GAO

United States General Accounting Office

A

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
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This testimony focuses on program reviews, oversight, and stewardship of 

taxpayer funds in three tiers: (1) areas vulnerable to fraud, waste, abuse, 

and mismanagement. For example, payments made to ineligible recipients 

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. (2) improving the 

economy, efficiency and effectiveness of federal programs and activities to 

enhance and maintain government performance. (3) fundamental 

reassessment and reprioritization of government programs, policies & 

activities to meet the challenges of the 21st century, especially in light of the 

demographic tidal wave looming on our fiscal horizon. 

 

Each of these tiers is relevant to the areas on which the Committee is 

focusing attention as part of this hearing: Social security programs, 

Medicare, and tax compliance and preferences. 

• 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 

federal disability programs on its high-risk list in 2003 to focus attention 

on this multi-agency challenge. SSA needs also to ensure the integrity of 

its programs, and in particular should give continuing management 

attention to problems in the SSI program. 

. 

• Medicare is one of the largest and most complex programs in the federal 

government, making it highly vulnerable to waste, fraud, abuse, and 

mismanagement. GAO designated the Medicare program as a high-risk 

area in 1990, and the risk remains. Weaknesses in contractor 

performance and agency oversight increase the risks of improper 

payments, and—along with difficulties in payment setting—lead to 

wasteful spending. Structural reform is also necessary given the 

pressures of demographics and rising health care costs. 

• Ensuring that taxpayers meet their tax obligations under an increasingly 

complex tax code has long presented the Internal Revenue Service (IRS) 

with daunting challenges. The potential revenue losses and the threat to 

voluntary compliance make the collection of unpaid taxes a high-risk 

area. Congress and others have been concerned that declines in IRS’s 

enforcement programs are eroding taxpayers’ confidence in the fairness 

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 

and importance, they must be part of any comprehensive approach to 

the challenges ahead. 

The hearing today deals with the 

important congressional obligation 

to exercise oversight over the use 

of taxpayer funds, recognizing that 

waste, fraud, abuse, and 

mismanagement are not victimless 

activities. When resources are 

diverted for inappropriate, illegal, 

inefficient, or ineffective purposes, 

both taxpayers and legitimate 

program beneficiaries are cheated. 

Beyond preventing obvious abuse, 

government also has an obligation 

to modernize its practices and 

processes and fundamentally 

reexamine and reprioritize its 

activities to meet the demands and 

needs of today’s changing world. 

Tackling areas at risk for fraud, 

waste, abuse, and mismanagement 

will require determination, 

persistence, and sustained 

attention by both agency managers 

and Congressional committees. In 

addition, there is a need to 

fundamentally review and reassess, 

the proper role of the federal 

government, how the government 

should do business in the future, 

and—sometimes--who should do 

the government’s business in the 

21st century. Periodic review of 

programs on the mandatory and 

discretionary sides of the budget, 

as well as tax preferences, can 

prompt a healthy reassessment of 

our priorities and of the changes 

needed in program design, 

resources and management to 

achieve results. Congressional 

support and oversight will be key. 

www.gao.gov/cgi-bin/getrpt?GAO-03-1030T.

To view the full product, , click on the link 

above. For more information, contact Susan 

J. Irving, (202) 512-9142, irvings@gao.gov. 

Highlights of GAO-03-1030T, testimony 

before the Committee on Ways and 

Means, House of Representatives 

July 17, 2003 

FEDERAL BUDGET 

Opportunities for Oversight and Improved 

Use of Taxpayer Funds 
1 GAO-03-1030T 

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. 
2 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 

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. 

2003

54%

39%

7%

Discretionary Mandatory Net interest
3 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. 
4 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 highrisk 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). 
5 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 
6 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 
7 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 

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 

0

10

20

30

40

50

2000 2015 2030 2050

Fiscal year

Percent of GDP

Net interest Social Security Medicare & Medicaid All other spending
8 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 highrisk 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. 
9 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). 
10 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, GAO03-710T (Washington, D.C.: May 1, 2003). 
11 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).
12 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). 
13 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). 
14 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. 
15 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. 
16 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). 
17 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. 
18 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). 
19 GAO-03-1030T 

Figure 3: Medicare Is Projected to Grow Dramatically As A Share of GDP 

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. 

0

2

4

6

8

10

12

14

16

2000 2010 2020 2030 2040 2050 2060 2070

Percentage of GDP

SMI

HI
20 GAO-03-1030T 

Figure 4: Out-of-Pocket Spending Has Declined Substantially Over The Last Four Decades 

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-forservice 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 

6%

23%

46%

25%

6%

10%

30%

22% 16%

16%

5%

16%

37%

14%

12%

16%

1962 1982 2002

Out-of-Pocket

Private Health Insurance Medicaid

Medicare Other Public

Other Private
21 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 
22 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. 
23 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 
24 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 

 

34Department 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. 
25 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 onehalf 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).
26 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). 
27 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). 
28 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). 
29 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 
30 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. 
31 GAO-03-1030T 

Table 2: 10 Largest Tax Preferences by Estimated Dollars Claimed in 2003 

Provision 

Dollars projected 

for FY 2003 

(in billions of 

dollars) 

Description 

Net exclusion of pension 

contributions and earnings: 

Employer Plans 

83.5 

Certain employer contributions to pension plans are excluded from an employee's 

gross income even though the employers can deduct the contributions. In addition, 

the tax on the investment income earned by the pension plan is deferred until the 

money is withdrawn. 

Exclusion of employer 

contributions for medical 

insurance premiums and 

medical care 

79.6 (a)

Employer’s can deduct employer-paid health insurance premiums and other 

medical expenses (including long-term care) as a business expense, but they are 

not included in employee gross income. The self-employed may also deduct part 

of their family health insurance premiums. 

Deductibility of mortgage 

interest on owner-occupied 

homes 

69.9 

Owner-occupants of homes may deduct mortgage interest limited to interest on 

debt no greater than the owner's basis in the residence; for debt incurred after 

October 13, 1987, it is limited to no more than $1 million. Interest on up to 

$100,000 of other debt (less than market value of residence) secured by a lien on a 

principal or second residence is also deductible. 

Capital gains (except 

agriculture, timber, iron 

ore, and coal) (normal tax 

method) 

55.3 

Currently, the capital gains rate has been reduced from 20 percent to 15 percent 

and from 10 percent to 5 percent for taxpayers in the 10 percent and 15 percent 

marginal income tax bracket. The special tax rates (18 percent top rate, 8 percent 

for taxpayers in the 10 and 15 percent tax brackets) for assets held over 5 years 

have been removed. 

Deductibility of 

nonbusiness state and local 

taxes other than on owneroccupied homes 

50.9 Taxpayers may deduct state and local income and property taxes. 

Depreciation of equipment 

in excess of alternative 

depreciation system 

49.8 A tax expenditure provision that arises from the depreciation of machinery and 

equipment in excess of the normal tax baseline. 

Step-up basis of capital 

gains at death 38.1 

Currently the cost basis for an appreciated asset is adjusted up to the market value 

at the owner's death. With the repeal of the estate tax for 2010, the basis for 

property acquired from a decedent will be the lesser of market value or decedent's 

basis. 

Deductibility of charitable 

contributions, other than 

education and health 

34.2 

Taxpayers may deduct charitable, religious, and other non-profit contributions up 

to 50 percent of Adjusted Gross Income. Corporations' deductions are limited to 

10 percent of pre-tax income. 

Earned Income Credit 34.1(b)

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 

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. 

Tax credit for children 

under age 17 27.1 

Taxpayers with children under age 17 can qualify for a $600 refundable per child 

credit. The credit is phased out for taxpayers at the rate of $50 per $1,000 of 

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. 
32 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). 
33 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. 
34 GAO-03-1030T 

Figure 8: Relative Reliance on Policy Tools in the Health Care Budget Functions (FY 

2003) 

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; 

22%

8%

70%

Tax Expenditures Discretionary budget authority Mandatory outlays
35 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. 
36 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. 
37 GAO-03-1030T 

Attachment I: GAO’s 2003 High-Risk List 

2003 High-Risk Areas 

Year 

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 

and the Nation’s Critical Infrastructures 

1997 

• Implementing and Transforming the New Department of Homeland 

Security 

2003 

• 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 

Programs 

1994 

• 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. 
38 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. 
39 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. 
40 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/THEHS-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. 
41 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/RCED99-253. Washington, D.C.: September 30, 1999. 

Tax Credits: Opportunities to Improve Oversight of the Low-Income Housing Program. GAO/TGGD/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. 
42 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. 
43 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/AIMD97-7. 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/HEHS96-142. 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/TGGD-00-178. Washington, D.C.: July 20, 2000. 
44 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) 
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