The debate over expanded unemployment benefits has proven particularly fractious, given that the $2 trillion CARES Act Congress passed in March set up a broken economic system where nearly 70 percent of the unemployed can get paid more in benefits while staying home than they would make by going back to work. Yet as important as the ramifications of this distorted big government labor policy are, one largely overlooked consequence of the massive expansion of unemployment is skyrocketing fraud and abuse.
A new report from the fiscally conservative Foundation for Government Accountability exposes the stunning extent to which fraud has corrupted the hastily-crafted unemployment expansion. FGA Senior Research Fellow Josh Waters found that fraud will consume more taxpayer dollars under this expansion than the entire unemployment program paid out in 2019.
Improper #unemployment payments (fraud) from CARES Act = Total amount of unemployment benefits in 2019.
— The FGA (@TheFGA) July 23, 2020
Remember that the unemployment system was already very wasteful before COVID-19, with roughly 10 percent of payments being made in error in 2019. Waters explains that even generously assuming this fraud rate remains constant—it will likely be worse this year due to system overload and COVID-19 chaos—his calculations show a whopping $26 billion will be lost to fraud as a result of this expansion.
“As states try to respond to the historic increase in claims due to shutdowns and layoffs, the $600 bonus payments are making it very lucrative for fraudsters who know many states probably lack the staffing and resources to combat fraud while the systems are overloaded with an unprecedented amount of claims,” Waters writes.
The FGA report documents how this fraud is playing out at the state level:
- Mississippi is estimated to have paid out at least $76 million in improper payments so far, and the governor warns the state has been “attacked with false claims”
- Washington State was hit by Nigerian scammers and is estimated to have paid out at least $650 million improperly
- Oklahoma already reports 65,000 fraudulent unemployment claims and has likely paid out tens of millions improperly
- Arizona estimates that its fraud rate has doubled since the expansion and that nearly 10 percent of benefits being paid out are fraudulent