It’s NOT a ruse: Tax Cuts COULD be Financed by Cutting Government Waste

It’s NOT a ruse: Tax Cuts COULD be Financed by Cutting Government Waste

Posted by Adam Kazda on 04/12/2017

Restore AccountabilityIn a recent opinion piece bashing the GOP’s failed attempt to fix Obamacare and its impact on plans to reform the tax code, the author confidently makes the claim that $600 billion in spending cuts could not come from government waste alone. Instead, he suggests money to offset tax cuts would have to come from entitlement programs like Social Security and Medicare.

While Congress will need to address the shortcomings of Medicare and Social Security in the near future and there are plenty of ways to keep tax reform deficit neutral by closing tax loopholes, it is important to test this underlying claim: Is it possible to identify $600 billion in waste?  

First, the largest discretionary budget item is defense, where a lack of accountable spending is weakening our ability to protect the nation.

DefenseUnable to pass an audit for over two decades, wasteful spending at the Pentagon has spun out-of-control. The American public should know where about $0.20 of every dollar they pay in taxes goes, and Congress should require the Department of Defense to submit one ASAP. Some reports suggest that by just auditing the Pentagon, it would realize savings of over $25 billion through improved financial management.

Furthermore, the Defense Business Board (DBB) recently identified a “clear path to saving over $125 billion in the next five years,” at the Pentagon. According to the Washington Post, “The plan would not have required layoffs of civil servants or reductions in military personnel. Instead, it would have streamlined the bureaucracy through attrition and early retirements, curtailed high-priced contractors and made better use of information technology.”

Where is Pvt. Waldo?Another relatively easy reform are the positions within the Pentagon that include support, supply, transportation, communications, morale, welfare, and recreation support. Currently, about 400,000 active duty service members serve in these types of commercial roles, costing taxpayers $54 billion every year. The DBB calls this a “poor use of our most expensive personnel – active duty military.” If just one-third of active duty military in commercial roles were replaced with civilians, it would save $53 billion over ten years.

Finally, non-military research and development that has little or nothing to do with national defense now totals $6 billion. Some would say non-military research should be done elsewhere. Refreshingly efficient!

If you thought the Department of Defense was uniquely inefficient you would be wrong. In fact, most of the federal government cannot figure out who gets paid and who does not!

For example, last March, the Government Accountability Office (GAO) released a report that uncovered over $125 billion in improper just one year. According to the report, “the estimated improper payments for fiscal year 2014 were attributable to 124 programs spread among 22 agencies.” The major drivers of improper payments are consistently three programs: Medicare, Medicaid, and the Earned Income Tax Credit.

By implementing GAO’s recommendations, these agencies and programs could save taxpayers billions. In addition, a portion of these payments are even paid to dead people.

Last year Medicaid paid out an estimated $29 billion in fraudulent claims including payments to recipients who were identified as deceased in federal death files, had invalid addresses, were excluded from federal healthcare programs, or were providers that had suspended or revoked medical licenses.

Taxes Due Moving on to more hot topics in the news, tremendous savings can be found by tackling the waste, fraud and abuse within our tax system. The IRS estimates the tax gap (the difference between taxes paid and taxes owed) is $406 billion on average, every year. Suggesting that it would be simple to collect this $406 billion would be hyperbole, and closing the gap completely would be virtually impossible. However, if the IRS closed just a quarter of the gap, it would yield $100 billion in savings. GAO has a plethora of reports to make the IRS more effective and efficient in collecting taxes, though very few reforms have been implemented.

In addition, while the tax code needs to be simplified, Congress also needs to get rid of egregious giveaways to the connected few. One blockbuster tax break is the Hollywood Tax Credit, which basically gives Hollywood movie producers money for shooting their movies in the United States. Eliminating this tax credit would save Americans $7 billion.

Tax reform has hundreds of billions of opportunities to root out waste, fraud and abuse, but since savings in this piece already total $470 billion, addressing another hot topic like infrastructure could be beneficial.

Originally, the Federal Highway Administration only funded interstate transportation projects, but its scope is much broader now and includes funding for beautification projects like transportation museums, bike paths and projects that are entirely local in nature. In fact, from fiscal year 2004 through 2008, four agencies within the Department of Transportation obligated about $78 billion in Highway Trust Fund monies for “purposes other than construction and maintenance of highways and bridges.”

Trouble AheadCall it delusional, but when a society of civil engineers gives your roads a D grade and your country continues to spend infrastructure dollars on museums, it is probably time to redirect that money to help people actually get to those museums.

Additionally, there is almost $6 billion in highway earmarks that remain unspent. Of that $6 billion, $2 billion worth have reached “orphan status,” meaning that less than 10 percent of an earmark’s funding has been spent after 10 years. These pet projects that have gone on for over 10 years without more than 10 percent of their funding spent, should be curbed.

Moving on to the more technological aspects of the federal government, federal agencies spend around $80 billion on IT every year. However, most of that money goes to “operating and maintaining existing (legacy) IT systems.” According to a recent report, “from FY 2010 to FY 2017, estimated government-wide [IT] operations and maintenance (O&M) costs have risen steadily from $55 billion to $63.1 billion, a $8.1 billion increase.” Recommendations from GAO could save taxpayers from spending billions on maintaining outdated systems, and at the same time increase efficiency and security.

Senator Tom CoburnFinally, this list would be incomplete without including the $92 billion in government waste former Senator Tom Coburn and his staff uncovered in his series of the “Wastebooks.” Dating back to 2008, Senator Coburn uncovered almost $100 billion in government waste including the infamous shrimp on a treadmill, beachfront boondoggle, (federal workers) paid to do nothing, and “Let Me Google That For You.” The list goes on and on.

That puts us well over $600 billion in relatively easy fashion.

None of this is to say that reducing waste should be used to fund tax cuts. For the sake of future generations, Congress should be focused on reducing our deficits that will soon eclipse $1 trillion annually. But dismissing the fact that government waste is prevalent and fixable lets federal agencies and Congress off the hook. Moreso, pretending that our federal government spends $4 trillions at peak efficiency would be the real ruse.  

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Adam KazdaAdam Kazda
Digital Content Creator
Adam joined Restore Accountability in 2016 and manages the Foundation's day to day creative operations. Previously, he spent two years on Capitol Hill working for Senator Tom Coburn and Senator Jeff Flake...FULL BIO