Hearing on the Use of Technology to Better Target Benefits and Eliminate Waste, Fraud, and Abuse

Comments for the Record

House Ways and Means Committee

Subcommittee on Human Resources

Hearing on the Use of Technology to Better Target Benefits  and Eliminate Waste, Fraud, and Abuse

Thursday, April 19, 2012, 10:00 AM

By Michael G. Bindner Center for Fiscal Equity

Chairman Davis and Ranking Member Doggett, thank you for the opportunity to submit comments on these issues. We will leave it to others to comment on the actual execution of data standardization goals and will instead focus on ways in which data standardization and welfare reform would be impacted by our tax and entitlement reform proposals. The Center for Fiscal Equity proposes a large ball solution with four major provisions, including a Value Added Tax, personal income surtaxes on the wealthiest families (to ensure period progressivity), employee contributions to Social Security and a VAT-like Net Business Receipts Tax (NBRT).

Of most concern to these proceedings is the NBRT, as it will include credits for an enhanced refundable Child Tax Credit to be paid to both workers and participants in adult education, unemployment insurance and other social welfare programs, all of which will be performed by both government, employers and the private sector (with or without government case management).

The NBRT is essentially a subtraction VAT with additional tax expenditures for family support, health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

The NBRT will fund services to families, including education at all levels, mental health care, disability benefits, Temporary Aid to Needy Families, Supplemental Nutrition Assistance, Medicare and Medicaid. If society acts compassionately to prisoners and shifts from punishment to treatment for mentally ill and addicted offenders, funding for these services would be from the NBRT rather than the VAT.

The expansion of the Child Tax Credit is what makes tax reform worthwhile. Adding it to the employer levy rather than retaining it under personal income taxes saves families the cost of going to a tax preparer to fully take advantage of the credit and allows the credit to be distributed throughout the year with payroll.

The only tax reconciliation required would be for the employer to send each beneficiary a statement of how much tax was paid, which would be shared with the government. The government would then transmit this information to each recipient family with the instruction to notify the IRS if their employer short-changes them. This also helps prevent payments to non-existent payees. Current data standardization efforts will assist this reform.

The NBRT could also be used to shift governmental spending from public agencies to private providers without any involvement by the government – especially if the several states adopted an identical tax structure. Either employers as donors or workers as recipients could designate that revenues that would otherwise be collected for public schools would instead fund the public or private school of their choice. Private mental health providers could be preferred on the same basis over public mental health institutions. This is a feature that is impossible with the FairTax or a VAT alone.

Literacy training for both parents should replace TANF, ending the need for such a large child welfare bureaucracy. The restriction on benefits to intact families must be abolished. Furthermore, compensation for this training should be as rewarding as work, so participation should be compensated at the minimum wage.

In addition to the wage, participants should also receive the same Child Tax Credit as those who work, as well as the same level of health insurance, which could be offered to them as if they were employees of the education provider – thus ending the second class care they receive through the Medicaid program, as well as the need to pay benefits through large, yet underfunded, social welfare bureaucracies at the state level. Public housing should be replaced with residential training programs for both parents and children. Keeping case management with the training provider also lessens the likelihood of fraud because of multiple data systems.

Shifting from publicly funded services to private ones, sometimes without any governmental case management or contracting (beyond assuring accreditation) makes standardization both more and less important – as there may well come a day when there is no governmental performance of these services, making the question moot in the public sector. Should this occur, any standards would be industry based ANSI standards rather than governmental.

The extent to which services are provided by employers and public charities with funding by business taxpayers is the extent to which waste, fraud and abuse is lessened – especially if benefits are tied to a training requirement. Indeed, if Unemployment Insurance is run like a severance pay arrangement, but with continued payments and remedial training administered by the former company in lieu of paying the NBRT (or even for a refundable credit), the likelihood of fraud is decreased as former employers are more likely to pay attention to whether employees are ripping them off by both working and collecting benefits. If the firing company also provides paid training experiences to former employees, there is less likelihood of fraud as well.

Thank you again for the opportunity to present our comments. We are always available to members, staff and the general public to discuss these issues.