A legislative proposal from House Republicans to give states incentives for recouping fraudulent unemployment insurance payments would reduce the federal deficit by shifting program monitoring to the state level, but the benefits of doing so may be hard to quantify according to a cost estimate from the Congressional Budget Office (CBO).
On February 24, House Ways and Means Chair Jason Smith of Missouri, alongside fellow Republican representatives, introduced the Protecting Taxpayers and Victims of Unemployment Fraud Act (HR 1163). In the bill’s one-pager, Smith cited testimony by the Department of Labor Inspector General, which told Ways and Means that improper unemployment insurance (UI) payments from COVID-19 pandemic programs totaled $191 billion. Smith then, as also stated in an accompanying press release, projected that the figure could be as high as $400 billion.
“Unemployment insurance theft has put American families in a terrible position, and taxpayers expect Congress to go after and recover every single possible dollar that was stolen by criminals and international crime rings,” said Smith. “This bill will recover stolen taxpayer money, help states ensure this scale of fraud never happens again, and help bring to justice those who committed these crimes.”
The bill would allow states to keep and spend 25% of recovered UI overpayments attributable temporary pandemic programs, such as the Pandemic Unemployment Assistance (PUA) program, Pandemic Emergency Unemployment Compensation (PEUC), Federal Pandemic Unemployment Compensation (FPUC), and Mixed Earners Unemployment Compensation. Additionally, states would permanently be allowed to spend 5% of regular and extended UI overpayments.
In scoring HR 1163, the CBO pulled DOL data, which found that states have identified about $3 billion in fraudulent overpayments for PUA, FPUC, and PEUC by the end of fiscal year 2022, of which $130 million has been recovered.
“Using that information and the recovery of similar overpayments of temporary unemployment benefits paid from 2008 through 2013, CBO estimates that roughly $100 million will be recovered between 2024 and 2031 and that states would keep (and spend) about $23 million (or 25 percent) of the amounts recovered over the 2023-2033 period.”
States would be required to match UI claimant information as part of undertaking some program integrity initiatives, since the bill repeals federal funding for such programs provided by the American Rescue Plan Act of 2021. The CBO noted that the definition of fraud under the regular UI program can vary from state to state.
Overall, the CBO estimates that the bill would increase revenues by $80 million from the period 2023-2033, as well as decrease direct spending by $293 million. However, it stated there are areas of “significant uncertainty” with its projections. For instance, states are still in the process of determining overpayment amounts, and how much was due to fraud. “Additional investigations would be necessary to establish that payments were the result of fraud, and then further effort to recover any of those amounts,” the report read. “Ultimately, recoveries from those programs are likely to be a small percentage of total suspected fraud.”
The CBO also pointed out that because pandemic-related UI benefits were “substantially larger” than regular UI benefits and paid out over a short time, states may not be able to recover COVID payments using the same methodologies for regular payments. “Therefore, the proportion of such amounts established and recovered would be significantly lower than recoveries of regular UI benefits, but the magnitude of that difference is uncertain,” according to the cost estimate.
Nick Gwyn of the Center on Budget and Policy Priorities in a February 27 blog post warned that the Protecting Taxpayers and Victims of Unemployment Fraud Act may actually “hamper” anti-UI fraud efforts by delegating more to states and repealing federal funding.
“This is particularly misguided given that federal funding for UI agency staffing, technology and other administrative needs declined by 32 percent from fiscal years 2010 to 2019 (after adjusting for inflation)—a significant factor in the disrepair of UI systems around the country—according to a September 2022 Government Accountability Office report,” read the CBPP post.
On March 23, the IRS provided an update on broader COVID-related fraud cases three years after the passage of the first major pandemic relief legislative package, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Across the 975 tax and money laundering cases examined by IRS Criminal Investigation, a total $3.2 billion fraudulent COVID payments were involved. 458 individuals have been indicted, 236 of which were sentenced to an average of 37 months in federal prison. IRS-CI boasted its 100% conviction rate in prosecuted cases.
“IRS-CI is proud to lead the fight against COVID-related fraud. While COVID illnesses no longer lead the nightly news, the effects from the disease and the fraud perpetrated on the various COVID-related relief programs have not left our sights,” said IRS-CI Chief Jim Lee.
Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.
