The Two Hundred Billion Dollar Leak

Every year the federal government reports how much money it sent out in error. The number is not a secret. The agencies publish it, the Government Accountability Office compiles it, and almost nobody acts on it, because the number is so large it has stopped meaning anything to the people who could fix it.

The government’s own accounting puts improper payments at well over a hundred and fifty billion dollars a year, and in some recent years north of two hundred billion. Cumulatively, since it started measuring this around 2003, the total runs into the trillions. “Improper” does not all mean fraud. Some of it is paperwork, eligibility errors, payments that were probably fine but cannot be documented. But a large slice of it is exactly what it sounds like: money paid to people who were not entitled to it, including organized rings that treat federal benefits as a business model.

The pandemic made the scale impossible to ignore. The GAO has estimated that fraud in the emergency unemployment programs alone ran well past a hundred billion dollars, some of it shipped overseas to criminal groups filing claims in the names of the dead and the stolen. Closer to the ground, benefit-card skimming exploded, with thieves cloning the magnetic strips on EBT cards and draining the accounts of the exact poor families the program exists to serve. The response to that one tells you everything. The government kept issuing cards with 1970s magnetic-strip technology long after every bank had moved to chips, because upgrading was someone else’s problem and the losses fell on people with no lobby.

There is a lazy version of this complaint and a serious one. The lazy version says the existence of fraud proves the whole safety net is a scam and should be torn out. That is wrong, and it is also a tell that the speaker cares more about the politics than the money. The serious version is the opposite. If you actually believe in a safety net, the fraud should enrage you more than anyone, because every dollar a criminal ring drains is a dollar that did not reach someone who needed it, and every headline about stolen benefits chips away at the public support the whole thing depends on. A program that cannot protect its own funds is not generous. It is negligent, and the negligence lands hardest on the honest poor.

The defenders of the status quo have a reflex answer ready: improper does not mean fraud, the error rate is small as a percentage, you are stigmatizing the needy. Notice what that answer does. It treats a two hundred billion dollar leak as a rounding error because it is a small fraction of a gigantic budget, which is precisely the logic that lets the leak run forever. A small percentage of an enormous number is still an enormous number, and it is real money taken from real taxpayers and real beneficiaries by people who figured out that the system is built to pay first and ask never.

That last phrase is the heart of it, and it turns out to be bigger than welfare. I will come back to it.