Most members of Congress know that the government’s $39 trillion debt may trigger a financial crisis as it continues soaring. But lawmakers keep hiking spending, with increases currently in the pipeline for defense, farm subsidies, and transportation.
Why does Congress spend so much? Members are lobbied to spend, of course, but they are also naively optimistic about government. They seem to think they can solve every problem in society by enacting programs and then flooding the zone with cash.
The reality is that program benefits are nearly always lower than planned, and the taxpayer costs are higher. The government is a leaky bucket — many of the dollars it scoops up for the federal budget spill out as waste and policy mistakes.
The Trump administration is cracking down on program fraud, but fraud is only one of 10 inefficiencies or leaks in the federal budget bucket.
1. Fraud and Errors. Hundreds of billions of dollars in spending are lost to fraudulent and erroneous payments every year. Whether it is food stamps, health care programs, or the earned income tax credit, improper payments range from about 5 to 25% of social program spending. Military spending is also rife with fraud and cost overruns.
2. Administration. Part of spending goes to bureaucrats, not to program recipients. The administrative share of spending is 10% for food stamps, 12% for Supplemental Security Income, 17% for community development, and about 35% for the crop insurance program.
3. Poor Targeting. A lot of spending goes to people who claim benefits legally but were not supposed to be targeted for help. Programs aimed at poor communities — such as aid for schools and community development — often benefit wealthier areas of the nation. And subsidies to boost industries, such as broadband, often go to projects that companies would have funded themselves.
4. Bureaucratic Failures. Congress assumes that federal agencies will expertly implement the programs it designs, but the bureaucracies screw up all the time. We’ve seen headline-making failures over the years in disaster response, presidential security, air traffic control, pandemic aid, and many other activities.
5. Logrolling. Congress passes spending in large packages that include funding for hundreds of programs and projects. Policymakers do not perform cost-benefit analyses on each item to ensure that it will create net value. Rather, bills are passed by horse-trading, and many low-value activities that do not have broad support get funded.
6. Central Planning. Congress allocates trillions of dollars each year to individuals, businesses, and nonprofit groups. How do lawmakers know which activities will create the most benefits? They don’t. Lawmakers use wild guesswork to allocate cash between food stamps, fighter jets, farmers, and a myriad of other things. They often make mistakes, fund faulty programs, and resources get entrenched in wasteful activities for years.
7. Program Conflicts. When Congress designs programs, it often includes provisions that work at cross purposes. In infrastructure bills, for example, rules that favor domestic purchases and rules that favor labor unions inflate costs. The result is that taxpayers get fewer infrastructure facilities than they’ve paid for.
8. Behavioral Changes. Government spending induces recipients to change their behavior in unproductive ways. Welfare induces recipients to stay on the couch rather than work, and corporate welfare induces businesses to waste resources on lobbying rather than on making better products.
9. Crowding Out. Government spending displaces private and voluntary activities. As welfare programs grow, self-help and private charities decline. As Social Security grows, private savings for retirement shrink. And during the 20th century, as government subsidies for airports and urban transit expanded, previously private provision of these services disappeared.
10. Tax Damage. Raising tax revenue for the federal budget causes collateral damage, including increased tax paperwork costs and reduced incentives for production. The result is that taxes impose costs on the private sector beyond the revenues they raise. If Congress raises taxes by $100, economists estimate that it costs the private sector about $150, which includes $100 transferred to the government and $50 in collateral damage.
Here is former Council of Economic Advisers Chair Michael Boskin on the government’s leaky bucket: “The cost to the economy of each additional tax dollar is about $1.40 to $1.50. Now the tax dollar … is put into a bucket. Some of it leaks out in overhead, waste, and so on. In a well-managed program, the government may spend $.80 or $.90 of that dollar on achieving its goals. Inefficient programs would be much lower, $.30 or $.40 on the dollar.”
My new Cato Institute study with Ryan Bourne argues that most federal programs fall into Boskin’s “inefficient” category, in which costs far exceed benefits. These programs are dragging down the economy and pushing up debt. Fraud is a big problem, but most federal programs are leaking resources and wasting them in many ways.
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Chris Edwards occupies the Kilts family chair in fiscal studies at the Cato Institute.
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