Federal Budget: Opportunities for Oversight and Improved Use of
Taxpayer Funds (17-JUL-03, GAO-03-1030T).
The hearing today deals with the important congressional
obligation to exercise oversight over the use of taxpayer funds,
recognizing that waste, fraud, abuse, and mismanagement are not
victimless activities. When resources are diverted for
inappropriate, illegal, inefficient, or ineffective purposes,
both taxpayers and legitimate program beneficiaries are cheated.
Beyond preventing obvious abuse, government also has an
obligation to modernize its practices and processes and
fundamentally reexamine and reprioritize its activities to meet
the demands and needs of today's changing world.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-1030T
ACCNO: A07567
TITLE: Federal Budget: Opportunities for Oversight and Improved
Use of Taxpayer Funds
DATE: 07/17/2003
SUBJECT: Federal funds
Taxpayers
Program management
Congressional oversight
Funds management
Cost effectiveness analysis
Old-Age and Survivors Insurance Program
Disability Insurance Program
Medicare Program
Supplemental Security Income Program
DOL Unemployment Insurance Program
******************************************************************
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GAO-03-1030T
GAO United States General Accounting Office
A
Test i mony Before the Committee on Ways and Means, House of
Representatives
For Release on Delivery Expected at 10 a. m. EDT Thursday, July 17, 2003
FEDERAL BUDGET
Opportunities for Oversight and Improved Use of Taxpayer Funds
Statement of David M. Walker Comptroller General of the United States
GAO- 03- 1030T
This is a work of the U. S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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separately.
This testimony focuses on program reviews, oversight, and stewardship of
taxpayer funds in three tiers: (1) areas vulnerable to fraud, waste,
abuse, and mismanagement. For example, payments made to ineligible
recipients drain resources that could otherwise go to the intended
beneficiaries of a program. Everyone should be concerned about the
diversion of resources and subsequent undermining of program integrity.
(2) improving the economy, efficiency and effectiveness of federal
programs and activities to enhance and maintain government performance.
(3) fundamental reassessment and reprioritization of government programs,
policies & activities to meet the challenges of the 21 st century,
especially in light of the demographic tidal wave looming on our fiscal
horizon.
Each of these tiers is relevant to the areas on which the Committee is
focusing attention as part of this hearing: Social security programs,
Medicare, and tax compliance and preferences.
* The Social Security Administration (SSA) must modernize its disability
programs to bring them in line with the current status of science,
medicine, technology, law, and labor market conditions. GAO placed federal
disability programs on its high- risk list in 2003 to focus attention on
this multi- agency challenge. SSA needs also to ensure the integrity of
its programs, and in particular should give continuing management
attention to problems in the SSI program. . Medicare is one of the
largest and most complex programs in the federal
government, making it highly vulnerable to waste, fraud, abuse, and
mismanagement. GAO designated the Medicare program as a high- risk area in
1990, and the risk remains. Weaknesses in contractor performance and
agency oversight increase the risks of improper payments, and* along with
difficulties in payment setting* lead to wasteful spending. Structural
reform is also necessary given the pressures of demographics and rising
health care costs.
Ensuring that taxpayers meet their tax obligations under an increasingly
complex tax code has long presented the Internal Revenue Service (IRS)
with daunting challenges. The potential revenue losses and the threat to
voluntary compliance make the collection of unpaid taxes a high- risk
area. Congress and others have been concerned that declines in IRS*s
enforcement programs are eroding taxpayers* confidence in the fairness of
our tax system. Further, any reassessment of government*s activities must
include tax preferences. These often are not subject to the same review
processes applied to spending programs but, given their growth
and importance, they must be part of any comprehensive approach to the
challenges ahead. The hearing today deals with the
important congressional obligation to exercise oversight over the use of
taxpayer funds, recognizing that waste, fraud, abuse, and
mismanagement are not victimless activities. When resources are diverted
for inappropriate, illegal, inefficient, or ineffective purposes, both
taxpayers and legitimate program beneficiaries are cheated. Beyond
preventing obvious abuse,
government also has an obligation to modernize its practices and processes
and fundamentally reexamine and reprioritize its
activities to meet the demands and needs of today*s changing world.
Tackling areas at risk for fraud, waste, abuse, and mismanagement will
require determination,
persistence, and sustained attention by both agency managers and
Congressional committees. In addition, there is a need to fundamentally
review and reassess,
the proper role of the federal government, how the government should do
business in the future, and* sometimes-- who should do the government*s
business in the 21 st century. Periodic review of programs on the
mandatory and discretionary sides of the budget,
as well as tax preferences, can prompt a healthy reassessment of our
priorities and of the changes needed in program design,
resources and management to achieve results. Congressional support and
oversight will be key.
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 1030T. To view the full product,
, click on the link above. For more information, contact Susan J. Irving,
(202) 512- 9142, irvings@ gao. gov. Highlights of GAO- 03- 1030T,
testimony
before the Committee on Ways and Means, House of Representatives
July 17, 2003
FEDERAL BUDGET
Opportunities for Oversight and Improved Use of Taxpayer Funds
GAO- 03- 1030T 1 Mr. Chairman, Mr. Rangel, members of the Committee
It is a pleasure to be here today as you deal with one of your important
obligations* to exercise oversight over the use of taxpayer funds. No
government should waste its taxpayers* money, whether we are operating
during a period of budget surpluses or deficits. And, as you all
recognize, waste, fraud, abuse, and mismanagement are not victimless
activities. Our resources are not unlimited, and when they are diverted
for inappropriate, illegal, inefficient, or ineffective purposes, both
taxpayers and legitimate program beneficiaries are cheated. Both the
Administration and the Congress have an obligation to safeguard benefits
for those that deserve them and avoid abuse of taxpayer funds by
preventing such diversions. Beyond preventing obvious abuse, government
also has an obligation to modernize its priorities, practices, and
processes so that it can meet the demands and needs of today*s changing
world. More broadly, the federal government must reexamine the entire
range of policies and programs* entitlements, discretionary spending, and
tax preferences 1 *in the context of the 21 st century. Both the Congress
and the executive branch have a fiduciary and stewardship obligation to
gain control over our fiscal future.
Periodic reexamination and revaluation of government activities has never
been more important than it is today. Our nation faces large and growing
long- term fiscal challenges. Increased pressure also comes from world
events: both from the recognition that we cannot consider ourselves *safe*
between two oceans* which has increased demands for spending on homeland
security* and from the U. S. role in an increasingly interdependent world.
Government also faces increased demands from the American public for
modern organizations and workforces that are results- oriented, capable,
responsive, agile, and accountable.
This committee has jurisdiction over some of the most important programs
in the federal government: Social Security* including related programs
such as SSI* Medicare, and TANF. As the committee with jurisdiction over
our tax system* over raising the revenue to finance government*s
activities* you also oversee the growing number of *programs* conducted
through the tax code in the form of tax preferences. By anyone*s
definitions, your oversight agenda is massive. It is important that you
take it seriously. Today*s hearing is a positive step in this regard.
And, of course, as everyone on this committee knows well, today
discretionary spending makes up less than 40 percent of the budget. Net
interest and other mandatory spending 2 *including
1 In this testimony the term *tax preferences* is used to describe
provisions in the tax code sometimes referred to as *tax incentives* or
*tax expenditures.* "Tax expenditures" are defined under the Congressional
Budget and Impoundment Control Act of 1974 as "revenue losses attributable
to provisions of the Federal tax laws which allow a special exclusion,
exemption, or deduction from gross income or which provide a special
credit, a preferential rate of tax, or a deferral of tax liability." The
Joint Committee on Taxation describes tax expenditures as including any
reductions of income tax liabilities that result from special tax
provisions or regulations that provide tax benefits to particular
taxpayers.
2 While Social Security and Medicare are the largest direct spending or
mandatory programs, this category also includes such others as farm price
supports, insurance programs, food stamps, TANF block grants to the
states, federal civilian and military pension and health.
GAO- 03- 1030T 2 the programs under your control* represent over 60
percent of the federal budget. Figure 1
shows the composition of federal spending in 2003. Including the Iraq war
supplemental mandatory spending makes up 54 percent of the budget-- up
from 25 percent in 1963 before the creation of Medicare and 45 percent in
1983. 3 If you look only at programmatic spending (i. e., excluding
interest on the debt) the shares are 58 percent mandatory and 42 percent
discretionary.
Figure 1: Composition of Federal Spending, 2003
Source: GAO analysis of data from the Congressional Budget Office. Note:
Includes $41 billion in discretionary spending and about $1 billion in
mandatory spending for the Iraq war supplemental. Includes $11 billion in
mandatory spending for the 2003 tax cut package. Direct, or mandatory,
spending programs and tax preferences are by definition assumed in the
baseline and not automatically subject to annual congressional decisions
as are appropriated discretionary programs. In our view, a periodic
reassessment of these programs and tax preferences is critical to
achieving fiscal discipline in the budget as a whole. Moreover, such a
review can help ascertain whether these programs are protected from the
risk of fraud, waste, and abuse, and are designed to be as economical,
efficient, and effective as possible.
As you know, the Budget Resolution directs GAO to prepare a report
identifying *instances in which the committees of jurisdiction may make
legislative changes to improve the economy, efficiency, and effectiveness
of programs within their jurisdiction.* My testimony draws in part on some
of the items that will be included in that report, which is due August 1,
2003. You asked me today to focus on several areas within this Committee*s
jurisdiction: Social Security and disability, unemployment insurance,
Medicare, and tax preferences and compliance activities.
3 Excluding the Iraq war supplemental the figures are 56 percent mandatory
and 37 percent discretionary.
2003 54%
39% 7%
Discretionary Mandatory Net interest
GAO- 03- 1030T 3 With me today are four GAO Directors with detailed
knowledge in these areas: Barbara
Bovbjerg of our Education, Workforce and Income Security Team [Social
security, disability], Leslie Aronovitz and Laura Dummit of our Health
Care Team [Medicare] and Michael Brostek who is a Tax Director in our
Strategic Issues Team.
In this testimony, I will discuss program reviews, oversight, and
stewardship of taxpayer funds on three levels:
First are those areas vulnerable to fraud, waste, abuse, and
mismanagement. Payments to ineligibles drain resources that could
otherwise go to the intended beneficiaries of a program. Everyone should
be concerned about the diversion of resources and subsequent undermining
of program integrity.
Second, and more broadly, policymakers and managers need to look at ways
to improve the economy, efficiency, and effectiveness of federal
functions, programs, and policies* including specific tax preferences.
Even where we agree on the goals, numerous opportunities exist to
streamline, target, and consolidate programs to improve their delivery.
This means looking at program consolidation, at overlap, and at
fragmentation. It means improved targeting in both spending programs and
tax preferences.
Finally, a fundamental reassessment of government programs, policies, and
activities can help weed out programs that are outdated, ineffective,
unsustainable, or simply a lower priority than they used to be. In most
federal mission areas national goals are achieved through the use of a
variety of tools and, increasingly, through the participation of many
organizations, such as state and local governments and international
organizations, that are beyond the direct control of the federal
government. Government cannot accept as *givens* all of its existing major
programs, policies, and operations. A fundamental review, reassessment,
and reprioritization of what the federal government does, how it does it,
and in some cases, who does the government*s business will be required,
particularly given the demographic tidal wave that is starting to show on
our fiscal horizon.
Before turning to the three program areas on which you asked us to focus
today, let me briefly discuss each of the three levels of review.
Addressing Vulnerabilities to Fraud, Waste, Abuse, and Mismanagement
Programs and functions central to national goals and objectives have been
hampered by daunting financial and program management problems, exposing
these activities to fraud, waste, abuse, and mismanagement. These
weaknesses have real consequences with large stakes that are important and
visible to many Americans. Some of the problems involve the waste of
scarce federal resources. Other problems compromise the ability of the
federal government to deliver critically needed services, such as ensuring
airline safety and efficiently collecting taxes. Still others may
undermine government*s ability to safeguard critical assets from theft and
misuse.
GAO- 03- 1030T 4 In recent years, GAO*s work across the many areas of
government program and operations has
highlighted threats to the integrity of programs which prompt potential
for fraud, waste, abuse, and mismanagement. As the sections in this
testimony on social security programs and unemployment insurance, health
care, and tax issues illustrate, much of our work for the Congress is n
fact dedicated to helping redesign programs and improve management to
address these long standing problems, in areas ranging from uncollected
taxes* both corporate and individual* to critical entitlement programs
that provide health and social services.
In 1990, GAO began a program to report on government operations we
identified as *high risk.* This label has helped draw attention to
chronic, systemic performance and management shortfalls threatening
taxpayer dollars and the integrity of government operations. Over the
years GAO has made many recommendations to improve these high- risk
operations. We discovered that the label often inspired corrective action*
indeed 13 areas have come off the list since its inception. For each of
these areas, we focus on (1) why the area is high- risk; (2) the actions
that have been taken and that are under way to address the problem since
our last update report and the issues that are yet to be resolved; and (3)
what remains to be done to address the risk.
In January of this year we provided an update for the 108 th Congress,
giving the status of highrisk areas included in our January 2001 report
and identifying new high- risk areas warranting attention by the Congress
and the administration. 4 GAO*s 2003 high- risk list is shown in
Attachment I. This Committee has jurisdiction over a number of these
areas. Lasting solutions to high- risk problems offer the potential to
save billions of dollars, dramatically improve service to the American
public, strengthen public confidence and trust in the performance and
accountability of our national government, and ensure the ability of
government to deliver on its promises. We have noted that continued
congressional interest and oversight, such as that exemplified by this
hearing today are of crucial importance. In addition, perseverance by the
administration in implementing needed solutions is needed. The
administration has looked to our recommendations in shaping government-
wide initiatives such as the President*s Management Agenda, which has at
its base many of the areas we have previously designated as high risk.
Clearly progress has been made in addressing most of the areas on our
current high risk list, both through executive actions and congressional
initiatives. However, many of these problems and risks are chronic and
long standing in nature and their ultimate solution will require
persistent and dedicated efforts on many fronts and by many actors over a
period of time. Some will
require changes in laws to simplify or change rules for eligibility,
provide improved incentives or to give federal agencies additional tools,
such as additional tools to track and correct improper payments. Continued
progress in improving agencies* financial systems, information technology,
and human capital management will be vital in attacking and mitigating
risks to federal program integrity. Some areas may indeed require
additional investments in people, process, and
technology to provide effective information, oversight, and enforcement
that protects programs from abuse. Ultimately, a transformation will be
needed in the cultures and operations of many agencies to permit them to
manage risks and foster the kind of sustained improvements in program
operations that is called for. Continued persistence and perseverance in
addressing the high- risk areas will ultimately yield significant benefits
for the taxpayers over time. Finding
4 U. S. General Accounting Office, High- Risk Series: An Update, GAO- 03-
119 (Washington, D. C.: January 2003).
GAO- 03- 1030T 5 lasting solutions offers the potential to achieve
savings, improve services, and strengthen public
trust in government.
Improving Economy, Efficiency, and Effectiveness
Important as safeguarding funds from fraud, waste, abuse, and
mismanagement is, I believe that for long- lasting improvements in
government performance the federal government needs to move to the next
step: to pursue widespread opportunities to improve the economy,
efficiency, and effectiveness of existing federal goals and program
commitments. The basic goals of many federal programs* both mandatory and
discretionary* enjoy broad support. That support only makes it more
important for us to pay attention to the substantial opportunities to
improve cost effectiveness and the delivery of services and activities. No
activity should be exempt from some key questions about its design and
management.
Key Questions for Program Oversight
Is the program targeted appropriately? Does the program duplicate or even
work at cross purposes with related programs and tools?
Is the program financially sustainable and are there opportunities for
instituting appropriate cost sharing and recovery from nonfederal parties
including private entities that benefit from federal activities?
Can the program be made more efficient through reengineering or
streamlining processes or restructuring organizational roles and
responsibilities? Are there clear goals, measures and data with which to
track progress, results
costs, and benefits? GAO*s work illustrates numerous examples where
programs can and should be changed to improve their impact and efficiency.
For example, our work has shown that scarce federal funds could have a
greater impact on program goals by improving their targeting to places or
people most in need of assistance. Poorly targeted funding can result in
providing assistance to recipients who have the resources and interest to
undertake the subsidized activity on their own without federal financing.
Moreover, lax eligibility rules and controls can permit scarce funds to be
diverted to clients with marginal needs for program funds. Federal grant
programs with formula distributions to state and local
GAO- 03- 1030T 6 governments could be better targeted to places with high
needs but low fiscal capacity. Other
programs should be re- examined for perverse incentives (e. g. flood
insurance, which provides an incentive to rebuild in areas vulnerable to
flooding).
GAO*s work over the years has also shown that numerous program areas are
characterized by significant program overlap and duplication. In program
area after program area, we have found that unfocused and uncoordinated
programs cutting across federal agency boundaries waste scarce resources,
confuse and frustrate taxpayers and beneficiaries and limit program
effectiveness.
And finally, the allocation of costs that once made sense when programs
were created needs to be periodically reexamined to keep up with the
evolution of markets. In some cases, private markets and program
beneficiaries can play greater roles in financing and delivery of program
services.
Reassessing What Government Does
I have talked about the need to protect taxpayer dollars from fraud,
waste, abuse, and mismanagement and about the need to take actions
improving the economy, efficiency, and effectiveness of government
programs, policies, and activities. However, to meet the challenges of
today and the future, we must move beyond these levels to undertake a more
fundamental reassessment of what government does and how it does it.
In part, this requires looking at current federal programs* both spending
and tax* in terms of their goals and results. Why does the program/
activity exist? Is the activity achieving its intended objective? If not,
can it be fixed? If so, how? If not, what other approaches might succeed
in achieving the goal/ objective? More fundamentally, even if a program or
activity is achieving its stated mission* or can be *fixed* so that it
does so* where does it fit in competition for federal resources? Are the
taxpayers getting a good *return on investment* from the program? Is its
priority higher or lower today given the nation*s evolving challenges and
fiscal constraints?
A fundamental reassessment also requires asking whether an existing
program, policy, or activity *fits* the world that we face today and will
face in the future. It is important not to fall into the trap of accepting
all existing activities as *givens* while subjecting new proposals to
greater scrutiny than existing ones undergo. Think about how much the
world has changed in the past few decades and how much it will change in
future years. We need a fundamental reassessment and reconsideration of
*the base.* We need to ask: What is the purpose? What tools are used? What
resources? What are the results? What are the costs and benefits? Who
benefits? What other programs or activities exist in the same area or with
the same goal? How do they compare? I do not need to tell this Committee
that any discussion about the role of the federal government,
about the design and performance of federal activities, and about the
near- term federal fiscal outlook takes place within the context of two
dominating facts: a demographic tidal wave is on the horizon, and it,
combined with rising health care costs, threatens to overwhelm the
nation*s fiscal future. The numbers do not add up. The fiscal gap is too
great for any realistic
GAO- 03- 1030T 7 expectation that the country can grow its way out of the
problem. Figure 2 is just one illustration
of this.
Figure 2: Composition of Spending as a Share of GDP
Source: GAO*s March 2003 analysis. Note: Assumes currently scheduled
Social Security benefits are paid in full throughout the simulation
period.
Now, Mr. Chairman, Mr. Rangel, members of the Committee, let me turn to
each of the areas that are the subject of this hearing: Social Security
programs and unemployment insurance, Medicare, and tax compliance
activities and preferences. In each of these areas the three levels of
review I described are relevant: vulnerability to fraud, waste, abuse, and
mismanagement; improvements in economy, efficiency, and effectiveness;
and, finally, re- examining what government does, how it does business,
and sometimes who does the government*s business. Needless to say, I will
not be discussing all the challenges faced in these program areas or by
the departments and agencies that administer them.
SOCIAL SECURITY PROGRAMS
The Social Security Administration (SSA) faces a number of difficult
management and policy challenges. This Committee has shown great
leadership in pressing SSA to address such concerns, and indeed has
achieved many management improvements that have saved millions of dollars,
but much remains to be done. First, the agency needs to ensure the
integrity of its three
programs* Old Age and Survivors Insurance (OASI), Disability Insurance
(DI), and Supplemental Security Income (SSI). In particular, it needs to
provide continuing management attention to problems in the SSI program,
including monitoring new initiatives to correct program weaknesses, and
addressing the continuing problem of program complexity. Second, SSA must
focus on improving the economy, efficiency, and effectiveness of these
programs. SSA urgently needs to address the disappointing results of its
efforts to improve the disability claims process it currently uses.
Further, the Government Pension Offset (GPO) and the
0 10
20 30
40 50
2000 2015 2030 2050 Fiscal year Percent of GDP
Net interest Social Security Medicare & Medicaid All other spending
GAO- 03- 1030T 8 Windfall Elimination Provision (WEP) both need attention
to assure they are administered
effectively and equitably. Third and finally, SSA must focus on
modernizing its disability programs. GAO has placed modernizing federal
disability programs on its high- risk list in recognition of the
transformation these programs must undergo to serve the needs of 21st
century Americans.
SSA Needs to Continue to Strengthen the Integrity of the SSI Program of
SSA*s Programs SSI is the nation*s largest cash assistance program for the
poor. The SSI program poses a special challenge for SSA because, unlike
its insurance programs (OASI and DI), SSI is a means- tested program. For
this reason, SSA must collect and verify information on income, resources,
and recipient living arrangements to determine initial and continuing
eligibility for the program. We designated SSI a high- risk program in
1997, after several years of reporting on specific
instances of abuse and mismanagement, increasing overpayments, and poor
recovery of outstanding SSI overpayments. In response to our high- risk
designation, SSA made sufficient progress in improving SSI*s financial
integrity and management to warrant removing its highrisk designation
earlier this year. SSA*s actions included developing a major legislative
proposal with numerous overpayment deterrence and recovery provisions.
Many of these provisions were incorporated into the Foster Care
Independence Act, which passed in 1999 thanks to the leadership of this
Committee. The act directly addresses a number of our prior
recommendations and provides SSA with additional tools to prevent and
recover overpayments. SSA also took a number of internal administrative
actions to strengthen SSI program integrity, many in response to GAO
recommendations. 5 These include using tax refund offsets for collecting
SSI overpayments and more frequent automated matches to identify
ineligible SSI recipients living in nursing homes and other institutions.
Although SSA*s current initiatives demonstrate a stronger management
commitment to SSI integrity and have the potential to significantly
improve program management, challenges remain. In prior work, we have
reported that SSI living arrangement and in- kind support and maintenance
policies used by SSA to calculate eligibility and benefit amounts were
complex, prone to error, and a major source of overpayments. 6 We also
recommended that SSA develop options for simplifying the program. Although
SSA is considering various options, it has not moved forward in
recommending specific proposals for change.
Our current work, to be issued by the end of this month for the Human
Resources Subcommittee, suggests that some of these complex policies* such
as living arrangements* remain a problem. In recent years, SSA has
identified a general increase in the amount of annual overpayments made to
(1) individuals who are found to have violated program residency
requirements, or (2) recipients who leave the United States and live
outside the country for more than 30 consecutive
5 U. S. General Accounting Office, Supplemental Security Income: Action
Needed on Long- Standing Problems Affecting Program Integrity, GAO/ HEHS-
98- 158 (Washington, D. C.: Sept. 14, 1998). 6 GAO/ HEHS- 98- 158.
GAO- 03- 1030T 9 days without informing SSA. The Social Security Act
requires that an individual be a resident of the United States to be
eligible for SSI benefits. 7 SSA guidelines define a resident as a person
who has established a dwelling in the United States with the intent to
live in the country. The Act also stipulates that no individual is
eligible for SSI benefits for any full month that the individual is
outside the United States. 8 Further, an individual who is outside the
United States for 30 consecutive days cannot be eligible for SSI benefits
until he or she has been back in the country for 30 days. SSA detected
overpayments of $118 million for residency violations between 1997 and
2001, but interviews with OIG and agency officials suggest that the agency
detects only a portion of the violations that occur each year, at least in
some parts of the country.
We identified three kinds of weaknesses which impede SSA*s ability to
detect and deter residency violations: First, in asking SSI recipients
about their current residence, field staff often rely on recipients* own
assertions and may accept only minimal documentation from them, such as
rent receipts and statements from neighbors or clergy. Recipients who wish
to misreport their residency can manipulate such documents. Second, the
agency makes limited use of tools at its disposal to detect possible
violators. For example, while SSA routinely employs a risk analysis system
to identify SSI recipients who are more likely to incur overpayments, it
does not use this tool to specifically consider and target potential
residency violators. Finally, SSA has not adequately pursued the use of
independent, third party data, such as recipient bank account information,
to help detect residency violations. Although SSA is currently working
with an independent contractor to obtain access to SSI recipients*
financial data, the agency plans to use the information only to verify
their financial resources. It does not plan to use the information to
detect those who may be living and making financial transactions outside
the United States for extended periods of time.
As a consequence of the SSI program*s problems, we believe that sustained
management attention continues to be necessary to improve SSI program
integrity. Following our most recent review of SSA*s progress, 9 the
agency agreed with our recommendations to (1) sustain and expand its
program integrity activities underway and continue to develop additional
tools to improve program operations and management, (2) identify and move
forward with implementing cost- effective options for simplifying complex
policies, (3) evaluate current policies for applying penalties for
individuals who fail to report essential eligibility information and
remove barriers to their use and effectiveness, and (4) reexamine its
policies for waiving recovery of SSI overpayments
7 See 42 U. S. C. sec. 1382c( a)( 1)( B)( i). 8 See 42 U. S. C. sec. 1382(
f).
9 U. S. General Accounting Office, Supplemental Security Income: Progress
Made in Detecting and Recovering Overpayments, but Management Attention
Should Continue, GAO- 02- 849 (Washington, D. C.: Sept. 16, 2002).
GAO- 03- 1030T 10
Improving the Economy, Efficiency, and Effectiveness of SSA*s Programs As
important as ensuring the integrity of SSA*s programs is, the agency also
faces difficult challenges in improving the economy, efficiency, and
effectiveness of its programs, including administering certain provisions
of the Social Security Act such as the Government Pension Offset (GPO) and
the Windfall Elimination Provision (WEP). Most importantly, the agency
must place greater emphasis on improving its flawed disability claim
process.
Administration of the Government Pension Offset and Windfall Elimination
Provision Remains a Concern
The GPO and the WEP reduce Social Security benefits for those who receive
noncovered pension benefits. 10 The GPO affects spouse and survivor
benefits and the WEP affects retired worker benefits. Both provisions
depend on having complete and accurate information on receipt of
noncovered pension benefits. However, such information is not always
available for the state and local pension plans that do not participate in
Social Security. In particular, our prior work found that SSA is often
unable to determine whether applicants should be subject to the GPO and
WEP because it does not have access to any independent source of
noncovered pension information. Thus, both the GPO and WEP have proven
difficult for SSA to administer. To help correct this situation, we
previously recommended that SSA work with the Internal Revenue Service
(IRS) to revise the reporting of pension information on IRS Form 1099R, so
that SSA would be able to identify people receiving a pension from
noncovered employment, especially in state and local governments. 11
However, IRS does not believe it can make the recommended change without
new legislative authority. Thus, in a recent testimony before the Ways and
Means Social Security Subcommittee, we recommended that the Congress
consider giving the Service the authority to collect this information. 12
We estimate that millions of dollars in reduced overpayments could be
achieved by implementing such payment controls.
In addition to this administrative problem, we continue to be concerned
about the GPO *last day* exemption. As you know, the GPO prevents workers
from receiving a full Social Security spousal benefit on top of a pension
earned from government employment not covered by Social Security. However,
the law provides an exemption from the GPO if an individual's last day of
state/ local employment is in a position that is covered by both Social
Security and the state/ local
government's pension system. In a recent study, we found instances where
individuals performed
10 Social Security*s provisions regarding public employees are rooted in
the fact that about one- fourth of them do not pay Social Security taxes
on the earnings from their government jobs. Even though these noncovered
employees may have many years of earnings on which they do not pay Social
Security taxes, they can still be eligible for Social Security benefits
based on their spouses* or their own earnings in covered employment. 11
See U. S. General Accounting Office, Social Security Administration:
Better Payment Controls for Benefit
Reduction Provisions Could Save Millions, GAO/ HEHS- 98- 76 (Washington,
D. C.: Apr. 30, 1998). 12 See U. S. General Accounting Office, Social
Security: Issues Relating to Noncoverage of Public Employees, GAO03- 710T
(Washington, D. C.: May 1, 2003).
GAO- 03- 1030T 11
work in Social Security covered positions for short periods to qualify for
the GPO last- day exemption. The practices we identified in Texas and
Georgia alone could increase long- term benefit payments from the Social
Security Trust Fund by $450 million. In response to a recommendation we
made, this committee* and subsequently the full House* passed the Social
Security Protection Act of 2003 (H. R. 743), which includes a provision to
lengthen the time period to qualify for the GPO exemption from 1 day to 5
years. The bill is still pending in the
Senate, and if passed, will narrow this loophole significantly.
Efforts to Improve the Disability Claims Process Have Been Disappointing
SSA*s disability determination process is time- consuming, complex, and
expensive. Although the agency has been working for years to improve this
process, ensuring the quality and timeliness of its disability decisions
remains one of SSA*s greatest unmet challenges. Individuals initially
denied benefits by SSA who appeal their claims may wait a year or more for
a final decision on their eligibility. These long waits result, in part,
from complex and fragmented decision- making processes that are laden with
many layers of reviews and multiple handoffs from one person to another.
The demanding nature of the process can be seen in the cost of
administering the DI and SSI programs. Although SSI and DI program
benefits account for less than 20 percent of SSA*s total benefit payments,
they consume nearly 55 percent of the annual administrative resources.
SSA has also had difficulty ensuring accurate and consistent decisions
regarding a claimant*s eligibility for disability benefits across all
levels of the decision- making process. Our work shows that in fiscal year
2000, about 40 percent of the applicants whose cases were denied at the
initial level appealed this decision and about two- thirds of those who
appealed were awarded benefits at a hearing. 13 The large proportion of
cases awarded benefits at the hearings level and the potential
inconsistency of decisions at these two levels has raised questions about
the fairness, integrity, and cost of SSA*s disability programs.
SSA is at a crossroads in its efforts to redesign and improve its
disability claims process. SSA*s new Commissioner has acknowledged the
limited progress to date, has made the issue one of the agency*s
priorities, and has taken the first steps to address this problem.
However, as we testified in May 2002, the agency*s past experience may
argue for SSA to undertake a new and comprehensive analysis of the
fundamental issues impeding progress. 14 Such an analysis should include
reassessing the root causes contributing to the programmatic weaknesses in
the agency*s disability determination process that we noted earlier. The
outcome of this analysis may, in some cases, require legislative changes
to the disability determination process.
13 U. S. General Accounting Office, Social Security Disability: Efforts to
Improve Claims Process Have Fallen Short and Further Action is Needed,
GAO- 02- 826T (Washington, D. C.: June 11, 2002). 14 U. S. General
Accounting Office, Social Security Administration: Agency Must Position
Itself Now to Meet Profound Challenges, GAO- 02- 289T (Washington, D. C.:
May 2, 2002).
GAO- 03- 1030T 12 Reassessing What Government Does: Disability Programs
Must be Modernized Although SSA*s disability claims process requires
urgent management attention, the policies underlying federal disability
programs also require transformation. Federal disability programs
represent an example of a disconnect between program design and today*s
world* a disconnect great enough to warrant our designation as a high-
risk area this year. 15 Already growing, SSA*s disability programs are
poised to surge as baby- boomers age, yet the programs remain mired in
outdated economic, workforce, and medical concepts and are not well
positioned to provide meaningful and timely support to Americans with
disabilities. These outdated concepts persist despite scientific advances
and economic and social changes that have redefined the relationship
between impairments and the ability to work. In addition, while SSA has
taken some steps in trying to return beneficiaries to work, it has not
developed, as we have recommended, a comprehensive return- to- work
strategy that focuses on identifying and enhancing beneficiaries* work
capacities.
Over the last 10 years, the number of working- age beneficiaries of the DI
and SSI programs has increased by 38 percent even as changes in medicine,
technology, society, and the nature of work have increased the potential
for some people with disabilities to return to, or remain in, the labor
force. In addition, legislative changes have also focused on returning
disability beneficiaries to work. Specifically, the Americans with
Disabilities Act of 1990 supports the premise that people with
disabilities can work and have the right to work and the Ticket to Work
and Work Incentives Improvement Act of 1999 increased beneficiaries*
access to vocational services.
About 12 years ago, SSA began reviewing relevant medical advances and
updating the criteria used to evaluate disability claims. 16 SSA*s efforts
to update the criteria were curtailed in the mid- 1990s by staff
shortages, competing priorities, and lack of adequate research on
disability issues. The updates resumed in 1998, but progress has been slow
and the lengthy time frames could undermine the very purpose of an update.
Using outdated information calls into question the validity of disability
decisions and raises the risk of overcompensating some individuals while
under compensating or inappropriately denying compensation entirely to
others. SSA needs to reexamine the criteria* both medical and vocational*
it uses to determine whether individuals are eligible for benefits.
Even if SSA modernizes its criteria, it will continue to face difficulties
in returning beneficiaries to work, in part, due to weaknesses in the
design of the disability programs. 17 The current process produces a
strong incentive for applicants to establish their inability to work to
qualify
for benefits. Moreover, instead of receiving assistance to stay in the
workforce or return to 15 GAO- 03- 119. 16 These updates include adding or
dropping conditions that qualify one for benefits, modifying the criteria
needed to establish the presence and severity of certain medical
conditions, and wording changes for clarification and guidance in decision
making. 17 U. S. General Accounting Office, SSA Disability: Program
Redesign Necessary to Encourage Return to Work,
GAO/ HEHS- 96- 62 (Washington, D. C.: Apr. 24, 1996).
GAO- 03- 1030T 13 work* and thus to stay off the long- term disability
rolls* an individual can obtain assistance
through DI or SSI only by proving his or her inability to work. And even
in its efforts to redesign the decision- making process, SSA has yet to
incorporate into these initiatives an evaluation of what an individual may
need to return to work.
Although the agency has taken a number of actions to improve its return-
to- work practices, it has achieved poor results in this arena and few DI
and SSI beneficiaries leave the disability rolls to work. As we have
recommended previously, SSA still needs to move forward in developing a
comprehensive return- to- work strategy that integrates, as appropriate,
earlier intervention, including earlier and more effective identification
of work capacities and the expansion of such capacities by providing
essential return- to- work assistance for applicants and beneficiaries. 18
Modernizing and fully incorporating work- oriented policies in the
disability programs requires
fundamental change, such as revisiting the programs* basic orientation.
Such a reorientation would require examining complex program design issues
such as beneficiaries* access to medical care and assistive technologies,
the benefits offered and their associated costs, mechanisms to return
beneficiaries to work, as well as the integration of SSA*s programs with
other programs and policies affecting people with disabilities. Success in
implementing fundamental change to the orientation of the disability
programs will be dependent upon consultation and cooperation between the
executive and legislative branches as well as cross- agency efforts, and
will likely require statutory as well as regulatory action.
UNEMPLOYMENT INSURANCE We have identified program integrity weaknesses
similar to those we have identified in the SSI program in another program
that falls under this committee*s jurisdiction: the Department of Labor*s
(Labor) Unemployment Insurance (UI) program. We found problems at both the
federal and state level that contribute to overpayments in this program,
including an insufficient balance between the need to process and pay UI
claims in a timely manner with the need to control program payments.
Of the $30 billion in UI benefits paid in calendar year 2001, Labor
estimates that a total of about $2.4 billion in overpayments occurred,
including about $577 million (24 percent) attributable to fraud or abuse.
Overpayments in the UI program result from management and operational
practices we identified at both the state and federal level. At the state
level, we found that many states do not sufficiently balance the need to
quickly process and pay UI claims with the need to control program
payments. For example, we found that five of the six states we visited had
diverted staff from benefit payment control operations to claims
processing activities over the past year in response to increases in the
volume of UI claims. Moreover, while a number of states we visited
routinely use independent automated data sources to verify key information
that can affect claimants* eligibility for benefits* such as an
individual*s wages and employment status* they also rely heavily on self-
reported information from claimants for other important data, such as a
claimant*s receipt of other federal or state program benefits and whether
they are citizens of the United States. Many of these states lack access
to data sources for verifying
18 U. S. General Accounting Office, SSA Disability: Return- to- Work
Strategies From Other Systems May Improve Federal Programs, GAO/ HEHS- 96-
133 (Washington, D. C.: July 11, 1996).
GAO- 03- 1030T 14 claimants* identity in a timely manner and thus rely on
verification processes that are incomplete
or information sources that are only checked periodically. In addition to
the practices we identified at the state level that contribute to
overpayments, we found that policies and directives from the Department of
Labor affect states* priorities and procedures in a manner that makes
overpayments more likely. For example, the performance measures that Labor
uses to gauge states* operations tend to emphasize payment timeliness more
heavily than payment accuracy. Labor has also been reluctant to link the
states* performance on payment accuracy to the annual administrative
budget as a way of providing incentives or sanctions for good or poor
performers. Despite these problems, we found that Labor has taken actions
to improve UI program integrity by working to obtain data from additional
sources that could help states make more accurate eligibility decisions
and developing a performance measure in its fiscal year 2003 performance
plan for gauging state payment accuracy in future years. In addition,
under the leadership of this committee, the House recently passed the
Welfare Reform bill of 2003 (H. R. 4), which authorizes state unemployment
insurance agencies to obtain wage and new hire information from the
Department of Health and Human Service*s National Directory of New Hires.
19 These data could be used to more effectively verify individuals*
eligibility for UI benefits. MEDICARE
Medicare is one of the largest and most complex programs in the federal
government, making it highly vulnerable to waste, fraud, abuse, and
mismanagement. We placed Medicare on our list of high- risk programs more
than a decade ago and it remains on that list today. In fiscal year 2002,
Medicare paid about $257 billion for a wide variety of inpatient and
outpatient health care services for over 40 million elderly and disabled
Americans. The Centers for Medicare & Medicaid Services (CMS) contracts
with 38 health insurance companies to pay and process about 1 billion fee-
for- service claims submitted each year by over 1 million hospitals,
physicians, and other health care providers. Over the years, we have
reported on challenges the
agency has faced to safeguard billions of program dollars and obtain
current and reliable data to set payments and monitor its programs. While
CMS has made progress in improving Medicare*s financial management, much
more could be done to improve Medicare*s operations.
Oversight of Contractor Performance Critical to Program Integrity Medicare
contractors are charged with ensuring that claims are paid properly and
that fraud or abuse is prevented or detected. However, contractors*
performance has varied and CMS has not always overseen their efforts
effectively, as the following illustrates: Medical review* Medical review
is a program safeguard designed to detect improper billing
and payment. Medical reviews involve detailed examinations of a sample of
claims by clinically trained staff and require that physicians submit
medical records to substantiate their claims. Although our assessment
found that claims administration contractors* decisions to
19 This bill is currently pending in the Senate.
GAO- 03- 1030T 15 pay or deny claims were generally accurate, contractors
were less effective at targeting for
review those claims most likely to be billed inappropriately. 20
Furthermore, CMS did not guide the contractors in selecting the most
effective criteria for medical review or encourage them to share best
practices* two steps that could help reduce improper payments.
Communication with physicians* In order to bill Medicare correctly,
physicians need to understand program rules and how to implement billing
changes as they occur. We found that contractors* communications with
physicians were often incomplete, confusing, untimely, or even incorrect*
making it more difficult for physicians to bill correctly. 21 For example,
only 15 percent of the calls we placed to contractors* call centers asking
*frequently asked questions* were answered accurately and completely by
contractors* staff. CMS has set few standards to guide claims
administration contractors* communications with physicians.
Weaknesses in contractor performance and agency oversight increase the
risk of improper payment. Since 1996, the Department of Health and Human
Services* (HHS) Office of the Inspector General (OIG) has estimated that
Medicare*s contractors improperly paid claims worth billions of dollars
each year* more than $13 billion in fiscal year 2002 alone. While useful
to focus attention on the extent of the problem, this error rate did not
provide CMS with information to target improvements. To address this
shortcoming, in August 2000, CMS began implementing a new error rate
measurement methodology that will provide national error rates beginning
in fiscal year 2003, as well as error rates by contractor, provider type,
and benefit category. Better error rate data is a first step toward
enhancing CMS*s ability to hold individual Medicare contractors
accountable or help contractors identify and take steps to correct
problematic billing practices.
Difficulties in Setting Appropriate Payment Rates Increase Medicare
Spending We have reported in many instances that Medicare has paid too
much for items and services provided to its beneficiaries. Such wasteful
spending is disturbing news for both the American taxpayer and Medicare
beneficiaries, who pay higher co- payments when the amount Medicare pays
is too high. While the problem of excessive Medicare payments has been
clearly identified, solutions may not be quick or easy.
Skilled nursing facilities and home health agencies* Medicare payments are
significantly more than the cost of caring for beneficiaries in most
skilled nursing facilities and by most home health agencies. 22 In 2000,
Medicare paid nearly one quarter of skilled nursing facility
20 U. S. General Accounting Office, Medicare: Recent CMS Reforms Address
Carrier Scrutiny of Physicians* Claims for Payment, GAO- 02- 693
(Washington, D. C.: May 28, 2002). 21 U. S. General Accounting Office,
Medicare: Communications With Physicians Can Be Improved, GAO- 02- 249
(Washington, D. C.: Feb. 27, 2002). 22 In fiscal year 2001, Medicare paid
$13 billion to skilled nursing facilities and $9 billion for home health
services.
GAO- 03- 1030T 16 providers over 30 percent more than costs. 23 In the
first 6 months of 2001, Medicare paid, on
average, 35 percent more than providers* costs for home health care. 24 We
have recommended that CMS minimize excessive payments to home health
agencies by introducing risk sharing. 25 Risk sharing would limit the
total losses or gains a home health agency could experience by sharing
them with the federal government. Such an approach would protect the
Medicare program from overpaying for services and home health agencies
from the financial risk of serving beneficiaries with greater than average
needs, when those service costs are not accounted for under the current
payment system.
Medical equipment and supplies* Over the years, studies have shown that
Medicare has been paying too much* in some cases more than three times
suppliers* acquisition costs* for certain medical equipment and supplies.
26 For example, we estimated that Medicare could have saved over $500
million in fiscal year 1996 if it paid rates for home oxygen services
comparable to those paid by the Department of Veterans Affairs (VA). 27
Since then, the Balanced Budget Act of 1997 reduced oxygen payment rates
by 25 percent effective in 1998, and by an additional 5 percent effective
in 1999. Nevertheless, in a demonstration of competitive acquisition, CMS
was able to reduce Medicare*s payments by at least 16 percent more in the
demonstration areas, while requiring suppliers to meet additional quality
standards. Medicare pricing for medical equipment and supplies is
problematic because payments are based on fee schedules that are generally
tied to suppliers* historical charges to the program* not to current
actual or market prices. Moreover, the process for adjusting these fees
nationally has been cumbersome and rarely used.
Covered prescription drugs* The pricing of covered prescription drugs* for
which Medicare and its beneficiaries paid more than $8.2 billion fiscal
year 2002* is particularly
23 U. S. General Accounting Office, Skilled Nursing Facilities: Medicare
Payments Exceed Costs for Most but Not All Facilities, GAO- 03- 183
(Washington, D. C.: Dec. 31, 2002). 24 U. S. General Accounting Office,
Medicare Home Health Care: Payments to Home Health Agencies Are
Considerably Higher than Costs, GAO- 02- 663 (Washington, D. C.: May 6,
2002). 25 U. S. General Accounting Office, Medicare Home Health Care:
Prospective Payment System Will Need Refinement as Data Become Available,
GAO/ HEHS- 00- 9 (Washington, D. C.: Apr. 7, 2000) and U. S. General
Accounting Office, Medicare Home Health Care: Prospective Payment System
Could Reverse Recent Declines in Spending, GAO/ HEHS- 00- 176 (Washington,
D. C.: Sept. 8, 2000).
26 Medicare fee payments and beneficiary cost sharing for medical
equipment and supplies, which includes prosthetics (or artificial limbs or
other body parts) and orthotics (or braces) totaled approximately $9
billion for calendar year 2002. This category includes some drugs covered
under part B, such as drugs used in a piece of equipment* for example, a
nebulizer or an infusion pump.
27 U. S. General Accounting Office, Medicare: Home Oxygen Program Warrants
Continued HCFA Attention, GAO/ HEHS- 98- 17 (Washington, D. C.: Nov. 7.
1997).
GAO- 03- 1030T 17 problematic. In 2000, Medicare paid over $1 billion more
than other purchasers for
outpatient drugs that the program covers. 28 Medicare*s method for
establishing drug payments is flawed because it is based on 95 percent of
the average wholesale price (AWP), which is neither an average, nor a
price that wholesalers charge. For example, in January 2003, we reported
that Medicare paid significantly more than the two major types of
suppliers for blood clotting factor, which is used to treat people with
hemophilia. While Medicare received a 5 percent discount from AWP, one
type of supplier acquired the clotting factor at a discount of 35 percent
to 48 percent. 29 Similarly, we reported in 2001 that pharmacy suppliers
could acquire the two most common inhalation drugs, which are among the
five drugs with the highest Medicare payments, for a 78 percent to 85
percent discount from AWP. 30 As a consequence of Medicare*s pricing
method, its payments are not related to market prices that physicians and
suppliers actually pay.
We made two recommendations to improve drug pricing that could also be
applicable to pricing for medical equipment and supplies. They are to: 1)
use information on market transactions already available to VA and HHS as
a benchmark for Medicare payment and 2) examine the benefits and risks of
expanding competitive bidding.
CMS*s recent competitive bidding demonstration to set fees for selected
medical equipment, supplies, and covered outpatient drugs suggests that
such competition can lead to lower prices. Preliminary annual gross
savings from competitive bidding were estimated to range from 17 percent
to 22 percent for the products bid compared to fee schedule amounts.
However, CMS would need statutory authority to use this method of setting
fees on a wider scale.
Current Legislation Introduces Operational Changes To Address Certain
Program Administration and Payment Issues In this session of the Congress,
both Houses have passed major legislation that* if reconciled and signed
into law* would restructure Medicare through adding a prescription drug
benefit. Depending on how it is finalized, this legislation may also
introduce significant operational changes to the Medicare program.
Competitive contracting for claims administration* Under Medicare*s
current statute and regulations, its contracting authority and practices
differ from those embodied in standard federal contracting law and
regulations. One key difference is that CMS generally does not
28 While Medicare does not have a comprehensive outpatient drug benefit,
certain drugs and biologicals are covered under part B of the program,
which also provides coverage for certain physician, outpatient hospital,
laboratory, and other services to beneficiaries who pay monthly premiums.
See U. S. General Accounting Office, Medicare: Payments for Covered
Outpatient Drugs Exceed Providers* Cost, GAO- 01- 1118 (Washington, D. C.:
Sept. 21, 2001). 29 Hemophilia treatment centers and homecare companies
are the two major providers of clotting factors to beneficiaries. See U.
S. General Accounting Office, Medicare: Payment for Blood Clotting Factor
Exceeds
Providers* Acquisition Cost, GAO- 03- 184 (Washington, D. C.: Jan. 10,
2003). 30 GAO- 01- 1118.
GAO- 03- 1030T 18 competitively bid for the services of its claims
administration contractors. Both the Senate
and the House bills amend the Medicare statute to require competitive
contracting for claims administration. This authority has the potential
for significantly improving Medicare program administration. Nevertheless,
managing the transition to a competitive contracting environment will be
an enormous new challenge. Federal agencies that manage large procurements
of contracted services* such as the departments of Energy and Defense*
have had problems with cost and schedule overruns and have failed to hold
their contractors accountable for performance. 31 CMS would need to
carefully manage its own contracting efforts to avoid some of the pitfalls
experienced by other agencies.
Setting payments for medical equipment and supplies and covered outpatient
drugs* The House and the Senate bills have taken different approaches to
this issue, but both have sections that are designed to address payment-
setting for medical equipment, supplies, and currently covered
prescription drugs. The House passed legislation that would give CMS
authority to use competitive bidding to set payments for certain medical
equipment, supplies, and certain drugs. It would also allow market
information from these efforts to be used as a benchmark for national
payments. The Senate bill continued to rely on AWP as a pricing mechanism
for currently covered outpatient drugs. However, it allowed CMS to
substitute payment amounts that differed from those linked to AWP, using
amounts developed through a new process and based on market price
information from a number of specified sources.
Medicare Reform Calls for Aligning Incentives and Strengthening
Accountability The 2003 Trustees* annual report reminds us that Medicare
as it is currently structured is not fiscally sustainable. The retirement
of the baby boom generation will place huge fiscal pressures on the
program. Between now and 2035, the number of people age 65 and older will
double. Federal health and retirement spending on Medicare and Social
Security are expected to increase, as people live longer and spend more
time in retirement, as shown in figure 3.
31 U. S. General Accounting Office, High- Risk Series: An Update, GAO- 01-
263 (Washington, D. C.: January 2001).
GAO- 03- 1030T 19
Figure 3: Medicare Is Projected to Grow Dramatically As A Share of GDP
Source: CMS, Office of the Actuary Notes: Projections are based on the
intermediate assumptions of the 2003 Trustees* Reports for Hospital
Insurance (HI) and Supplemental Medical Insurance (SMI).
Moreover, the baby boomers will have fewer workers to support them in
retirement. Further fiscal pressures will be placed on the program by a
new prescription drug benefit, although adding coverage that includes
protection against financially devastating drug costs will help
beneficiaries who lack prescription drug coverage.
While the demographic trends will affect both Medicare and Social
Security, Medicare spending growth also reflects rising health care costs.
The growth of medical technology has contributed to the number and quality
of health care services, but has helped increase health care costs, which
have risen faster than inflation. Consumers are less sensitive to those
costs when third parties pay most of the price tag. As figure 4 shows, the
percentage of health care costs paid through out- of- pocket spending has
declined in the last 40 years, with private and public insurance paying a
larger share.
0 2
4 6
8 10
12 14
16 2000 2010 2020 2030 2040 2050 2060 2070 Percentage of GDP
SMI HI
GAO- 03- 1030T 20
Figure 4: Out- of- Pocket Spending Has Declined Substantially Over The
Last Four Decades
Source: CMS, Office of the Actuary, National Health Statistics Group Note:
The figure for 2002 is estimated. Out- of- pocket spending includes direct
spending by consumers on coinsurance, deductibles, and any amounts not
covered by insurance. Out- of- pocket premiums paid by individuals are not
counted here, but are counted as part of Private Health Insurance.
Providing tax preferences for health insurance further masks the full
costs of care and can work at cross purposes to the goal of moderating
health care spending. This suggests that some of the solutions to
Medicare*s dilemma reside outside the program* in the larger arena of the
health care system, its cost drivers, and the tax preferences that support
them.
Given this context, aligning incentives to restrain spending growth and
strengthen accountability within the program* while not sufficient by
themselves* are still necessary. This is an ongoing effort that has to be
accomplished in myriad small and large steps in the current program and as
changes are made to it. At present, 84 percent of beneficiaries are in the
traditional fee- forservice Medicare program. As a consequence,
traditional Medicare is likely to have a significant role for years.
Addressing its flaws* such as billions in improper payments and sometimes
overly generous payments* is critical to any effort to restrain spending
growth.
Unfortunately, addressing these flaws is unlikely to be sufficient to
restrain Medicare*s growth. Substantive financing and programmatic reforms
will be necessary to put Medicare on a sustainable footing for the future.
Without such fundamental reforms, Medicare*s growth threatens to absorb
ever- increasing shares of the nation*s budgetary and economic resources.
As we seek to bring our government in line with 21 st century challenges,
we must be mindful that health care costs compete with other legitimate
priorities in the federal budget, and their projected growth threatens to
crowd out future generation*s flexibility to decide which competing
priorities will be met. The public sector can play an important role in
educating the nation about the limits of public support. In this regard,
we are preparing a health care
6% 23%
46% 25%
6% 10%
30% 22% 16%
16% 5%
16% 37% 14%
12% 16% 1962 1982 2002
Out- of- Pocket Private Health Insurance Medicaid
Medicare Other Public Other Private
GAO- 03- 1030T 21 framework that includes a set of principles to help
policymakers in their efforts to assess various
health financing reform options. By facilitating debate, the framework can
encourage acceptance of changes necessary to put us on a path to fiscal
sustainability.
TAX COMPLIANCE AND PREFERENCES
Ensuring that taxpayers meet their tax obligations under an increasingly
complex tax code has long presented the IRS with daunting challenges.
Although the majority of taxpayers voluntarily and timely pay the taxes
they owe, regrettably high levels of noncompliance by some taxpayers
persist. Some noncompliance is intentional and may be due to outright
fraud and the use of abusive tax shelters or schemes. In other cases,
noncompliance stems from unintentional errors and taxpayers*
misunderstanding of their obligations. Regardless of the cause or type of
taxpayer* corporate, individual, or other* we have designated the
collection of unpaid taxes as a high- risk area. This high- risk area
includes detecting noncompliance and collecting taxes due but not paid.
More broadly, Congress has created an increasing number of tax preferences
that IRS must administer. In some cases, those tax preferences are among
the largest federal efforts to address social and other problems. Yet the
economy, efficiency, and effectiveness of those preferences in achieving
their purposes are often not well understood. A better understanding of
how well these preferences work would both support improving them as well
as reconsidering whether certain preferences should be retained. Tax
Compliance and Collection Activity Declines Are Of Increasing Concern
Because of the potential revenue losses and the threat to voluntary
compliance, the collection of
unpaid taxes is a high- risk area. Collecting taxes due the government has
always been a challenge for IRS, but in recent years the challenge has
grown. Collecting taxes due includes both compliance programs, like
audits, that identify those who owe more than they self- report, and
collection programs that seek payment of taxes assessed but not timely
paid. However, IRS compliance and collections programs have seen larger
workloads, less staffing, and fewer cases closed per employee.
For the last several years, Congress and others have been concerned that
the declines in IRS's enforcement programs are eroding taxpayers'
confidence that their friends, neighbors, and business competitors are
also paying their fair share of taxes, which may put at risk their
willingness to voluntarily comply with the tax laws. Further, there is
some evidence that willingness to voluntarily comply with the tax laws may
be declining. A survey conducted by the IRS Oversight Board in 2001 found
that the percentage of respondents who thought it was never acceptable to
cheat on their income taxes was 76 percent, which was down from 87 percent
who felt that way in a 1999 survey. Also, 42 percent of respondents to the
2001 survey said that they believed it was more likely than in it was in
the past that people do not report and
GAO- 03- 1030T 22 pay their fair amount of taxes and 9 percent said that
they were more likely to take a chance on
being audited than they had been before. 32 Unfortunately, not enough is
known at present about the extent of noncompliance and where problems are
the most serious. IRS only recently restarted the research program
necessary to develop this information after many years without such
research. When last IRS last conducted detailed compliance research using
tax year 1988 data, some types of taxpayers were found to have especially
serious compliance problems. For example, small business noncompliance was
about 40 percent, farm and non- farm sole proprietor noncompliance was
about 32 percent, and informal suppliers* noncompliance was about 81
percent. 33 While specific, current data is not yet available, the IRS
Commissioner said in May 2002 congressional hearings that IRS was not
providing taxpayers with adequate assurance that their neighbors or
competitors were complying with the tax laws and paying what they owed.
The number of tax returns increases every year. Between 1993 and 2002, the
number of individual returns filed went from 114.7 million to
approximately 130 million* a 13 percent increase over those 10 years. IRS
projects the number of total individual returns filed will be 132.3
million in 2003 and continue to increase at an annual rate of 1.5 percent
until 2009. Such a rate of increase would lead to 145.3 million total
individual returns filed in 2009. Returns from businesses and other
entities have also increased substantially.
While the number of tax returns has increased, key compliance program
rates have declined. In testimonies and reports, GAO has highlighted large
and pervasive declines in IRS*s compliance programs. These programs, not
all of which have seen declines, include computerized checks for nonfiling
and underreported income as well as audits of both individual taxpayers
and business entities. Between 1996 and 2001, key programs generally
experienced growing workloads, decreased staffing, and decreases in the
number of cases closed per employee. Figure 5 shows the decline in audit
rates for different types of taxpayers.
32 These two questions were new in the 2001 survey so there are not
comparative figures from 1999. 33 Informal suppliers are sole proprietors
who operate in an informal business style, such as door- to- door sales
and individuals who moonlight to augment their wage income.
GAO- 03- 1030T 23
Figure 5: Change in Percentage of Returns Audited, 1996 * 2001
Even as these audit rates decline, IRS has faced new challenges in
ensuring that individuals, small businesses, and corporations pay the
taxes they owe. IRS*s Chief Counsel has said that, in the 1990s, thousands
of corporations and wealthy individuals participated in abusive tax
shelters promoted by accounting firms, law firms, investment banks, and
others, and the tax benefits claimed per taxpayer were significant. To
deal with this and other problems, the President*s fiscal year 2004 budget
proposal noted that IRS is shifting enforcement resources from the tax
returns of lower- income individuals and small corporations. One recent
IRS initiative resulted in 1,206 taxpayers disclosing transactions
involving $30 billion in claimed losses and deductions.
IRS faces challenges in executing its strategy for dealing with tax
shelters and schemes. As the former Commissioner of Internal Revenue
noted, abusive shelters have been factually and legally complex,
accompanied by tax opinions legitimizing transactions and encouraging
litigation. Also, in a September 2001 report, the Treasury Inspector
General for Tax Administration recommended that IRS start laying a better
foundation for its strategy by more precisely estimating the shelter
problem. IRS agreed to estimate abusive corporate shelters* potential tax
revenue effect.
Another increasingly challenging area is that of corporate inversions.
According to a 2002 Department of a Treasury report, corporate inversions
are transactions that change a U. S.- based multinational group*s
structure *so that a new foreign corporation, typically located in a low-
or no- tax country, replaces the existing U. S. parent corporation as the
parent of the corporate
GAO- 03- 1030T 24 group.* 34 The report stated that although such
transactions were not new, they were growing in
frequency, size, and profile. Instead of being motivated by market
conditions, they were motivated largely by available tax savings and
involved little or no immediate operational change. According to Treasury,
the fact that our tax law operates so that substantial tax reductions are
available through transactions of more form than substance is troubling to
both policymakers and the public.
IRS collections programs are also increasingly stressed. As we reported in
May 2002, between fiscal years 1996 and 2001 trends in the collection of
delinquent taxes showed almost universal declines in collection program
performance in terms of coverage of workload, cases closed, direct staff
time used, productivity, and dollars of unpaid taxes collected. 35
Although the number of delinquent cases assigned to collectors went down
during this period, the number of collections cases closed declined more
rapidly, creating an increasing gap. During that 6- year period, the gap
between the new collection workload and collection cases closed grew at an
average annual rate of about 31 percent, as shown in figure 6. 36 Figure
6: Percentage Gap Between New Collection Workload and Work Completed,
Fiscal
Years 1996- 2002
The increasing gap between collection workload and collection work
completed led IRS in March 1999 to start deferring collection action on
billions of dollars in delinquencies. Officials recognized that they could
not work all collection cases, and they believed that they needed to be
34 Department of the Treasury, Office of Tax Policy, Corporate Inversion
Transactions: Tax Policy Implications, (Washington, D. C.: May 17, 2002).
35 U. S. General Accounting Office, Tax Administration: Impact of
Compliance and Collection Program Declines on Taxpayers, GAO- 02- 674
(Washington, D. C.: May 22, 2002). 36 Workload is the number of delinquent
accounts assigned to field and telephone collection. Work completed is the
number of delinquent accounts worked to closure, excluding accounts for
which collection work has been deferred.
GAO- 03- 1030T 25 able to deal with taxpayers more quickly; particularly
taxpayers who were still in business and
owed employment taxes. 37 By the end of fiscal year 2002, after the
deferral policy had been in place for about 3 and onehalf years, IRS had
deferred taking collection action on about $15 billion in unpaid taxes,
interest, and penalties that are likely collectable. IRS's deferral of
collection action has declined somewhat since the deferral policy was
adopted. Although the rate has declined from 45 percent in 2000, in 2002
IRS was still deferring collection action on about one out of three
collection cases* about 32 percent.
IRS is working to reverse these declines. One key element of improving
IRS*s compliance programs is obtaining current measures of compliance to
use in targeting IRS*s scarce resources to known compliance problems. The
National Research Program (NRP) is a major effort now underway at IRS to
identify the extent and sources of noncompliance. The current NRP
initiative includes individual returns, including taxpayers reporting
income from small businesses. IRS plans to conduct future iterations of
NRP for different types of returns and to return to individual filers
every 3 years. We have reported that the program*s design is likely to
yield the detailed information IRS needs about the extent and causes of
noncompliance and enable IRS to improve its targeting of compliance
programs. 38 Another key to improving IRS*s compliance and collections
programs is to make more efficient
use of its resources. IRS has a number of reengineering efforts underway
to improve its compliance and collection processes. These efforts range
from relatively small- scale improvements to much more ambitious changes.
For example, IRS is seeking to substantially increase the amount of
information available to its auditors before they first contact a
taxpayer. The goal is to make the best use of the information IRS already
has available to it before commencing an audit. IRS is also seeking to
change the way it identifies collections cases to pursue in order to
improve targeting of scarce collections resources towards cases that it is
most worthwhile to pursue.
Yet another key to ensuring that taxpayers meet their obligations is
adequately staffing IRS*s compliance and collections programs. Since 2001,
IRS's budget requests have made increasing its compliance and collection
staff one of several key priorities. However, staffing in two key
compliance and collection occupations * revenue agents and revenue
officers * was lower in 2002 than in 2000. This continues a general trend
of declining staffing in these occupations for a number of years.
37 IRS considers employment tax compliance to be among the most
challenging issues for small business, since delinquent tax can rapidly
compound beyond the employer*s ability to pay. See U. S. General
Accounting Office,
Tax Administration: IRS*s Efforts to Improve Compliance with Employment
Tax Requirements Should Be Evaluated, GAO- 02- 92, (Washington, D. C.;
Jan. 15, 2002).
38 U. S. General Accounting Office, Tax Administration: New Compliance
Research Effort is on Track, but Important Work Remains, GAO- 02- 769,
(Washington, D. C.: June 27, 2002); and U. S. General Accounting Office,
Internal Revenue Service: Assessment of Fiscal Year 2004 Budget Request
and 2003 Filing Season Performance to Date, GAO- 03- 641T, (Washington, D.
C.: Apr. 8, 2003).
GAO- 03- 1030T 26 While tax compliance and collection issues can be found
in many areas, I would like to give a
few examples of persistent compliance issues. This is by no means an
inclusive list. For example, compliance issues are also pervasive in the
area of excise taxes, such as fuel tax evasion.
Employment Tax Compliance In fiscal year 2000, IRS collected $1.3 trillion
in amounts withheld by employers from employees* salaries to cover
individual federal income tax, Social Security, and Medicare taxes; and in
employers* matching amounts for Social Security and Medicare taxes.
Although the majority of employers withhold, match, and deposit these
taxes as required, for those who fail to do so, the amount of unpaid
employment taxes, penalty and interest has grown significantly. As of
September 30, 2001, IRS data showed that employers owed about $49 billion
in delinquent employment taxes, penalties and interest.
The businesses that failed to remit payroll taxes were typically in wage-
based industries and had few available assets from which IRS could recover
these taxes. They were usually small, closely held businesses using a
corporate structure. The most common types of businesses or industries
with unpaid payroll taxes included construction companies and restaurants,
although other types of businesses (including computer software, child
care, and professional services such as legal, medical, and accounting
firms) also have unpaid payroll taxes. Most unpaid payroll taxes are not
fully collectible, and there is often no recovery potential as many of the
businesses are insolvent, defunct, and otherwise unable to pay.
To the extent that withholdings are not forwarded to the federal
government, the business is liable for these amounts, as well as its
matching contributions. Under the Internal Revenue Code, individuals*
typically officers of a corporation such as a president or treasurer* who
are determined by IRS to be *willful and responsible* for the nonpayment
of federal income taxes and the employee*s Social Security and Medicare
taxes can be held personally liable for the unpaid taxes and assessed
penalties. More than one individual can be found willful and responsible
for a business*s failure to pay the federal government withheld payroll
taxes and can be assessed a penalty. IRS considers employment tax
compliance to among the most challenging issues for small businesses,
since delinquent tax may rapidly compound beyond the employers* ability to
pay* ultimately placing their business in financial jeopardy.
In 2002, we reported that IRS had four programs to prevent or reduce
employers* tax delinquencies. Two of these programs were designed to
achieve early contact with employers and two were designed to identify
employers with existing, multiple employment tax delinquencies and help
them to return to compliance. However, we found that IRS had not
successfully evaluated these programs. We recommended IRS do so since
without an evaluation IRS does not know the benefits, if any, of the
programs, whether they need to be improved, or whether the programs should
even be continued. 39 39 U. S. General Accounting Office, Tax
Administration: IRS*s Efforts to Improve Compliance with Employment Tax
Requirements Should Be Evaluated, GAO- 02- 92 (Washington, D. C.: Jan. 15,
2002).
GAO- 03- 1030T 27 Levies of Federal Payments Many taxpayers who are
delinquent in paying their federal taxes are receiving billions of dollars
in federal payments annually. IRS and federal payment records indicate
that nearly 1 million taxpayers owed about $26 billion in delinquent taxes
as of February 2002 and were receiving some type of federal payments. To
help the IRS collect these delinquent tax debts, provisions in the
Taxpayer Relief Act of 1997 gave IRS authority to continuously levy 40 up
to 15 percent of certain federal payments made to delinquent taxpayers. 41
Payments subject to IRS*s continuous levy program include Social Security,
federal salary and retirement payments, and federal vendor payments.
According to IRS, the program resulted in collecting over $60 million in
fiscal year 2002 by directly levying federal payments.
GAO has issued three reports including several recommendations focused on
increasing collections and assuring that safeguards are in place so that
only taxpayers with valid tax debts are levied. Although progress has been
made in establishing the continuous levy program, several changes to the
continuous levy program, which have yet to be implemented, could yield
millions of dollars in additional revenue. For example, in our 2000 report
we estimated that as much as $77.7 million 42 annually in additional
revenue could be generated if IRS broadened the program to include spouses
held by IRS to be liable for joint tax delinquencies and individuals with
multiple IRS identification numbers. 43 IRS has not yet implemented this
recommendation.
In our 2001 report, we found that several large agencies were not included
in the continuous levy program. 44 We found, that as of June 30, 2000,
about 70,400 individuals and businesses that received an estimated $8. 2
billion annually in federal payments collectively from three large
agencies* the United States Postal Service, the Department of Defense, and
CMS, which disburses Medicare fee- for- service payments* owed over $1
billion in federal taxes. We estimated that IRS could recover at least
$270 million annually in delinquent federal taxes if these payments were
included in the continuous levy program.
In our 2003 report we found that IRS blocks many eligible delinquent
accounts from being included in the Federal Payment Levy Program, missing
an opportunity to gather information on
40 Levy is the legal process by which IRS orders a third party to turn
over property in its possession that belongs to the delinquent taxpayer
named in a notice of levy. A continuous levy remains in effect from the
date such levy is first made until the tax debt is fully paid or IRS
releases the levy. 41 Specifically, the 1997 legislation allows continuous
levy of *specified payments,* including nonmeans- tested federal payments,
as well as certain previously exempt payments.
42 The 95- percent confidence interval for the $77.7 million ranges from
$73. 5 million to $81. 9 million. 43 U. S. General Accounting Office, Tax
Administration: IRS*s Levy of Federal Payments Could Generate Millions of
Dollars, GAO/ GGD- 00- 65, (Washington, D. C.: Apr. 7, 2000). 44 U. S.
General Accounting Office, Tax Administration: Millions of Dollars Could
be Collected if IRS Levied More Federal Payments, GAO- 01- 711,
(Washington, D. C.: July 20, 2001).
GAO- 03- 1030T 28 which debtors are receiving federal payments. 45 IRS
officials imposed these blocks because of
concerns that the potential volume of levies* about 1.4 million taxpayer
accounts* would disrupt ongoing collection activities. However, we
estimate that about 112,000 would actually qualify for levy. These
taxpayers were collectively receiving about $6.7 billion in federal
payments and owed about $1.5 billion in delinquent taxes. In January 2003,
IRS unblocked and began matching delinquent taxpayer accounts identified
as receiving a federal salary or annuity payment. IRS officials will not
unblock the remaining delinquent accounts until sometime in 2005.
Earned Income Credit (EIC) Noncompliance For tax year 2001, about $31
billion was paid to about 19 million EIC claimants. Although researchers
have reported that the EIC has generally been a successful incentive-
based antipoverty program, IRS has reported high levels of EIC
overpayments going back to 1985. IRS's most recent study, released in
2002, estimated that between $8.5 and $9.9 billion should not have been
paid out to EIC claimants for tax year 1999, and earlier IRS studies also
found significant problems with the program. Table 1 shows the rates of
EIC overclaims estimated by IRS in three EIC compliance studies. Table 1:
EIC Overclaim Rates for Selected Years
Overclaim rate estimates Tax year Lower- bound Upper- bound
1994 - - 23.5 1997 23.8 25.6 1999 27.0 31.7
Source: IRS reports. Notes: All overclaim rates were adjusted by IRS to
reflect dollars recovered from ineligible recipients. For 1994 only a
single estimate was available. In 1997 and 1999, because not all
individuals responded to audit contacts, IRS used certain assumptions to
estimate an overclaim rate range. The lower bound assumes that the
overclaim rate for
nonrespondents is the same as for the respondents, while the upper bound
assumes that all nonrespondents are overclaims.
Administering the EIC is not an easy task* IRS has to balance its efforts
to help ensure that all qualified persons claim the credit with its
efforts to protect the integrity of the tax system and guard against fraud
and other forms of noncompliance associated with the credit. Further, the
complexity of the EIC may contribute to noncompliance. The EIC is among
the more complex provisions of the tax code, which can contribute to
unintentional errors by taxpayers. In addition, unlike other income
transfer programs, the EIC relies more on self- reported qualifications of
45 U. S. General Accounting Office, Tax Administration: Federal Payment
Levy Program Measures, Performance, and Equity Can Be Improved, GAO- 03-
356, (Washington, D. C.: Mar. 6, 2003).
GAO- 03- 1030T 29 individuals than on program staff reviewing documents
and other evidence before judging
claimants to be qualified for assistance. Early in 2002, the Assistant
Secretary of the Treasury and the IRS commissioner established a joint
task force to seek new approaches to reduce EIC noncompliance. The task
force sought to develop an approach to validate EIC claimants' eligibility
before refunds are made, while minimizing claimants' burden and any impact
on the EIC's relatively high participation rate. Through this initiative,
administration of the EIC program would become more like that of a social
service program for which proof of eligibility is required prior to
receipt of any benefit.
According to IRS, three areas* qualifying child eligibility, improper
filing status, and income misreporting (i. e., underreporting)* account
for nearly 70 percent of all EIC refund errors. Although the task force
initiative is designed to address each of these sources of EIC
noncompliance, many of the details about its implementation are still to
be settled. A significant change to the initiative was announced on June
13, 2003, when IRS said that its pilot effort to precertify the
eligibility of qualifying children for the EIC would not include
requesting claimants to show their relationship to the qualifying child.
Because planning and implementation for the EIC initiative will proceed
simultaneously, its success will depend on careful planning and close
management attention.
As with other tax compliance issues such as corporate tax evasion,
Congress has focused oversight attention on the EIC initiative and
continued oversight can help ensure that the initiative balances efforts
to reduce EIC overpayments with continued efforts to maintain or increase
the portion of the EIC- eligible population that receives the credit.
Further, Congress can consider making the several definitions of children
in the tax code more uniform. The differing definitions contribute to the
complexity taxpayers face and complexity is widely believed to contribute
to errors taxpayers make in claiming the EIC. As early as 1993 we had
suggested that Congress consider changes that would have made the
definitions for children more similar for several tax purposes. More
recently, IRS's Taxpayer Advocate, the Joint Committee on Taxation, and
the Department of the Treasury have made proposals as well.
The Economy, Efficiency, or Effectiveness of Tax Preferences Are Often Not
Well Understood Tax preferences are often intended to achieve policy goals
that may be similar to those of federal spending programs. However, data
on the economy efficiency, and effectiveness of tax preferences is often
lacking. Further, tax preferences are not subject to some review processes
that would support more integrated and informed decisions about what the
government does and how it does it.
Tax preferences refer to departures from the normal tax structure designed
to favor a particular industry, activity, or class of persons through
special deductions, credits, and other tax benefits. Tax preferences
currently in place include programs to encourage economic development in
disadvantaged areas, build affordable housing, make education more
accessible, reduce pollution, and stimulate capital investment, research,
and development. Many tax preferences have counterparts in direct spending
programs created to accomplish similar goals. In some cases, a tax
preference may be among the largest federal efforts dealing with a social
issue. For
GAO- 03- 1030T 30 instance, we reported in 1997 that the Low- Income
Housing Tax Credit was the largest federal
source of federal funds to develop or substantially rehabilitate rental
housing for low- income households. Tax preferences have become a growing
part of the federal fiscal picture over the past 30 years. Based on Joint
Committee on Taxation estimates, the total revenue loss due to tax
preferences increased by twice the rate of overall federal outlays over
the last 10 years. Tax preferences grew about 50 percent, from about $488
billion in 1993 to about $730 billion in 2003, while federal outlays grew
about 25 percent, from $1.7 trillion to $2.1 trillion over the same
period. 46 Not only has the dollar sum associated with these tax
preferences grown over the past 10 years,
but the number of programs has also increased. The number of tax
preference programs has doubled since the Joint Committee on Taxation
started reporting on them in 1974, growing from 74 to 148. As shown in
figure 7, this growth continued over the past 10 years, from 124 tax
preference programs in 1993 to 148 programs in 2002. 47 Table 2 lists the
ten largest tax preference programs in terms of dollars claimed in 2002.
Figure 7: Growth in the Number of Tax Preference Programs Listed in Joint
Committee on Taxation Reports, 1993 through 2002
46 All dollar figures are reported in 2003 adjusted dollars. Though it is
not precisely correct to add up all tax expenditures because some have
interactive effects though they are reported individually, these figures
provide a useful gauge of the general magnitude of these provisions. The
tax preference figures only include the portions of the refundable child
tax credit and EIC that offset income taxes paid. 47 Although we refer to
them as tax preferences, these annual figures come from the Joint
Committee on Taxation*s annual reports on tax expenditures.
GAO- 03- 1030T 31
Table 2: 10 Largest Tax Preferences by Estimated Dollars Claimed in 2003
Provision Dollars projected
for FY 2003 (in billions of dollars)
Description
Net exclusion of pension contributions and earnings: Employer Plans 83.5
Certain employer contributions to pension plans are excluded from an
employee's gross income even though the employers can deduct the
contributions. In addition, the tax on the investment income earned by the
pension plan is deferred until the money is withdrawn. Exclusion of
employer contributions for medical insurance premiums and medical care
79.6 (a) Employer*s can deduct employer- paid health insurance premiums
and other medical expenses (including long- term care) as a business
expense, but they are
not included in employee gross income. The self- employed may also deduct
part of their family health insurance premiums.
Deductibility of mortgage interest on owner- occupied homes 69.9
Owner- occupants of homes may deduct mortgage interest limited to interest
on debt no greater than the owner's basis in the residence; for debt
incurred after October 13, 1987, it is limited to no more than $1 million.
Interest on up to $100,000 of other debt (less than market value of
residence) secured by a lien on a
principal or second residence is also deductible. Capital gains (except
agriculture, timber, iron ore, and coal) (normal tax method)
55.3 Currently, the capital gains rate has been reduced from 20 percent to
15 percent
and from 10 percent to 5 percent for taxpayers in the 10 percent and 15
percent marginal income tax bracket. The special tax rates (18 percent top
rate, 8 percent for taxpayers in the 10 and 15 percent tax brackets) for
assets held over 5 years have been removed. Deductibility of nonbusiness
state and local
taxes other than on owneroccupied homes 50.9 Taxpayers may deduct state
and local income and property taxes. Depreciation of equipment in excess
of alternative depreciation system 49.8 A tax expenditure provision that
arises from the depreciation of machinery and
equipment in excess of the normal tax baseline. Step- up basis of capital
gains at death 38.1
Currently the cost basis for an appreciated asset is adjusted up to the
market value at the owner's death. With the repeal of the estate tax for
2010, the basis for property acquired from a decedent will be the lesser
of market value or decedent's basis. Deductibility of charitable
contributions, other than
education and health 34.2 Taxpayers may deduct charitable, religious, and
other non- profit contributions up to 50 percent of Adjusted Gross Income.
Corporations' deductions are limited to
10 percent of pre- tax income. Earned Income Credit 34.1 (b) The EIC is a
refundable tax credit that offsets the impact of Social Security taxes
paid by low- income workers and encourages low- income persons to seek
work rather than welfare. The EIC is available to taxpayers with and
without children and depends on the nature and amount of qualifying income
and on the number of children who meet age, relationship, and residency
tests.
Tax credit for children under age 17 27.1 Taxpayers with children under
age 17 can qualify for a $600 refundable per child credit. The credit is
phased out for taxpayers at the rate of $50 per $1,000 of
modified Adjusted Gross Income above $110,000 ($ 75,000 for singles).
Sources: Ten largest tax preference programs taken from program cost
estimates identified in the Joint Committee on Taxation*s December 2002
report, Estimates of Federal Tax Expenditures for Fiscal Years 2003- 2007,
report number JCS- 5- 02. Tax preference descriptions from the U. S.
Office of Management and Budget, Analytical Perspectives, Budget of the
United States Government, Fiscal Year 2004 (Washington, DC: Government
Printing Office) 2003 and Congressional Research Service, Taxation
Briefing Book, Individual Capital Gains Tax Issues; and Federal Taxes:
Information on Payroll Taxes and Earned Income Tax Credit Noncompliance,
GAO- 01- 487T, March 7, 2001.
Note (a): This is the single largest health- related tax preference
reported by the Joint Committee on Taxation. The Joint Committee on
Taxation reports also includes other health- related tax preferences. Note
(b): The tax preference figure for the EIC only includes the portion of
the EIC that offsets income taxes paid.
GAO- 03- 1030T 32 Despite the importance of tax preferences, the economy,
efficiency, and effectiveness of tax
preferences in achieving their purposes is often not well understood, in
part because data on their use and effectiveness may not be available. For
example, we recently studied business tax preferences to encourage the
hiring, retention, and accommodation of workers with disabilities and
found that information on the effectiveness of the programs was limited
and inconclusive. 48 In 2002, we studied the use of tax preferences
intended to help families meet the costs of
postsecondary education and found that Congress did not have the
information it needed to weigh the relative effectiveness of the range of
tools created to accomplish this goal. 49 In 1999 we reviewed businesses*
use of empowerment zone tax preferences and had to conduct our own survey
to find information about businesses that were and were not using the
preferences. 50 When critical information about the economy, efficiency,
and effectiveness of tax preferences is
made available, it can be very valuable to congressional decision makers.
For example, in 1993 we described the impacts of a tax credit designed to
encourage investment in Puerto Rico. 51 This tax preference effectively
exempted income earned by U. S. firms from operations in U. S. possessions
from federal corporate income taxes. We found that the credit per employee
was, on average, slightly higher than the wages paid per employee and in
some industries was considerably higher. Congress subsequently chose to
phase out the tax credit program.
A decade ago we concluded that greater scrutiny of tax preferences is
warranted. We made a number of recommendations intended to achieve that
end, including recommendations to OMB to incorporate tax preferences, to
the extent possible, into the annual budget review process. Our intent was
that tax preferences be assessed and considered along with related federal
efforts so that the relative effectiveness of both spending and tax
preferences could be considered jointly. However, tax preferences are
still excluded from important review processes that apply to spending
programs. Tax preferences are not explicitly covered by the Government
Performance and Results Act (GPRA) of 1993 and therefore are not subject
to its requirements that are intended to help ensure that federal programs
are achieving their intended results. However, the Senate Governmental
Affairs Committee Report on GPRA says that tax preferences should be taken
into consideration in a comprehensive examination of government
performance. 52 Nevertheless, tax preferences often are not currently
covered by agencies or executive branch
processes that consider the effectiveness of government programs. For
example the new 48 U. S. General Accounting Office, Business Tax
Incentives: Incentives to Employ Workers with Disabilities Receive Limited
Use and Have an Uncertain Impact, GAO- 03- 39, (Washington, D. C.: Dec.
11, 2002). 49 U. S. General Accounting Office, Student Aid and Tax
Benefits: Better Research and Guidance will Facilitate Comparison of
Effectiveness and Student Use, GAO- 02- 751, (Washington, D. C.: Sept. 13,
2002). 50 U. S. General Accounting Office, Community Development:
Businesses* Use of Empowerment Zone Tax
Incentives, GAO/ RCED- 99- 253, (Washington, D. C.: Sept. 30, 1999). 51 U.
S. General Accounting Office, Tax Policy; Puerto Rico and the Section 936
Tax Credit, GAO/ GGD- 93- 109, (Washington, D. C.: June 8, 1993).
52 Report of the Committee on Governmental Affairs, United States Senate,
Government Performance and Results Act of 1993, (June 16, 1993, Report
103- 58).
GAO- 03- 1030T 33 program performance reviews conducted by OMB in
connection with the annual budget process
generally do not cover tax preferences. According to OMB, the Executive
Branch is continuing to focus on the availability of data needed to assess
the effects of the tax expenditures designed to increase savings. 53
Treasury*s Office of Tax Analysis and IRS*s Statistics of Income Division
have developed a new sample of individual income tax filers as one part of
this effort. This new *panel* sample will follow the same taxpayers over a
period of at least 10 years. Data from this sample will enhance OMB*s
ability to analyze the effect of tax expenditures designed to increase
savings. Other efforts by OMB, Treasury, and other agencies to improve
data available for the analysis of tax expenditures are expected to
continue over the next several years, according to OMB. In practice, data
availability is likely to be a major challenge, and data constraints may
limit the assessment of the effectiveness of many provisions. In addition,
such assessments can raise significant challenges in economic modeling.
REASSESSING WHAT THE GOVERNMENT DOES SHOULD INCLUDE TAX PREFERENCES
Given their growth and importance, tax preferences must be part of any
comprehensive review of existing programs and activities to adapt
government for the challenges of this century. Any reassessment of federal
missions and strategies should include the entire set of tools the federal
government can use to address national objectives. These tools include
discretionary and mandatory spending, tax provisions, loans and loan
guarantees, and regulations. Spending is most visible and it is all too
easy when we look to define federal support for an activity to only look
at the spending side of the budget. Federal support, however, may come in
the form of exclusions or credits in the tax code. It may come in the form
of direct loans or loan guarantees. It may come in the design of
regulations. Yet none of these tools should be ignored if we are to get a
true picture of federal activity in an area. So, for example, if we are
evaluating federal support for health care we need to look not only at
spending, but also at tax preferences. Figure 8 shows federal activity in
health care and Medicare budget functions in FY 2003: $48 billion in
discretionary BA, $419 billion in entitlement outlays, $177 million in
loan guarantees, and $129 billion in tax expenditures. 54 53 U. S. Office
of Management and Budget, Analytical Perspectives, Budget of the United
States Government, Fiscal Year 2004 (Washington, DC: Government Printing
Office) 2003. 54 This represents the sum of a number of different tax
provisions.
GAO- 03- 1030T 34
Figure 8: Relative Reliance on Policy Tools in the Health Care Budget
Functions (FY 2003)
Source: GAO analysis of data from the Office of Management and Budget.
Note: Loan guarantees account for about $177 million or 0. 03 percent of
the approximately $597 billion in total federal health care resources.
CONCLUDING REMARKS
There is a Chinese curse that goes *May you live in interesting times.* We
clearly do. I would prefer to see this not as a curse* but as a challenge
and an opportunity.
Tackling areas at risk for fraud, waste, abuse, and mismanagement will
require determination, persistence and sustained attention by both agency
managers and Congressional committees. Large and complex federal agencies
must effectively use a mixture of critical resources and improved
processes to improve their economy, efficiency, and effectiveness,
Congressional oversight will be key.
We should be striving to maintain a government that is effective and
relevant to a changing society* a government that is as free as possible
of outmoded commitments and operations that can inappropriately encumber
the future. The difference between *wants,* *needs,* and overall
*affordability* and long- term *sustainability* is an important
consideration when setting overall priorities and allocating limited
resources.
Government must operate in the context of broader trends shaping the
United States and its place in the world. These include:
National and global response to terrorism and other threats to personal
and national security;
22% 8% 70%
Tax Expenditures Discretionary budget authority Mandatory outlays
GAO- 03- 1030T 35
Increasing interdependence of enterprises, economies, civil society, and
national governments* also know as globalization;
The shift to market- oriented, knowledge- based economies;
An aging and more diverse U. S. population;
Advances in science & technology and the opportunities & challenges
created by these changes;
Challenges and opportunities to maintain & improve the quality of life for
the nation, communities, families & individuals; and
The increasingly diverse nature of governance structures and tools. In
addition to the above trends, large and growing fiscal challenges at the
federal, state, and local levels are of great concern. Furthermore, known
demographic trends, and rising health care costs and other health care
related challenges (e. g., access, quality) are of growing concern
crossing all sectors of the economy and all geopolitical boundaries.
Government leaders are responsible and accountable for making needed
changes to position the federal government to take advantage of emerging
opportunities and to meet future challenges. Focusing on accountable,
results- oriented management can help the federal government operate
effectively within a broad network that includes other governmental
organizations, nongovernmental organizations, and the private sector.
In view of the broad trends and large and growing fiscal challenges facing
the nation, there is a need to fundamentally review, reassess, and
reprioritize the proper role of the federal government, how the government
should do business in the future, and* in some instances* who should do
the government*s business in the 21 st century. It is also increasingly
important that federal programs use properly designed and aligned tools to
manage effectively across boundaries work with individual citizens, other
levels of government, and other sectors. Evaluating the role of government
and the programs it delivers is key in considering how best to address the
nation*s most pressing priorities. Existing programs, policies and
activities cannot be taken as *givens.* We need to look at *the base*
across the board* mandatory and discretionary spending and tax
preferences/ incentives. Such periodic reviews of programs can prompt not
only a healthy reassessment of our priorities but also changes needed in
program design, resources and management to get the results we
collectively decide we want from government.
Needless to say, we at GAO are pleased to help Congress in this very
important work.
CONTACTS AND ACKNOWLEDGMENTS For further information regarding this
testimony, please contact Barbara D. Bovbjerg, Director, Education,
Workforce, and Income Security Issues, at (202) 512- 7215 or bovbjergb@
gao. gov regarding Social Security and disability issues; Leslie G.
Aronovitz, Director, Health Care, at (312) 220- 7600, or aronovitzl@ gao.
gov and Laura A. Dummit, Director Health Care, at (202) 512- 7119, or
dummitl@ gao. gov regarding Medicare; Michael Brostek, Director for Tax,
Strategic Issues, at (202) 512- 9110, or brostekm@ gao. gov regarding tax
issues; or Susan J.
GAO- 03- 1030T 36 Irving, Director for Federal Budget Analysis, Strategic
Issues, at (202) 512- 9142 or
irvings@ gao. gov regarding general budget and oversight issues in this
testimony. Individuals making key contributions to this testimony included
Sheila Avruch, Sabrina Birnbaum, Jeremy Cox, Carlos Diz, Sandra Gove, Leon
Green, David Lewis, Carol Dawn Petersen, Susan Ragland, Tamara Stenzel,
Melissa Wolf, and Robert Yetvin.
GAO- 03- 1030T 37 Attachment I: GAO*s 2003 High- Risk List
2003 High- Risk Areas Year Designated High Risk Addressing Challenges In
Broad- based Transformations Strategic Human Capital Management* 2001
U. S. Postal Service Transformation Efforts and Long- Term Outlook* 2001
Protecting Information Systems Supporting the Federal Government and the
Nation*s Critical Infrastructures 1997
Implementing and Transforming the New Department of Homeland Security 2003
Modernizing Federal Disability Programs* 2003
Federal Real Property* 2003 Ensuring Major Technology Investments Improve
Services FAA Air Traffic Control Modernization 1995
IRS Business Systems Modernization 1995
DOD Systems Modernization 1995 Providing Basic Financial Accountability
DOD Financial Management 1995
Forest Service Financial Management 1999
FAA Financial Management 1999
IRS Financial Management 1995 Reducing Inordinate Program Management Risks
Medicare Program* 1990
Medicaid Program* 2003
Earned Income Credit Noncompliance 1995
Collection of Unpaid Taxes 1990
DOD Support Infrastructure Management 1997
DOD Inventory Management 1990
HUD Single- Family Mortgage Insurance and Rental Assistance Programs 1994
Student Financial Aid Programs 1990 Managing Large Procurement Operations
More Efficiently DOD Weapon Systems Acquisition 1990
DOD Contract Management 1992
Department of Energy Contract Management 1990
NASA Contract Management 1990 Source: GAO *Additional authorizing
legislation is likely to be required as one element of addressing this
high- risk area.
GAO- 03- 1030T 38
Attachment II: Selected Reports Regarding Specific Areas in Testimony
Overall
Federal Budget: Opportunities for Oversight and Improved Use of Taxpayer
Funds. GAO- 03- 922T. Washington, D. C.: June 18, 2003.
Social Security Programs
Social Security Administration: Revision to the Government Pension Offset
Exemption Should Be Reconsidered. GAO- 02- 950, Washington, D. C.: August
15, 2002.
Social Security: Congress Should Consider Revising the Government Pension
Offset *Loophole.* GAO- 03- 498T. Washington, D. C.: February 27, 2002.
Supplemental Security Income: SSA Could Enhance Its Ability to Detect
Residency Violations.
GAO- 03- 724. Washington, D. C.: July 31, 2003.
Social Security: Issues Relating to Noncoverage of Public Employees. GAO-
03- 710T. Washington, D. C.: May 1, 2003.
Major Management Challenges and Program Risks: Social Security
Administration. GAO- 03- 117. Washington, D. C.: January 2003.
High Risk Series: An Update. GAO- 03- 119. Washington, D. C.: January
2003.
Supplemental Security Income: Progress Made in Detecting and Recovering
Overpayments, but Management Attention Should Continue. GAO- 02- 849.
Washington, D. C.: September 16, 2002.
Social Security Administration: Agency Must Position Itself Now to Meet
Profound Challenges.
GAO- 02- 289T. Washington, D. C.: May 2, 2002.
SSA and VA Disability Programs: Re- Examination of Disability Criteria
Needed to Help Ensure Program Integrity. GAO- 02- 597. Washington, D. C.:
August 9, 2002.
Social Security Disability: Efforts to Improve Claims Process Have Fallen
Short and Further Action is Needed. GAO- 02- 826T. Washington, D. C.: June
11, 2002.
SSA Disability: Other Programs May Provide Lessons for Improving Return-
to- Work Efforts. GAO- 01- 153. Washington, D. C.: January 12, 2001.
Supplemental Security Income: Action Needed on Long- Standing Problems
Affecting Program Integrity. GAO/ HEHS- 98- 158. Washington, D. C.:
September 14, 1998.
Social Security: Better Payment Controls for Benefit Reduction Provisions
Could Save Millions. GAO/ HEHS- 98- 76. Washington, D. C.: Apr. 30, 1998.
GAO- 03- 1030T 39
SSA Disability: Return- to- Work Strategies From Other Systems May Improve
Federal Programs. GAO/ HEHS- 96- 133. Washington, D. C.: July 11, 1996.
SSA Disability: Program Redesign Necessary to Encourage Return to Work.
GAO/ HEHS- 96- 62. Washington, D. C.: April 24, 1996.
Unemployment Insurance Unemployment Insurance: Increased Focus on Program
Integrity Could Reduce Billions in Overpayments. GAO- 02- 697. Washington,
D. C.: July 12, 2002.
Medicare
Medicare: Financial Challenges and Considerations for Reform. GAO- 03-
577T. Washington, D. C.: April 10, 2003.
Medicare: Observations on Program Sustainability and Strategies to Control
Spending on Any Proposed Drug Benefit. GAO- 03- 650T. Washington, D. C.:
April 9, 2003.
Medicare: Payment for Blood Clotting Factor Exceeds Providers* Acquisition
Cost. GAO- 03- 184. Washington, D. C.: January 10, 2003.
Major Management Challenges and Program Risks: Department of Health and
Human Services.
GAO- 03- 101. Washington, D. C.: January 2003.
High- Risk Series: An Update. GAO- 03- 119. Washington, D. C.: January
2003.
Skilled Nursing Facilities: Medicare Payments Exceed Costs for Most but
Not All Facilities.
GAO- 03- 183. Washington, D. C.: December 31, 2002.
Medicare Financial Management: Significant Progress Made to Enhance
Financial Accountability. GAO- 03- 151R. Washington, D. C.: October 31,
2002.
Skilled Nursing Facilities: Providers Have Responded to Medicare Payment
System by Changing Practices. GAO- 02- 841. Washington, D. C.: August 23,
2002.
Medicare: Challenges Remain in Setting Payments for Medical Equipment and
Supplies and Covered Drugs. GAO- 02- 833T. Washington, D. C.: June 12,
2002.
Medicare: Recent CMS Reforms Address Carrier Scrutiny of Physicians*
Claims for Payment.
GAO- 02- 693. Washington, D. C.: May 28, 2002.
Medicare: Using Education and Claims Scrutiny to Minimize Physician
Billing Errors. GAO- 02- 778T. Washington, D. C.: May 28, 2002.
GAO- 03- 1030T 40
Medicare Home Health Care: Payments to Home Health Agencies Are
Considerably Higher than Costs. GAO- 02- 663. Washington, D. C.: May 6,
2002.
Medicare: Communications With Physicians Can Be Improved. GAO- 02- 249.
Washington, D. C.: February 27, 2002.
Medicare: Payments for Covered Outpatient Drugs Exceed Providers* Cost.
GAO- 01- 1118. Washington, D. C.: September 21, 2001.
Medicare: Comments on HHS* Claims Administration Contracting Reform
Proposal. GAO- 01- 1046R. Washington, D. C.: August 17, 2001.
Medicare Management: CMS Faces Challenges to Sustain Progress and Address
Weaknesses.
GAO- 01- 817. Washington, D. C.: July 31, 2001.
Medicare: Successful Reform Requires Meeting Key Management Challenges.
GAO- 01- 1006T. Washington, D. C.: July 25, 2001.
Medicare Contracting Reform: Opportunities and Challenges in Contracting
for Claims Administration Services. GAO- 01- 918T. Washington, D. C.: June
28, 2001.
Medicare: Higher Expected Spending and Call for New Benefit Underscore
Need for Meaningful Reform. GAO- 01- 539T. Washington, D. C.: March 22,
2001.
Medicare Management: Current and Future Challenges. GAO- 01- 878T.
Washington, D. C.: June 19, 2001.
Medicare Reform: Modernization Requires Comprehensive Program View. GAO-
01- 862T. Washington, D. C.: June 14, 2001.
Medicare: Opportunities and Challenges in Contracting for Program
Safeguards. GAO- 01- 616. Washington, D. C.: May 18, 2001.
Nursing Homes: Aggregate Medicare Payments Are Adequate Despite
Bankruptcies. GAO/ THEHS- 00- 192. Washington, D. C.: September 5, 2000.
Tax Policy and Administration Issues
IRS Modernization: Continued Progress Necessary for Improving Service to
Taxpayers and Ensuring Compliance. GAO- 03- 769T. Washington, D. C.: May
20, 2003.
Compliance and Collection: Challenges for IRS in Reversing Trends and
Implementing New Initiatives. GAO- 03- 732T. Washington, D. C.: May 7,
2003.
Internal Revenue Service: Assessment of fiscal year 2004 Budget Request
and 2003 Filing Season Performance to Date. GAO- 03- 641T. Washington, D.
C.: April 8, 2003.
GAO- 03- 1030T 41
Tax Administration: Federal Payment Levy Program Measures, Performance,
and Equity Can Be Improved. GAO- 03- 356. Washington, D. C.: March 6,
2003.
Tax Administration: IRS Should Continue to Expand Reporting on Its
Enforcement Efforts. GAO- 03- 378. Washington, D. C.: January 31, 2003.
Performance and Accountability Series: Major Management Challenges and
Program Risks* Department of the Treasury. GAO- 03- 109. Washington, D.
C.: January 2003.
Business Tax Incentives: Incentives to Employ Workers with Disabilities
Receive Limited Use and Have an Uncertain Impact. GAO- 03- 39. Washington,
D. C.: December 11, 2002. Student Aid and Tax Benefits: Better Research
and Guidance Will Facilitate Comparison of
Effectiveness and Student Use. GAO- 02- 751. Washington, D. C.: September
13, 2002.
Tax Administration: New Compliance Research Effort is on Track, but
Important Work Remains. GAO- 02- 769. Washington, D. C.: June 27, 2002.
Tax Administration: Impact of Compliance and Collection Program Declines
on Taxpayers. GAO- 02- 674. Washington, D. C.: May 22, 2002.
Tax Administration: IRS*s Efforts to Improve Compliance with Employment
Tax Requirements Should Be Evaluated. GAO- 02- 92. Washington, D. C.:
January 15, 2002.
Tax Administration: Millions of Dollars Could Be Collected If IRS Levied
More Federal Payments. GAO- 01- 711. Washington, D. C.: July 20, 2001.
Tax Administration: IRS* Levy of Federal Payments Could Generate Millions
of Dollars. GAO/ GGD- 00- 65. Washington, D. C.: April 7, 2000.
Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty Assessments
are owed. GAO/ AIMD/ GGD- 99- 211. Washington, D. C.: August 2, 1999.
Community Development: Business Use of Empowerment Zones Tax Incentives.
GAO/ RCED99- 253. Washington, D. C.: September 30, 1999.
Tax Credits: Opportunities to Improve Oversight of the Low- Income Housing
Program. GAO/ TGGD/ RCED- 97- 149. Washington, D. C.: April 23, 1997.
Tax Credits: Opportunities to Improve Oversight of the Low- Income Housing
Program. GAO/ GGD/ RCED- 97- 55. Washington, D. C.: March 28, 1997.
Tax Policy: Tax Expenditures Deserve More Scrutiny. GAO/ GGD/ AIMD- 94-
122. Washington, D. C.: June 3, 1994.
GAO- 03- 1030T 42
Tax Policy: Puerto Rico and the Section 936 Tax Credit. GAO/ GGD/- 93-
109. Washington, D. C.: June 8, 1993.
Child Support Enforcement
Child Support Enforcement: Clear Guidance Would Help Ensure Proper Access
to Information and Use of Wage Withholding by Private Firms. GAO- 02- 349,
March 26, 2002.
Child Support Enforcement: Effects of Declining Welfare Caseloads Are
Beginning to Emerge.
GAO/ HEHS- 99- 105. Washington, D. C.: June 30, 1999.
Welfare Reform: Child Support an Uncertain Income Supplement for Families
Leaving Welfare. GAO/ HEHS- 98- 168. Washington, D. C.: August 3, 1998.
Child Support Enforcement: Early Results on Comparability of Privatized
and Public Offices.
GAO/ HEHS- 97- 4. Washington, D. C.: December 16, 1996.
Child Support Enforcement: Reorienting Management Toward Achieving Better
Program Results. GAO/ HEHS/ GGD- 97- 14. Washington, D. C.: October 25,
1996.
Child Support Enforcement: States* Experience with Private Agencies*
Collection of Support Payments. GAO/ HEHS- 97- 11. Washington, D. C.:
October 23, 1996.
Child Support Enforcement: States and Localities Move to Privatized
Services. GAO/ HEHS- 96- 43FS. Washington, D. C.: November 20, 1995.
Child Support Enforcement: Opportunity to Reduce Federal and State Costs.
GAO/ T- HEHS- 95- 181. Washington, D. C.: June 13, 1995.
Grant Programs
Formula Grants: Effects of Adjusted Population Counts on Federal Funding
to States.
GAO/ HEHS- 99- 69. Washington, D. C.: February 26, 1999.
Medicaid Formula: Effects of Proposed Formula on Federal Shares of State
Spending. GAO/ HEHS- 99- 29R. Washington, D. C.: February 19, 1999.
Welfare Reform: Early Fiscal Effect of the TANF Block Grant. GAO/ AIMD-
98- 137. Washington, D. C.: August 22, 1998.
GAO- 03- 1030T 43
Public Housing Subsidies: Revisions to HUD*s Performance Funding System
Could Improve Adequacy of Funding. GAO/ RCED- 98- 174. Washington, D. C.:
June 19, 1998.
School Finance: State Efforts to Equalize Funding Between Wealthy and Poor
School Districts. GAO/ HEHS- 98- 92. Washington, D. C.: June 16, 1998.
School Finance: State and Federal Efforts to Target Poor Students. GAO/
HEHS- 98- 36. Washington, D. C.: January 28, 1998.
School Finance: State Efforts to Reduce Funding Gaps Between Poor and
Wealthy Districts. GAO/ HEHS- 97- 31. Washington, D. C.: February 5, 1997.
Federal Grants: Design Improvements Could Help Federal Resources Go
Further. GAO/ AIMD97- 7. Washington, D. C.: December 18, 1996.
Public Health: A Health Status Indicator for Targeting Federal Aid to
States. GAO/ HEHS- 97- 13. Washington, D. C.: November 13, 1996.
School Finance: Options for Improving Measures of Effort and Equity in
Title I. GAO/ HEHS96- 142. Washington, D. C.: August 30, 1996.
Highway Funding: Alternatives for Distributing Federal Funds. GAO/ RCED-
96- 6. Washington, D. C.: November 28, 1995.
Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity. GAO/
HEHS- 96- 26. Washington, D. C.: November 13, 1995.
Department of Labor: Senior Community Service Employment Program Delivery
Could Be Improved Through Legislative and Administrative Action. GAO/
HEHS- 96- 4. Washington, D. C.: November 2, 1995.
Federal Assistance: Grant System Continues to Be Highly Fragmented. GAO-
03- 718T. Washington, D. C.: April 29, 2003.
Multiple Employment and Training Programs: Funding and Performance
Measures for Major Programs. GAO- 03- 589. Washington, D. C.: April 18,
2003.
Managing for Results: Continuing Challenges to Effective GPRA
Implementation. GAO/ TGGD- 00- 178. Washington, D. C.: July 20, 2000.
GAO- 03- 1030T 44
Workforce Investment Act: States and Localities Increasingly Coordinate
Services for TANF Clients, but Better Information Needed on Effective
Approaches. GAO- 02- 696. Washington, D. C.: July 3, 2002.
Fundamental Changes are Needed in Federal Assistance to State and Local
Governments. GAO/ GGD- 75- 75. Washington, D. C.: August 19, 1975.
Flood Insurance Losses
Flood Insurance: Information on Financial Aspects of the National Flood
Insurance Program. GAO/ T- RCED- 00- 23. Washington, D. C.: October 27,
1999.
Flood Insurance: Information on Financial Aspects of the National Flood
Insurance Program. GAO/ T- RCED- 99- 280. Washington, D. C.: August 25,
1999.
Flood Insurance: Financial Resources May Not Be Sufficient to Meet Future
Expected Losses. GAO/ RCED- 94- 80. Washington, D. C.: March 21, 1994.
(450240)
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