oversight

Federal Budget: Opportunities for Oversight and Improved Use of Taxpayer Funds

Published by the Government Accountability Office on 2003-07-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          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
                          A
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                                                July 17, 2003


                                                FEDERAL BUDGET

                                                Opportunities for Oversight and Improved
Highlights of GAO-03-1030T, testimony           Use of Taxpayer Funds
before the Committee on Ways and
Means, House of Representatives




The hearing today deals with the                This testimony focuses on program reviews, oversight, and stewardship of
important congressional obligation              taxpayer funds in three tiers: (1) areas vulnerable to fraud, waste, abuse,
to exercise oversight over the use              and mismanagement. For example, payments made to ineligible recipients
of taxpayer funds, recognizing that             drain resources that could otherwise go to the intended beneficiaries of a
waste, fraud, abuse, and                        program. Everyone should be concerned about the diversion of resources
mismanagement are not victimless
activities. When resources are
                                                and subsequent undermining of program integrity. (2) improving the
diverted for inappropriate, illegal,            economy, efficiency and effectiveness of federal programs and activities to
inefficient, or ineffective purposes,           enhance and maintain government performance. (3) fundamental
both taxpayers and legitimate                   reassessment and reprioritization of government programs, policies &
                                                                                           st
program beneficiaries are cheated.              activities to meet the challenges of the 21 century, especially in light of the
Beyond preventing obvious abuse,                demographic tidal wave looming on our fiscal horizon.
government also has an obligation
to modernize its practices and                  Each of these tiers is relevant to the areas on which the Committee is
processes and fundamentally                     focusing attention as part of this hearing: Social security programs,
reexamine and reprioritize its                  Medicare, and tax compliance and preferences.
activities to meet the demands and
needs of today’s changing world.
                                                •   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
Tackling areas at risk for fraud,                   federal disability programs on its high-risk list in 2003 to focus attention
waste, abuse, and mismanagement                     on this multi-agency challenge. SSA needs also to ensure the integrity of
will require determination,                         its programs, and in particular should give continuing management
persistence, and sustained                          attention to problems in the SSI program.
attention by both agency managers               .
and Congressional committees. In
addition, there is a need to
                                                •   Medicare is one of the largest and most complex programs in the federal
fundamentally review and reassess,                  government, making it highly vulnerable to waste, fraud, abuse, and
the proper role of the federal                      mismanagement. GAO designated the Medicare program as a high-risk
government, how the government                      area in 1990, and the risk remains. Weaknesses in contractor
should do business in the future,                   performance and agency oversight increase the risks of improper
and—sometimes--who should do                        payments, and—along with difficulties in payment setting—lead to
the government’s business in the                    wasteful spending. Structural reform is also necessary given the
21st century. Periodic review of                    pressures of demographics and rising health care costs.
programs on the mandatory and
discretionary sides of the budget,              •   Ensuring that taxpayers meet their tax obligations under an increasingly
as well as tax preferences, can                     complex tax code has long presented the Internal Revenue Service (IRS)
prompt a healthy reassessment of
our priorities and of the changes
                                                    with daunting challenges. The potential revenue losses and the threat to
needed in program design,                           voluntary compliance make the collection of unpaid taxes a high-risk
resources and management to                         area. Congress and others have been concerned that declines in IRS’s
achieve results. Congressional                      enforcement programs are eroding taxpayers’ confidence in the fairness
support and oversight will be key.                  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
www.gao.gov/cgi-bin/getrpt?GAO-03-1030T.
                                                    and importance, they must be part of any comprehensive approach to
To view the full product, , click on the link       the challenges ahead.
above. For more information, contact Susan
J. Irving, (202) 512-9142, irvings@gao.gov.
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 preferences1—in the context of the 21st 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 spending2—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.


1                                                                                               GAO-03-1030T
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



                                                           2003

                                                           7%



                                                                  39%


                                                     54%




                               Discretionary                Mandatory                 Net interest




           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.


2                                                                                              GAO-03-1030T
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.




3                                                                              GAO-03-1030T
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 108th Congress, giving the status of high-
risk 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).


4                                                                                       GAO-03-1030T
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



5                                                                               GAO-03-1030T
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


6                                                                               GAO-03-1030T
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

         Percent of GDP
    50

    40

    30

    20

    10

     0
                  2000                   2015                   2030                    2050
                                                 Fiscal year
          Net interest      Social Security        Medicare & Medicaid           All other spending


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


7                                                                                           GAO-03-1030T
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 high-
risk 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.




8                                                                                               GAO-03-1030T
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).



9                                                                                GAO-03-1030T
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, GAO-
03-710T (Washington, D.C.: May 1, 2003).



10                                                                                           GAO-03-1030T
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).




11                                                                                  GAO-03-1030T
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).



12                                                                                          GAO-03-1030T
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).


13                                                                                     GAO-03-1030T
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.


14                                                                                 GAO-03-1030T
       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.



15                                                                                                GAO-03-1030T
     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).



16                                                                                               GAO-03-1030T
      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.


17                                                                                           GAO-03-1030T
       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).


18                                                                                      GAO-03-1030T
Figure 3: Medicare Is Projected to Grow Dramatically As A Share of GDP

      Percentage of GDP
     16
     14
     12
     10
     8
     6
                                                                                     SMI
     4
     2
                                                                                        HI
     0
      2000       2010       2020       2030        2040       2050        2060       2070


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.




19                                                                                           GAO-03-1030T
Figure 4: Out-of-Pocket Spending Has Declined Substantially Over The Last Four Decades




                  1962                         1982                    2002
                  6%                                                    5% 14%
                                               6%
            25%                                       22%            12%
                                             16%
                         46%                                   16%
                                       10%                                       37%
               23%                                    30%            16%
                                             16%



                  Out-of-Pocket                     Medicare          Other Public

                  Private Health Insurance          Medicaid          Other Private




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-for-
service 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 21st 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


20                                                                                       GAO-03-1030T
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




21                                                                              GAO-03-1030T
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.


22                                                                                           GAO-03-1030T
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




23                                                                             GAO-03-1030T
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.


24                                                                                        GAO-03-1030T
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 one-
half 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).



25                                                                                    GAO-03-1030T
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).



26                                                                                     GAO-03-1030T
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 levy40 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 million42 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).



27                                                                                             GAO-03-1030T
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).


28                                                                                          GAO-03-1030T
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



29                                                                               GAO-03-1030T
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.


30                                                                                           GAO-03-1030T
Table 2: 10 Largest Tax Preferences by Estimated Dollars Claimed in 2003
                              Dollars projected
                              for FY 2003
Provision                                         Description
                              (in billions of
                              dollars)
                                                  Certain employer contributions to pension plans are excluded from an employee's
Net exclusion of pension
                                                  gross income even though the employers can deduct the contributions. In addition,
contributions and earnings:          83.5
                                                  the tax on the investment income earned by the pension plan is deferred until the
Employer Plans
                                                  money is withdrawn.

Exclusion of employer                             Employer’s can deduct employer-paid health insurance premiums and other
contributions for medical                  (a)    medical expenses (including long-term care) as a business expense, but they are
                                    79.6
insurance premiums and                            not included in employee gross income. The self-employed may also deduct part
medical care                                      of their family health insurance premiums.
                                                  Owner-occupants of homes may deduct mortgage interest limited to interest on
Deductibility of mortgage                         debt no greater than the owner's basis in the residence; for debt incurred after
interest on owner-occupied           69.9         October 13, 1987, it is limited to no more than $1 million. Interest on up to
homes                                             $100,000 of other debt (less than market value of residence) secured by a lien on a
                                                  principal or second residence is also deductible.
                                                  Currently, the capital gains rate has been reduced from 20 percent to 15 percent
Capital gains (except
                                                  and from 10 percent to 5 percent for taxpayers in the 10 percent and 15 percent
agriculture, timber, iron
                                     55.3         marginal income tax bracket. The special tax rates (18 percent top rate, 8 percent
ore, and coal) (normal tax
                                                  for taxpayers in the 10 and 15 percent tax brackets) for assets held over 5 years
method)
                                                  have been removed.
Deductibility of
nonbusiness state and local
                                     50.9         Taxpayers may deduct state and local income and property taxes.
taxes other than on owner-
occupied homes
Depreciation of equipment
                                                  A tax expenditure provision that arises from the depreciation of machinery and
in excess of alternative             49.8
                                                  equipment in excess of the normal tax baseline.
depreciation system
                                                  Currently the cost basis for an appreciated asset is adjusted up to the market value
Step-up basis of capital                          at the owner's death. With the repeal of the estate tax for 2010, the basis for
                                     38.1
gains at death                                    property acquired from a decedent will be the lesser of market value or decedent's
                                                  basis.
Deductibility of charitable                       Taxpayers may deduct charitable, religious, and other non-profit contributions up
contributions, other than            34.2         to 50 percent of Adjusted Gross Income. Corporations' deductions are limited to
education and health                              10 percent of pre-tax income.
                                                  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
Earned Income Credit                34.1(b)       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.
                                                  Taxpayers with children under age 17 can qualify for a $600 refundable per child
Tax credit for children
                                     27.1         credit. The credit is phased out for taxpayers at the rate of $50 per $1,000 of
under age 17
                                                  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.



31                                                                                                       GAO-03-1030T
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).



32                                                                                        GAO-03-1030T
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.


33                                                                                       GAO-03-1030T
Figure 8: Relative Reliance on Policy Tools in the Health Care Budget Functions (FY
2003)




                                                              22%


                                                                          8%
                                            70%




      Tax Expenditures               Discretionary budget authority                      Mandatory outlays


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;


34                                                                                                    GAO-03-1030T
•    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 21st 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.



35                                                                              GAO-03-1030T
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.




36                                                                            GAO-03-1030T
                           Attachment I: GAO’s 2003 High-Risk List

                                                                               Year
                         2003 High-Risk Areas                                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               1997
    and the Nation’s Critical Infrastructures
• Implementing and Transforming the New Department of Homeland                   2003
    Security
• 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                     1994
    Programs
• 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.




37                                                                             GAO-03-1030T
          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.


38                                                                         GAO-03-1030T
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.




39                                                                          GAO-03-1030T
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/T-
HEHS-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.



40                                                                        GAO-03-1030T
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/RCED-
99-253. Washington, D.C.: September 30, 1999.

Tax Credits: Opportunities to Improve Oversight of the Low-Income Housing Program. GAO/T-
GGD/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.




41                                                                         GAO-03-1030T
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.



42                                                                         GAO-03-1030T
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/AIMD-
97-7. 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/HEHS-
96-142. 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/T-
GGD-00-178. Washington, D.C.: July 20, 2000.




43                                                                        GAO-03-1030T
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)



44                                                                        GAO-03-1030T
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