decision to
give them additional money, they also require them to produce
greater return on the investment that is made and show that
they are pursuing the best comprehensive strategy to use their
resources in a constrained budget environment.
Ms. Jackson Lee. Thank you so very much. Let me further
ask, is not receiving an emolument of the type prohibited on
the Constitution the worst of improper payment? And does not an
emolument have far greater potential to corrode our democratic
system of governance than a working class taxpayer who may be
overpaid a few hundred dollars under the earned income tax
credit?
Mr. Dodaro. Yeah, we have not done any work, that I recall,
on an emolument issue. I will go back and check, and if we have
something, I will submit it for the record.
Ms. Jackson Lee. And I appreciate it. And I am going to
make an official request, and I will put it in writing that I
had asked the GAO to make that assessment because I think it is
important, when you look at the balance between what the earned
income tax credit does for a working family, or a single
person, as well as how it impacts on the emolument.
We are in the midst of debating health care. And so one of
the questions is the loss of insurance for 24 million people.
Can you comment on how the breakdown in the appropriations
process has hurt taxpayers? Meaning that we do not do it, and
we are in a CR, hurt taxpayers and programs, beneficiaries like
the 24 million who now receive available accessible, quality
health care through the Affordable Care Act, who depend upon
the efficient administration of vital government services?
Mr. Dodaro. Yeah, well, there needs to be, you know, final
decisions made by the Congress on how they are going to handle
those issues. I mean, the continuing resolution process, if
that is what you are referring to----
Ms. Jackson Lee. Yes.
Mr. Dodaro.----really affects the functioning of the
agencies. And it debilitates their hiring approach and working
with contractors. And it also requires them to make compressed
spending decisions about the money once the appropriations
available at the end of the year. So it is disruptive to the
agency operations. Now, how that translates into impacts on
individual people, American citizens, varies from program to
program.
Ms. Jackson Lee. Might I say that it might also impact upon
their audited financial statements or their ability to put
financial statements together when we have a disruptive
appropriations process and cannot fund the government in the
way that it can plan?
Mr. Dodaro. Yeah. It is definitely not a best practice.
Chairman Black. The gentlelady's time has expired.
Ms. Jackson Lee. I thank the gentlelady.
Mr. Dodaro. Yeah.
Chairman Black. The gentleman from Alabama, Mr. Palmer, you
are recognized for 5 minutes.
Mr. Palmer. Thank you, Madam Chairman. I just want to
address the issue of delinquent taxes for just a moment, if I
may, and point out that, as reported in 2015, that there was
$3.5 billion owed to the Federal Government by Federal workers;
3.1 percent of the Federal workforce had not paid their taxes,
including a number of key officials within the Obama
administration.
There was a bill introduced in 2015 that would have given
agency directors the ability to take action against Federal
workers, Federal employees, who did not pay their taxes. And
our colleagues across the aisle would not support it. There was
a Senate bill to block bonuses for people who failed to pay
their taxes, and that bill also failed.
Now, to get back to the topic at hand and the improper
payments. I thank you for coming here, and you have been
enormously helpful. I am very grateful for the work you and the
GAO have done on this. I want to talk about a couple things,
one, to try and put this in perspective. There are four
programs, well, actually two, and one of which has three
subsets, that being Medicare, that account for $96 billion in
improper payments.
And just for a point of reference, I want to point out that
the entire Department of Education was funded at $69.2 billion,
the Department of Labor at $12.2 billion. I mean, those two
departments together are less than what we sent out in improper
payments. So, this is a huge problem.
I appreciate what was done in the previous administration
and their efforts to try to stop the improper payments, but I
think we have to take this very seriously. And I have got a
slide, and it is actually from your testimony and from a
previous meeting that we have had with the Subcommittee on
Intergovernmental Affairs at OGR and with this Committee as
well.
And I just want to point out that, in terms of where the
problem lies, it is really due diligence. You have got 56.5
percent of the problem in terms of due diligence that is
insufficient documentation, inability to authenticate
eligibility, and the failure to verify data; 56.5 percent that
is low-hanging fruit. We ought to be able to stop that. That
would account for $75.5 billion, okay?
And then you mentioned problems with data systems, outdated
technology, that sort of thing. I think that falls under the
administrative or process errors at the state, local, other
parties, and federal level. That accounts for another 33.8
percent. That is a little tougher to solve. I think that is
going to require some outlays from the Federal Government to
improve their data systems. But that accounts for $45.2
billion. I think the savings more than justify whatever it
might cost us to upgrade our data systems. Would you agree with
that?
Mr. Dodaro. Definitely, if properly managed. If properly
managed, the----
Mr. Palmer. Well, that gets back to the due diligence part.
Mr. Dodaro. Yeah, right.
Mr. Palmer. I cannot understand why we have not had some
enforcement effort on the agencies, particularly the ones who
have the bigger numbers and with the 18 programs that failed to
report. We have got to take this seriously because I made this
point several times that, when we look at the dollars that are
going out, the $133.7 billion, that is not all that is going
out. I think just the top of my head estimate, we are paying
about 2.8 percent interest so----
Mr. Dodaro. That is about right.
Mr. Palmer. About right?
Mr. Dodaro. Average, on average.
Mr. Palmer. So you add that to the dollars that are going
out improperly, and that adds another $3.7 billion. So Madam
Chairman, I just think this is a critical issue for us. I think
it helps us in terms of finding a pathway to balancing the
budget if we can just stop sending out the money. I have had
some people say, ``Well, how do you recover?'' I would love to
be able to recover the money, but right now, I would be quite
happy if we just stopped it.
Again, General Dodaro, I thank you for this outstanding
work. I would encourage my colleagues on the Committee to take
a look at that slide. It is in your binder on page 28 in the
General's testimony. And we need to start working out a way to
have the program directors do the due diligence to make sure we
stop the improper payments. I yield back.
Chairman Black. The gentleman yields back. And I want to
say, at the beginning, I gave you recognition for bringing this
issue to our forefront, and we really appreciate that.
I now recognize the gentleman from Ohio, Mr. Johnson, for 5
minutes.
Mr. Johnson. Thank you, Madam Chairman. Thank you for
joining us today. I appreciate it. GAO's long-term budget
projections indicate that, absent some policy changes, the
Federal Government's debt held by the public as a share of GDP
is expected to rise steadily from today's already high level of
77 percent. It will surpass its historical high of 106 percent
in 15 years under GAO's alternative simulation. And in 25 years
under GAO's baseline simulation, the debt-to-GDP ratio would
continue to escalate at an ever-increasing rate in subsequent
years under both scenarios.
GAO writes that this compares to an average of 44 percent
since 1946. As I understand it, the GAO report, recent CBO
long-term budget outlook reports, and the fiscal year 2016
financial report of the United States, all conclude that the
Federal Government's fiscal path is unsustainable. Do I have
this correct?
Mr. Dodaro. Yes, you do.
Mr. Johnson. an you elaborate on what this unsustainable
fiscal path could mean for our country and the American people?
Could this debt path eventually lead to a fiscal crisis in
which borrowing rates rise sharply? And, if so, how soon might
this occur?
Mr. Dodaro. This definitely has a lot of different impacts
on the country.
Mr. Johnson. None of them good.
Mr. Dodaro. The American people. None of them good. None of
them good. That is a good summary. What they include are higher
interest rates that the Federal Government will have to pay to
service this debt. So you have, right now in 2016, there were
over $250 billion in interest that we were already paying the
Federal Government to service this debt. That will continue to
compound and grow the more debt we have and the more interest
rates grow up over a period of time.
That means that there is going to be more pressure on the
rest of the Federal Government's budget that could ultimately
impact the types of decisions Congress makes about what
programs to fund, what benefits to provide, what services to
authorize. It will also potentially affect our credit rating. I
mentioned earlier that all the bond raters believe our existing
debt burden is already a credit weakness in our profile. And
one has reduced our credit rating from the top credit rating
and that, if it impacts our credit rating in the future, that
will affect not only our interest cost, but borrowing.
It also enormously affects the flexibility of the Congress
to deal with problems, the known problems, that will occur,
Social Security program, Medicare program, for example; the
Pension Benefit Guaranty program is going to be a problem;
flood insurance is already not actuarially sound and owes over
$23 billion to the Federal Government. And that is unlikely to
be repaid.
So, there are enormous implications. Over the long-range it
could reduce national savings and income that would have
deleterious effects to the economy as well.
Mr. Johnson. Like we said, none of them good.
Mr. Dodaro. That is right.
Mr. Johnson. Does this debt trajectory that GAO projects
emphasize the need for putting in place policies as soon as
possible that would arrest this trend and lower debt levels
over time? And do you have any ideas of what some of those
policies might be?
Mr. Dodaro. Yeah, well, definitely the sooner the Congress
takes action to put a plan together, the better. These things
will accrue over time. If we stop the compound interest on our
debt, that will help a lot there in that area. So, the exact
policies that the Congress wants to follow, that is up to the
Congress to decide. That is not, you know, a role for the GAO.
Our role is to say you have a problem; you need to deal with
the problem. The sooner you deal with it, the better because
the longer you wait, as you mentioned earlier, none of the
options are good. But the longer you wait, the more difficult
and more draconian those options become in order to deal with
the problem.
You know, one of the most difficult parts of my job is to
try to get people to take action before it becomes a crisis.
So, I am here today to tell you, if you start taking action,
this will avoid a potential crisis down the road.
Mr. Johnson. You sound a little bit like that commercial.
Mr. Dodaro. You pay me now, or you pay me later, yeah.
Mr. Johnson. Yeah, I am not a guard. I am just a robbery
monitor.
Mr. Dodaro. Yeah.
Mr. Johnson. There is a robbery. So I, for one, would----
Mr. Dodaro. I am not elected. You are.
Mr. Johnson. And I appreciate that, and you are right; it
is Congress' responsibility.
Mr. Dodaro. Yeah.
Mr. Johnson. But, you know, as people might assume, we do
not hold the corner market on all the good ideas. And if you
have some, I, for one, would love to hear what they are. And
with that, I yield back.
Chairman Black. The gentleman yields back. I just want to
clarify, for the record, one question that was asked by Mr.
McClintock earlier on the level of Federal revenues compared to
the historical average. And the staff reminds me, according to
page 2 of the Congressional Budget Office's January 2017
baseline report, the budget and economic outlook for 2017 to
2027, it says, ``If current laws generally remain unchanged,
revenues would rise from 17.8 percent of GDP in 2017 to 18.4
percent by 2027. They have averaged about 17.4 percent of the
GDP over the last 50 years.''
So, according to the CBO's current low baseline Federal
revenues as a percent of GDP are projected to be higher than
the 50-year historical average, both this year and over the
budget window. And I think it just, once again, says that, no
matter how much we grow our revenue, if we do not get our
spending under control, the revenue will not matter if we just
keep spending more than what we bring in day after day after
day, and year after year after year.
So, Mr. Dodaro and your staff, all the workers in your
office, I just want to say a big thank you for the work you do.
You have given us such great information that has enlightened
us, given us some instructions on how we can control this path
that we are going down right now. I only wish that I could have
all 435 members of Congress hearing what you are saying in
here. And I am going to recommend, at least in my conference,
that they listen to this hearing and that they read the
information that you put out because it is such helpful
information. First, we have to know it, and then we have to
take charge of it and make sure that we put those policies in
place.
And then I think, finally, we have got to hold people
accountable for the policies you put in place because,
obviously, they are no good unless you do hold people
accountable. You can put the ideas out there, the
recommendations, but there has got to be accountability at the
end of the day.
So, I thank you. I thank Ms. Jayapal for sitting in for the
ranking member and being here with me during the hearing.
I want to advise that members may submit written questions
to be answered later in writing. And those questions and your
answers will be made part of the formal hearing record. Any
members who wish to submit questions or any extraneous
materials for the record may do so within 7 days. So all of
those ghosts that are sitting here, hear that.
With that, the Committee stands adjourned.
[Whereupon, at 12:09 p.m., the Committee was adjourned.]
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