Thanks to Feckless Tories, the United Kingdom Is Poised to Fall Off the Wagon of Fiscal Sobriety

One of my favorite charts shows how nations achieve great results when they engage in multi-year periods of spending restraint.

The most important benefit is that the burden of government shrinks relative to the private sector, but it’s also worth noting that the symptom of red ink begins to disappear when there is a serious effort to deal with the underlying disease of excessive spending.

But sharing this chart also a bittersweet experience since it shows – in almost all cases – that it is just a matter of time before politicians go back to fiscal profligacy.

This is why I’m a huge fan of a permanent spending cap, ideally as part of a nation’s constitution.  Jurisdictions that have adopted this approach, such as Hong Kong and Switzerland, have very strong long-run fiscal performance rather than just temporary blips of good policy.

At the risk of understatement, it’s increasingly obvious that the United Kingdom needs this kind of permanent structural reform.

As you can see from this chart I shared back in February, there’s been some decent spending restraint in that country ever since 2010.

Let’s augment those numbers. I pulled together the data on government spending from the OECD, the IMF, and the UK government. They all have slightly different methodologies with slightly different numbers, but they all tell the same story.

Ever since 2010, the burden of government spending has expanded by an average of about 1.6 percent annually. Spending is still growing, needless to say, but the private sector has been growing faster, so British policymakers have been satisfying my golden rule.

And because the productive sector of the economy has grown faster than government, this means that relative burden of spending has declined. Which is exactly what we see in this chart.

That’s the good news.

The bad news is that politicians are tired of being responsible. They are salivating at the prospect of a new spending binge. Even Tory politicians now want to play Santa with other people’s money.

The U.K.-based Times has some of the unpleasant details.

Ministers are pushing to delay or abandon a series of tax cuts to fund an increase in public sector pay, The Times has learnt. Philip Hammond, the chancellor, is being urged to scrap commitments to reduce corporation tax and raise the thresholds for the personal allowance and the 40 per cent income tax rate. …At a meeting of the political cabinet last week, Jeremy Hunt, the health secretary, Justine Greening, the education secretary, and Sir Patrick McLoughlin, the party chairman, are understood to have called for more money for public sector workers.

Opening the spending spigot would be a terrible mistake. Especially to finance higher pay for bureaucrats.

The Wall Street Journal recently opined on this new threat to fiscal responsibility on the other side of the Atlantic.

…the Prime Minister’s Tories now want to abandon their claim to fiscal discipline. Rather than blame a feckless campaign, wobbly Tory leaders have decided that voters are exhausted with “austerity” and government employees are happy to step in with spending demands. Those government workers and their patrons in the opposition Labour Party are demanding an end to the 1% annual pay-rise cap imposed by former Prime Minister David Cameron and Chancellor George Osborne in 2013 after several years of pay freezes.

Even worse, they want to cancel tax cuts and/or impose tax hikes to finance more money for the bureaucracy.

…cabinet grandees Boris Johnson and Michael Gove…seem willing to pay for it by reducing scheduled corporate tax-rate cuts or increasing individual taxes by reducing the threshold at which the second-highest 40% rate applies.

You won’t be surprised to learn that British bureaucrats (just like their American cousins) are not underpaid compared to workers in the economy’s productive sector.

Britain’s government workers aren’t suffering from a pay crisis compared to their peers in the private (that is, productive) economy. For most of the period since 2000, average weekly nominal earnings for public employees have exceeded the private average, according to the Office for National Statistics. And that excludes government pensions that are far more generous than what most private employees enjoy. Government workers were also shielded from the worst of the post-2008 downturn. The 1% cap amounted to steady nominal wage growth while private wages fell sharply…. Government workers were also spared the worst of the job cuts private employers imposed. …The 1% nominal pay cap mainly has given private workers an opportunity to catch up to government pay. …Voters are frustrated by an economic recovery that has largely failed to deliver inflation-adjusted earnings growth. But the solution isn’t to further stifle wage growth in the private economy by raising taxes to benefit public employees.

Tim Worstall also explains that the bureaucracy is not suffering from a lack of compensation.

We’ve just had a massive recession and thus we are indeed worse off. That’s what a recession is all about. So the question should be: are we all sharing that pain? We are not. Public sector pay has fallen by less than private. The people paying the tax have suffered more than those who eat the tax – hardly a good argument in favour of tax-eater pay rises. …It is also true, as the IFS points out, that public sector pay rose substantially in the 2000 to 2005 period. Pay rose more and then pay fell less. I simply can’t see an argument for a public sector pay rise or the lifting of that cap here.

My colleague at the Cato Institute, Ryan Bourne, is a citizen of the United Kingdom, and he points out that one of the problems is that bureaucrat pay levels are determined nationally, which makes no sense when the cost of living varies widely across the country.

….they should phase out national pay bargaining where it remains in the public sector. Previous research by Allison Wolf has shown the high cost of having national pay scales and bargaining. …Poorer regions…suffer as very high pay relative to the private sector crowds out private sector growth.

Ryan explains that Sweden successfully adopted this reform.

Sweden shows the solution. There, collective bargaining was entirely replaced by individual contracts between staff and their local public sector employer, with little fuss. If applied here, managers would then have genuine flexibility in the creation of new posts. It would liberate them to set pay to reflect more accurately local conditions, while varying wages to fulfil difficult positions.

Of course, the ideal situation would be genuine federalism, with local communities raising their own funds and then deciding how lavishly to compensate the bureaucrats they hire. The U.K. actually took a baby step in that direction years ago by giving greater autonomy to Scotland.

I’ll close with a rather depressing observation. It was only two months ago that I suggested Tories might be poised to make big policy improvements in the United Kingdom. Now it appears that they’ll be competing with the Labour Party on how to spend other people’s money. The great Margaret Thatcher is probably spinning in her grave.

The International Monetary Fund Accidentally Provides Strong Evidence for the Laffer Curve

As a general rule, the International Monetary Fund is a statist organization. Which shouldn’t be too surprising since its key “shareholders” are the world’s major governments.

And when you realize who controls the purse strings, it’s no surprise to learn that the bureaucracy is a persistent advocate of higher tax burdens and bigger government. Especially when the IMF’s politicized and leftist (and tax-free) leadership dictates the organization’s agenda.

Which explains why I’ve referred to that bureaucracy as a “dumpster fire of the global economy” and the “Dr. Kevorkian of global economic policy.”

I always make sure to point out, however, that there are some decent economists who work for the IMF and that they occasionally are allowed to produce good research. I’ve favorably cited the bureaucracy’s work on spending caps, for instance.

But what amuses me is when the IMF tries to promote bad policy and accidentally gives me powerful evidence for good policy. That happened in 2012, for example, when it produced some very persuasive data showing that value-added taxes are money machines to finance a bigger burden of government.

Well, it’s happened again, though this time the bureaucrats inadvertently just issued some research that makes the case for the Laffer Curve and lower corporate tax rates.

Though I can assure you that wasn’t the intention. Indeed, the article was written as part of the IMF’s battle against tax competition. As you can see from these excerpts, the authors clearly seem to favor higher tax burdens on business and want to cartelize the global economy for the benefit of the political class.

…what’s the problem when it comes to governments competing to attract investors through the tax treatment they provide? The trouble is…competing with one another and eroding each other’s revenues…countries end up having to…reduce much-needed public spending… All this has serious implications for developing countries because they are especially reliant on the corporate income tax for revenues. The risk that tax competition will pressure them into tax policies that endanger this key revenue source is therefore particularly worrisome. …international mobility means that activities are much more responsive to taxation from a national perspective… This is especially true of the activities and incomes of multinationals. Multinationals can manipulate transfer prices and use other avoidance devices to shift their profits from high tax countries to low, and they can choose in which country to invest. But they can’t shift their profits, or their real investments, to another planet. When countries compete for corporate tax base and/or real investments they do so at the expense of others—who are doing the same.

Here’s the data that most concerns the bureaucrats, though they presumably meant to point out that corporate tax rates have fallen by 20 percentage points, not by 20 percent.

Headline corporate income tax rates have plummeted since 1980, by an average of almost 20 percent. …it is a telling sign of international tax competition at work, which closer empirical work tends to confirm.

But here’s the accidental admission that immediately caught my eye. The authors admit that lower corporate tax rates have not resulted in lower revenue.

…revenues have remained steady so far in developing countries and increased in advanced economies.

And this wasn’t a typo or sloppy writing. Here are two charts that were included with the article. The first one shows that revenues (the red line) have climbed in the industrialized world as the average corporate tax rate (the blue line) has plummeted.

This may not be as dramatic as what happened when Reagan reduced tax rates on investors, entrepreneurs, and other upper-income taxpayers in the 1980, but it’s still a very dramatic and powerful example of the Laffer Curve in action.

And even in the developing world, we see that revenues (red line) have stayed stable in spite of – or perhaps because of – huge reductions in average corporate tax rates (blue line).

These findings are not very surprising for those of us who have been arguing in favor of lower corporate tax rates.

But it’s astounding that the IMF published this data, especially as part of an article that is trying to promote higher tax burdens.

It’s as if a prosecutor in a major trial says a defendant is guilty and then spends most of the trial producing exculpatory evidence.

I have no idea how this managed to make its way through the editing process at the IMF. Wasn’t there an intern involved in the proofreading process, someone who could have warned, “Umm, guys, you’re actually giving Dan Mitchell some powerful data in favor of lower tax burdens”?

In any event, I look forward to repeatedly writing “even the IMF agrees” when pontificating in the future about the Laffer Curve and the benefits of lower corporate tax rates.

Winning Converts for Supply-Side Economics and the Laffer Curve, One City at a Time

Supply-side economics is simply the common-sense notion that people respond to incentives, though some folks think this elementary observation is “voodoo economics” or “trickle-down economics.”

If you want a wonkish definition of supply-side economics, it is the application of micro-economic principles. In other words, what does “price  theory” tell us about how people will respond when a tax goes up or down.

All of which can be illustrated using supply and demand curves, for those who prefer something visual.

None of this is controversial. Indeed, left-wing economists presumably will agree with everything I just wrote.

There is disagreement, however, about magnitude of supply-side responses. Do people respond a lot or a little when tax policy changes (using economic jargon, what are the “elasticities” of behavioral response)?

And even if there was a consensus on those magnitudes, that still wouldn’t imply agreement on the proper policy since people have different views on whether the goal should be more growth or more redistribution (what economist Arthur Okun referred to as the equality-efficiency tradeoff).

For what it’s worth, this is why there is a lot of fighting about the Laffer Curve. Every left-wing economist agrees with the underlying principle of the Laffer Curve (in other words, because people can change their behavior, nobody actually thinks there is a linear relationship between tax rates and tax revenue).

But economists don’t agree on the shape of the curve. Is the revenue-maximizing rate for the personal income tax 25 percent or 75 percent? And even if people somehow agreed on the shape of the curve, that doesn’t lead to agreement on the ideal tax rate because some statists want very high rates even if the result is less revenue. And people like me only care about the growth-maximizing tax rate.

I’m giving this background for the simple reason that the policy world is lagging the economics profession. And I’m not just referring to the Joint Economic Committee’s resistance to “dynamic scoring.” My bigger complaint is that a lot of politicians still act as if there is zero insight from supply-side economics and the Laffer Curve.

In hopes of rectifying this situation, I’ve been sharing examples of supply-side-motivated tax changes that have been adopted by leftists. In other words, tax changes that were adopted specifically to alter behavior.

Here’s the list of “successful” leftist tax hikes that have crossed my desk.

• The big drop in soda purchases after a tax on sugary drinks was imposed in Berkeley.
• The big drop in home sales after a tax was imposed in Vancouver on purchases by foreigners.
• The big drop in tobacco sales after a big increase in D.C.’s tobacco tax.
• The big drop in soda purchases after a tax was imposed in Philadelphia.
• The big drop in sales after a tax hike on expensive homes in the United Kingdom.
• The big drop in soda consumption after a tax was imposed in Mexico.

Now we have another example to add to my collection, this time from a tax on plastic bags in Chicago.

Just as predicted, there is revenue feedback because people change their behavior in response to changes in tax policy.

Chicago’s effort to keep plastic and paper bags out of area landfills by imposing a 7 cents-per-bag tax is succeeding beyond officials’ wildest dreams. The bad news is that the success of the fee in dissuading shoppers from taking single-use bags means the city’s coffers are taking a steep hit. Chicago officials balanced the city’s 2017 spending plan based on an assumption that the city would earn $9.2 million this year from the tax.

But receipts will fall far short of that goal.

The city has earned just $2.4 million in the five months the tax has been in effect, said Molly Poppe, a spokeswoman for the city’s Finance Department. If bag use continues at the current pace, that means the city would net just $7.7 million from the tax for the year. …the number of plastic and paper bags Chicagoans used to haul home their groceries dropped 42 percent in the first month after the tax was imposed.

Incidentally, the Mayor claims that the tax is a success because the real goal was discouraging plastic bags rather than raising revenue.

That’s certainly a very legitimate position, but note that his policy is based on supply-side economics: The more you tax of something, the less you get of it.

My frustration is that the politicians who say we need higher taxes to discourage bad things (smoking, sugar, plastic bags, etc) oftentimes are the same ones who say that higher taxes won’t discourage good things (work, saving, investment, entrepreneurship, etc).

Needless to say, this doesn’t make sense. They are either clueless or hypocritical. But maybe if I accumulate enough example of “successful” supply-side tax hikes, they’ll finally realize it’s not a good idea to punish productive behavior.

P.S. Check out the IRS data from the 1980s on what happened to tax revenue from the rich when Reagan dropped the top tax rate from 70 percent to 28 percent. I’ve used this information in plenty of debates and I’ve never run across a statist who has a good response.

P.P.S. Here’s my video with more evidence in favor of the Laffer Curve.

P.P.P.S. I also think this polling data from certified public accountants is very persuasive. I don’t know about you, but I suspect CPAs have a much better real-world understanding of the impact of tax policy than the bureaucrats at the Joint Committee on Taxation.

The World’s Demographic Crisis Is Actually a Policy Crisis

I will occasionally pontificate about a demographic crisis in the developed world, but I usually feel guilty afterwards. After all, how can it be a bad thing that we’re living longer? And what gives me the right to grouse about the number of children other families decide to have?

What I should be saying instead is that demographic changes are forcing us to recognize that we have a crisis of bad public policy. To be more specific, the entitlement state has become too large.

That’s the message I tried to get across in an interview earlier this week.

At the risk of oversimplification, I basically stated that there are two crises in the world.

The first crisis, based in the industrialized world, is that tax-and-transfer welfare states were created back when there were lots of workers and relatively few old people, and most people assumed that demographic profile would always exist.

But now that the “population pyramid” is becoming a “population cylinder” (I was talking faster than I was thinking in the interview and reversed the two concepts at one point), there aren’t going to be enough workers to finance all the redistribution programs, particularly the ones that funnel money to the elderly.

This is a big reason why nations such as Greece and Italy already are in deep trouble and why it’s just a matter of time before the fiscal crisis spreads to France and Japan (and the United States if we don’t enact genuine entitlement reform).

Here’s a table, based on World Bank data, showing the 20 jurisdictions with the lowest fertility rates. Which means, of course, the places with the fewest future taxpayers to finance redistribution.

The second crisis, based in the developing world, is that pervasive statism suffocates growth.

And while I largely agree with the late Julian Simon about people being a resource rather than liability, if a nation has a bloated and intrusive public sector that stifles the private sector, then a growing population can be a bad thing.

But it’s not the growing population that’s bad, it’s the statist policies. Here’s a list of the 20 counties with the highest fertility rates. The majority of them are ranked in the “least free” quartile according to Economic Freedom of the World. And none of them are in the “most free” quartile.

But the most important part of the interview, at least when thinking about problems in the industrialized world, is when I pointed out that nations such as Singapore don’t face a big problem.

Yes, Singapore has one of the lowest fertility rates in the world, but it also doesn’t have a pervasive tax-and-transfer welfare state. People are responsible for saving for their own retirement and healthcare. So the absence of future taxpayers isn’t a major challenge because the system doesn’t need to be propped up with tax revenue.

And the same thing is true in Hong Kong, another jurisdiction that is in good long-run shape even though the fertility rate is extremely low.

P.S. Given the demographic changes that are now occurring, many governments with big welfare states now recognize that they have a problem. Unfortunately, many of them think the solution is to artificially encourage more babies rather than entitlement reform.

In Just Six Minutes, Everything You Need to Know about Spending Caps

Back in April, I shared a new video from the Center for Freedom and Prosperity that explained how poor nations can become rich nations by following the recipe of small government and free markets.

Now CF&P has released another video. Narrated by Yamila Feccia from Argentina, it succinctly explains – using both theory and evidence – why spending caps are the most prudent and effective way of achieving good fiscal results.

Ms. Feccia covers all the important issues, but here are five points that are worth emphasizing.

1. Demographics – Almost all developed nations have major long-run fiscal problems because welfare states will implode because of aging populations and falling birthrates (Ponzi schemes need an ever-growing number of new people to stay afloat).
2. Golden Rule – If government spending grows slower than the private sector, that reduces the relative burden of government spending (the underlying disease) and also reduces red ink (the symptom of the underlying disease).
3. Success Stories – Simply stated, spending caps work. She lists the nations that have achieved very good results with multi-year periods of spending restraint. She points out that the U.S. made a lot of fiscal progress when GOPers aggressively fought Obama. And she shares the details about the very successful constitutional spending caps in Hong Kong and Switzerland.
4. Better than Balanced Budget Amendments or Anti-Deficit Rules – The video explains why policies that try to target red ink are not very effective, mostly because tax revenues are very volatile.
5. Even International Bureaucracies Agree – Remarkably, the International Monetary Fund (twice!), the European Central Bank, and the Organization for Economic Cooperation and Development (twice!) have acknowledged that spending caps are the most, if not only, effective fiscal rule.

I touch on some of these issues in one of my chapters in the Cato Handbook for Policymakers. The entire chapter is worth reading, in my humble opinion, but I want to share an excerpt echoing Point #4 that I just shared from Ms. Feccia’s video.

There’s a very practical reason to focus on capping long-run spending rather than trying to balance the budget every year. Simply stated, the “business cycle” makes the latter very difficult. …when a recession occurs and revenues drop, a balanced-budget mandate requires politicians to make dramatic changes at a time when they are especially reluctant to either raise taxes or impose spending restraint. Then, when the economy is enjoying strong growth and producing lots of tax revenue, a balanced-budget requirement doesn’t impose much restraint on spending. All of which creates an unfortunate cycle. Politicians spend a lot of money during the good years, creating expectations of more and more money for various interest groups. When a recession occurs, the politicians suddenly have to slam on the brakes. But even if they actually cut spending, it is rarely reduced to the level it was when the economy began its upswing. Moreover, politicians often raise taxes as part of these efforts to comply with anti-deficit rules. When the recession ends and revenues begin to rise again, the process starts over—this time from a higher base of spending and with a bigger tax burden. Over the long run, these cycles create a ratchet effect, with the burden of government spending always reaching new plateaus.

It’s not that I want to belabor this point, but the bottom line is that it is very difficult to amend a country’s constitution (at least in the United States, but presumably in other nations as well).

So if there’s going to be a major campaign to put a fiscal rule in a constitution, then I think it should be one that actually achieves the goal. And whether people want to address the economically important goal of spending restraint or the symbolically important goal of fiscal balance, what should matter is that a spending cap is the effective way of getting there.

P.S. The narrator is from the soccer-mad country of Argentina, which has a big rivalry with the soccer-mad nation of Brazil. Like most Americans, I don’t quite get the appeal of that sport. That being said, I will cheer for Brazil the next time it plays against Argentina for the simple reason that it just adopted a constitutional amendment to cap government spending. If Ms. Feccia wants me to cheer for her country’s team, she needs to convince her government to do something similar.

Elizabeth Warren other Rich Leftists Talk the Talk, but Don’t Walk the Walk

If you want to see a bunch of hypocritical leftists squirming with embarrassment, there’s a very clever video showing what happens when a bunch of pro-tax hike millionaires are asked to voluntarily pay more money to the IRS.

I’ve even debated some of these rich, pro-tax statists on TV, telling them not to make the rest of us victims of their neurotic guilt feelings.

They definitely don’t put their money where their mouths are. There is an official government webpage where people can voluntary send extra cash to Washington, but the amount of money raised doesn’t even qualify as an asterisk in the federal budget.

You probably won’t be surprised to learn that people elsewhere in the world also are not keen on the idea of deliberately giving politicians extra money to spend.

Bloomberg has a rather amusing story about the utter failure of a voluntary tax in Norway.

Eager to pay more taxes? Then look no further than Norway. …Launched in June, the initiative has received a lukewarm reception, with the equivalent of just $1,325 in extra revenue being collected so far, according to the Finance Ministry. That’s not much for a country of 5.3 million people… “The tax scheme was set up to allow those who want to pay more taxes to do so in a simple and straightforward way,” Finance Minister Siv Jensen said in an emailed comment. “If anyone thinks the tax level is too low, they now have the chance to pay more.” …Jonas Gahr Store, the wealthy Labor Party contender…, has so far refused to take up the government’s offer.

I’m not surprised that the ordinary people of Norway aren’t sending extra cash to their politicians.

After all, the country already has a costly welfare state financed by very high tax rates as well as lots of oil revenue. So why enable an even bigger burden of government?

But Mr. Store hardly seems a very ethical proponent of higher taxes if he’s not willing to lead by example.

Again, this is not very shocking. It’s a pattern among rich leftists.

The state of Massachusetts has a program for voluntary tax payments, but the Boston Globe revealed that Elizabeth Warren somehow couldn’t bring herself to cough up additional money to finance bigger government.

Elizabeth Warren acknowledged this morning that she does not pay a voluntary higher tax rate on her state income taxes, a question her campaign had previously refused to answer. …state Republicans have criticized Warren, who has earned a six-figure salary and owns assets worth millions, for her previous refusal to answer whether she pays a voluntary higher rate, calling her an “elitist hypocrite” who “lectures others about their responsibility to pay higher taxes.”

And John Kerry also decided that he wouldn’t pay extra tax to his state’s politicians.

Sen. John Kerry (D. Mass.) sailed into hot water last year when tax returns revealed that he also paid the Bay State’s lower tax rate. …perhaps he intended to pay Massachusetts’ higher rate, but his calculator slid off his yacht.

Though since Kerry uses tax havens to protect his wealth, and even keeps a yacht in a neighboring low-tax state, at least he’s consistent in his hypocrisy.

Though according to New England Public Radio, there are a few people in Massachusetts who actually do contribute extra money.

Lenox accountant William Keen said it’s his job to save his clients money, so he just assumes they want to pay their state income tax at 5.1 percent, and not the optional rate of 5.85 percent. “If somebody specifically asked to be set at the higher rate, I would do it,” Keen said Friday. “Nobody has ever even asked for that. It’s never even come up.” And very few taxpayers across Massachusetts do pay at that higher rate. According to the state Department of Revenue, on average since 2002, 1,200 people each year check the box on the tax form to voluntarily pay more. That’s contributed to just over a quarter million dollars to the state’s coffers each year — a drop in the bucket since Massachusetts has a budget of about $40 billion.

I think people who deliberately over-pay to government are very misguided, but it’s better to be naive than to be hypocritical. Like the Clintons. And Warren Buffett. Or any of the other rich leftists who want higher taxes for you and me while engaging in very aggressive tax avoidance.

Government Fraud: A Feature, not a Bug

Why does government waste so much money? In so many ways? With such reckless abandon?

I suppose I could answer with mockery and say it’s because they have lots of experience squandering our tax dollars.

But let’s seriously contemplate that question and explore one of the reasons for waste. Simply stated, government programs are a magnet for scammers.

Let’s look at three case studies.

Example #1: Fraud is an inherent part of the big entitlement programs. Kevin Williamson has some unseemly details in an article for National Review.

…you know where there’s a lot of waste, fraud, and abuse? Social Security, Medicare, and Medicaid. …Medicare and Medicaid together account for about $1 trillion in federal spending annually, and estimates suggest that $1 out of ever $10 of that spending is fraud. Some estimates go much higher. We do not have a very good idea of exactly how extensive fraud in the system is, because the federal government has put a fair amount of effort into not knowing.

And what does that mean? How does the government try not to know?

…the government’s approach long has been backward…investigators are asking whether a certain treatment was in fact appropriate for what ails Mrs. Jones, not whether Mrs. Jones exists.

In other words, bureaucrats basically accept all claims as legitimate and simply judges from afar whether the right medical service is provided for the listed ailment.

Even if the ailment is fictional. Or the patient is fake.

As one might imagine, that kind of sloppy approach, combined with programs that dispense hundreds of billions of dollars, is a magnet for professional crooks.

It’s the work of organized crime. As Sparrow points out, when there is a criminal case filed against one of these fraud artists, then billing in a particular category — some years ago, it was HIV fusion treatments — falls off steeply, by as much as 90 percent. The implication here is that fraudulent billing may make up the majority of Medicaid and Medicare spending in some categories. …organized-crime syndicates are being permitted to use our medical entitlements to loot the Treasury, and that not very much is being done about that, which suggests the possibility — only a possibility — that there is political collusion in this at some level.

By the way, Kevin may be on to something when he speculates about collusion.

We already know about examples of politicians intervening to protect fraudsters (who, conveniently, also happen to be campaign donors).

So is it really that much of a stretch to imagine them turning a blind eye (or worse) to industrial-level fraud by criminal enterprises?

Leads me to think this cartoon makes an unnecessary distinction.

Example #2: Welfare programs also are a magnet for fraud.

Here are excerpts from a recent news report.

Another six Lakewood, New Jersey couples were charged Wednesday with welfare fraud, bringing to 26 the number of people implicated since last week in the multimillion-dollar scandal. At the heart of the charges is the allegation that they all, in one way or another, failed to report or otherwise concealed significant income that would have made them ineligible for the assistance programs in which they enrolled. In total, state and federal prosecutors have said the families collected more than $2.4 million in benefits. …They allegedly obtained nearly $400,000 in Medicaid, food and heating benefits fraudulently. …Four other couples were arrested June 26 for allegedly defrauding public assistance programs of more than $1.3 million in benefits.

Welfare fraud must have been a major pastime for residents of the town.

Hundreds of these moochers are now trying to cover their tracks in hopes of avoiding legal trouble.

The specter of more charges has shaken Lakewood. Hundreds of residents have contacted authorities seeking amnesty or help avoiding arrest, the Asbury Park Press reported on June 29. In addition to the hundreds seeking amnesty, dozens more people have contacted social service agencies to cancel their benefits or declare income

Example #3: And nobody should be surprised to learn that there’s plenty of fraud at the Pentagon.

Here’s an example that seems very representative.

The former owners of a Pittsburgh-area military supplier have been accused of defrauding the U.S. government of more than $6 million in defense contract work. …Prosecutors allege the Buckners inflated the cost of the work by falsifying invoices to make it appear as though they had spent $70 per window frame for the materials when in fact they had paid just $20 each for frames manufactured in China. The brothers are also alleged to have sold scrap aluminum collected in the manufacturing process without crediting that money to TACOM. The losses to TACOM are placed at $6,085,709 by the DOJ.

But that’s just the tip of the iceberg.

In 2014, a defense contractor responsible for providing food and water to troops in Afghanistan pleaded guilty to over-charging the U.S. government to the tune of $48 million. This week, two San Diego defense contractors pleaded guilty in a scheme that defrauded the Navy out of at least $1.4 million by over-billing for supplies that the military never ordered, the San Diego Union-Tribune reported. Similar stories have cropped up in Florida, California, Maryland, North Carolina and elsewhere in recent years, renewing calls for systemic reforms.

Maybe the reason fraud is so pervasive is that penalties are trivial or nonexistent.

A 2011 DOD report found hundreds of defense contractors that defrauded the U.S. military subsequently went on to receive more than $1.1 trillion in new Pentagon contracts between 2000 and 2010.

Shouldn’t criminal companies be barred from subsequent contracts? Shouldn’t crooked company officials be sent to prison?

Or do these things not happen because the same folks are also campaign contributors?

I don’t know the answer to these questions, but surely something is amiss.  It’s almost as if government is simply a racket for the benefit of insiders.