When asked how they will fix the debt, many candidates may point to seemingly painless solutions such as reducing fraud, ending earmarks, or cutting foreign aid. The reality is that even aggressive strategies in all these areas would make only a small dent:
- Fraud is clearly a problem in government, but it’s neither large relative to the budget nor easy to fix. For example, total improper payments (a much broader category than fraud) in Medicare and Medicaid represent only about 9 percent of the cost of those programs – a ratio broadly similar to improper payments in other areas of the budget and the tax code. Moreover, most anti-fraud measures would recover only a small fraction of fraudulent payments, and sometimes at a steep price. The President’s budget includes a number of program integrity proposals, which on a combined basis would only save about $6 billion per year according to the Administration’s own estimates.
- Foreign aid represents a total of 0.7 percent of the budget, or 1 percent if military aid is included. That means fully eliminating foreign aid would save only $35 or $40 billion per year – a very small fraction of projected annual deficits.
- Earmarks have been outlawed in appropriations bills since 2010. When they did exist, they were estimated to be a very small percentage of spending, generally about 0.5 percent. Eliminating that amount of spending would save even less than eliminating foreign aid.
The fact that these changes won’t fix the debt does not mean policymakers should not pursue them. But it is important to recognize that while addressing these areas could be helpful, they are at best a small part of the solution.