In the most predictable story of the Covid era, it turns out that federal relief programs have been plagued with fraud and abuse. As for waste, well, that was always sort of the point. Shutting down much of the economy and attempting to replace it with federal spending, borrowing and money creation is not a strategy for productivity. But when it comes to the amount of theft, a new estimate really is a surprise—and a truly stunning one.
Felix Salmon of Axios reports:
Criminals may have stolen as much as half of the unemployment benefits the U.S. has been pumping out over the past year, some experts say.
What would we do without experts? This column likes to maintain a robust skepticism regarding government programs, but could the feds really have handed over half the unemployment benefits to crooks? One of Mr. Salmon’s experts suggests that most of the crooks don’t even live here. According to the Axios report:
Blake Hall, CEO of ID.me, a service that tries to prevent this kind of fraud, tells Axios that America has lost more than $400 billion to fraudulent claims. As much as 50% of all unemployment monies might have been stolen, he says.
Haywood Talcove, the CEO of LexisNexis Risk Solutions, estimates that at least 70% of the money stolen by impostors ultimately left the country, much of it ending up in the hands of criminal syndicates in China, Nigeria, Russia and elsewhere.
“These groups are definitely backed by the state,” Talcove tells Axios.
Much of the rest of the money was stolen by street gangs domestically, who have made up a greater share of the fraudsters in recent months.
If forced to choose, your humble correspondent would probably prefer independent domestic street gangs to foreign state-backed criminal syndicates. But perhaps the economists in the crowd can opine on the relative impact of stuffing U.S. taxpayer money into one pair of undeserving hands versus another. For that matter perhaps the people who endorsed the idea of shuttering much of the U.S. economy in response to Covid-19, expanding the Federal Reserve balance sheet by nearly $4 trillion and adding more than $4 trillion to the nation’s publicly held debt can explain if their strategy depends on whether the recipients of cash are lawful or law-abiding. When one is dumping money out of a helicopter it’s not so easy to dictate who catches it.
The important thing now is for Washingtonians to try to evade responsibility. Mr. Salmon’s report continues:
“Widespread fraud at the state level in pandemic unemployment insurance during the previous Administration is one of the most serious challenges we inherited,” said White House economist Gene Sperling.
This is a howler, as if candidate
and Democrats in Congress spent 2020 seeking to block Covid spending bills because they lacked robust accounting systems. In 2021, Mr. Biden enacted nearly $2 trillion in additional Covid-related spending even after it was clear the plan was no longer needed.
As for the amount of money stolen by crooks—the ones not serving in the U.S. Congress—perhaps it’s not quite as large as estimated by the Axios sources. But there seems to be a consensus that the number is not small. Susan Crabtree at RealClearPolitics reports that “fraudsters have made off with an estimated $200 billion in state and federal unemployment funds during the pandemic, according to some congressional estimates.” She notes:
California and more than a dozen other states, both red and blue, were unprepared to handle the massive influx of unemployment claims, according to a Labor Department inspector general report released last week. But a lot of the waste and fraud could have been avoided. Forty percent of states did not comply with federal rules requiring basic safeguards — cross-checking of unemployment claimants against a national directory of new hires, as well as a federal database of illegal immigrants, the inspector general found. The report focuses on California, as well as Florida, Georgia, Illinois, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Texas and Washington state for special scrutiny.
“This is probably going to go down in history as the biggest rip-off of taxpayer dollars ever,”
Rep. Jackie Walorski
of Indiana, told RealClearPolitics. Walorski, the top Republican on the House Ways and Means’ worker and family support subcommittee, says she tried to work with Democrats to fight potential fraud in December’s… stimulus bill, but Democrats stripped out those provisions.
In California, the nation’s most populous state, unemployment insurance fraud has been so rampant it now has the dishonorable distinction of being the most costly financial scandal in state history. The Employment Development Department, which doles out the unemployment payments, has admitted that one in four payments could have been improperly made — that it paid as much as $31 billion in fraudulent claims, including to nearly 35,000 inmates of the state’s prisons and jails.
Well, at least they’re Americans, and perhaps more entrepreneurial than those bureaucratic participants in state-backed crime syndicates. The additional bad news is that the great American rip-off is not over yet, as money continues to churn out of Washington. Lorie Konish of CNBC reports:
More than 2.3 million new stimulus checks have been sent, representing over $4.2 billion in payments to Americans, the government announced on Wednesday.
In total, more than 169 million payments worth about $395 billion have been issued since Congress passed the American Rescue Plan Act in March.
That legislation authorized payments of up to $1,400 per person, plus $1,400 per eligible dependent, for individuals and families who fall under certain income thresholds and also meet other requirements.
Can taxpayers afford all of these checks, some of which seem bound to end up in the wrong hands? The Journal’s John McCormick reports:
The U.S. budget deficit grew to a record $2.1 trillion during the first eight months of the fiscal year as spending continued to outpace tax receipts that are rising as the economy recovers from the damage inflicted by the Covid-19 pandemic…
Outlays rose 20%, to a record $4.7 trillion, driven by payments for jobless benefits, nutrition assistance and Covid-19 relief programs including emergency small-business loans and stimulus checks to households.
Someday, the kids who are now in U.S. households will have to pay for all this.
James Freeman is the co-author of “The Cost: Trump, China and American Revival.”
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