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Not CARING about fraud

As the global pandemic mushroomed in the United States in late March, a well-intentioned Congress passed the massive relief package known as the CARES Act. With infection rates now stabilized, Congress has time for a sober look at the unintended consequences of the CARES Act and to avoid further aggravating an already-difficult situation for workers.

The CARES Act includes unprecedented increases in the unemployment insurance (UI) program. It adds a federally funded $600 weekly bonus—more than 20 times the bonus paid in the 2009 stimulus law—to normal state unemployment benefits.

It also bypasses most of the safeguards in UI programs that had targeted benefits toward workers who had been laid off from regular jobs.

People with little work experience or who quit are now eligible, and the federal government pays the entire benefit amount.

These parts of the CARES act put state governments, who process even the UI applications for federal money, in a classic situation of “spending other people’s money.” A state scrutinizing a claim uses up administrative resources and risks irking a legitimate claimant who is also a voter. It’s easier to just ignore the problem and let the federal government pick up the tab.

States have little financial incentive to ensure that claims are legitimate, and the Department of Labor’s inspector general has found that states are not doing enough to prevent and detect fraud. The inspector general also believes that the CARES Act is making the problem worse.

Meanwhile, with many more dollars being paid and expanded eligibility, fraudsters have supercharged incentives to tap into the program. They are doing exactly that, especially by using stolen identities to make fraudulent claims in multiple states. Organized criminal groups also create “fictitious employers to establish fraudulent work histories,” finds the inspector general. The U.S. Secret Service found one international crime ring stealing hundreds of millions of dollars from the programs. The criminal groups are also leveraging what they previously learned about stealing income tax refunds.

Congress might have anticipated what would happen when states administered the new federal bonus. It has long funded other programs, such as food stamps (i.e., SNAP) and Medicaid, that are also administered by states and have serious improper payment problems. One study found that in New York City and Los Angeles, Medicaid fraud was so rampant that “it suggests purposeful and fraudulent abuse on the part of local officials and the medical industry.” Fraud has also been found in food stamps, especially in New York state, although at a lesser rate than Medicaid, where there are so many more dollars being spent.

Taxpayers are not the only victims of improper payments. Some of the unemployed “submit a UI claim only to learn that an identity thief has already filed a fraudulent claim on their behalf.” The congestion in the state employment systems, worsened by the CARES Act, also makes it difficult for laid off workers in genuine need of the unemployment assistance. A national survey conducted in mid-April found that “millions of the newly jobless are going without benefits as the unemployment system buckles under the weight of new claims.”

America already had an unemployment system for people laid off from their jobs. It could have benefited from some updates for the global pandemic that put tens of millions of people out of work.

But the CARES Act went so far beyond the legislation of prior crises that it has unnecessarily cultivated fraud and frustrated people in need.

Original: NEWSWEEK – Casey B. Mulligan, professor of economics at the University of Chicago, served as chief economist of the White House Council of Economic Advisers from 2018 to 2019.