Pandemic Unemployment Fraud and Improper Payments Were Worse Than We Thought: Does Anyone Care?

While the media was extensively covering the debate between presidential candidates Kamala Harris and Donald Trump, there was a government report that caught my eye. Entitled Examining Widespread Fraud in Pandemic Unemployment Relief Programs, this report from the majority staff on the U.S. House Committee on Oversight and Accountability covered some disturbing trends regarding the pandemic-era unemployment benefits:

The percentage of fraudulent payments was in the double digits. This report puts the figure anywhere between $100 billion to around $191 billion. In percentages, that would be anywhere from 11 percent to 21 percent. For context, when I covered this topic in February 2023, the Government Accountability Office (GAO) estimated that it was about 6 percent. 

69 percent of workers received benefits that exceeded their salary and non-salary benefits. To put this in layman's terms, most recipients were paid more to not work than they were to work. I expressed my concerns in April 2020 that this would cause considerable problems, including exacerbated unemployment. It turns out that I was right. In September 2023, I covered how these benefits disincentivized people to look for work. Intuitively, it makes sense. Why look for work when you are being paid more to not work?

It is not only that there was fraud, but why the fraud was so rampant. The reasons outlined in this report were multiple, including staffing shortages, outdated IT systems, the high number of claims, and not requiring applicants to provide proof of prior employment or wages. This resulted in criminal organizations taking billions of taxpayer dollars to line their own pockets because it was that easy to defraud the U.S. government. 

What ultimately shocks me is that the government can make upwards of nearly $200 billion in fraudulent payments and no one is held accountable. If someone in the private sector had carried out a comparable level of fraud à la Enron, they would have been prosecuted and would have gone out of business. When the government does it, what is the punishment? A slap on the wrist. The government did not hold Fauci accountable for his subpar recommendations, whether that was the social distancing at six feet, school closures, lockdowns, vaccine mandates, or his obnoxious flip-flop on face masks. This is such a disservice to taxpayers. 

It is not like there are not solutions to the problem. The Oversight Committee report outlines in Section VI of their report. The GAO published a report covering recommendations last month, as does a report from the Right-leaning American Enterprise Institute released in January 2024. The problem here is our lack of accountability. We cannot look at nearly $200 billion in fraud and think it is nothing. It is that mentality that has resulted in climbing debt and having the United States' credit rating continuously downgraded. 

There are a lot of values that American society has lost sight of, but government spending and oversight thereof is certainly one of those things. It is certainly clear in a presidential race in which neither candidate is interested in restraining government spending or holding anyone accountable for the havoc that the government wreaked on the American people during the pandemic. We cannot be half-awake at the wheel of a car that is headed towards going off the cliff of insolvency. If we do not wake up (obviously, not in the destructive Far Left, woke sense) and get a hold of that wheel, we will find what was once a shining city on a hill become a hellhole that is nothing more than a shell of its former self. 

I Wish Kamala Harris Would Realize How Ridiculous an Unrealized Capital Gains Tax Is

As current Vice President Kamala Harris has gotten her campaign underway, she made her policy stances more clear. I have already criticized a few of them, including excluding tips from taxation, price controls on groceries, a corporate tax hike, and down-payment assistance for first-time house-buyers. From the looks of it, the Harris campaign is embracing the tax hike proposals from Biden's 2025 budget, including a minimum tax on unrealized capital gains. 

As Investopedia brings up, an unrealized capital gain is a theoretical profit that exists on paper, but has not been actualized because the investment has yet to be sold for cash. The unrealized gain does not affect taxation because the investment has not been sold. Once sold, the gain is realized. Harris would like for those with a net wealth above $100 million to pay a minimum tax on their unrealized capital gains on such assets as stocks, bonds, and privately held companies. While lower than Biden's proposed 39.6 percent, Harris is still proposing a 25 percent on unrealized gains. 

The bipartisan Committee for a Responsible Federal Budget (CRFB) estimates that this tax would bring in $500 billion over the next decade. Even if that is accurate, the minimum tax would be an unstable source of revenue. As the Right-leaning Tax Foundation points out, much of the revenue in the first decade is from taxing previously accumulated tax gains. Afterwards, the revenue moving forward will be smaller. Plus, stock market and macroeconomic performance will make the tax collection more volatile. 

Another aspect of the unintended consequences would be that this tax would add burden onto taxpayers while complicating administrative burden. Why? To comply, the taxpayer would have to calculate to see if their net wealth exceeds $100 million. They would then have to calculate their effective tax rate. If it is below 25 percent, they would have to pay additional to make sure their effective tax rate is 25 percent. See the Tax Foundation's chart below to see how complicated this calculation can get. If she were going to be consistent, Harris would implement a tax refund for unrealized losses, which would create even more complications.

This additional compliance would not only affect those with net wealth over $100 million because those with net wealth below, but closer to, $100 million would also have to file to show that they would not owe the IRS on the unrealized capital gains tax. To quote the Tax Foundation, "Changing the definition of taxable income to include unrealized capital gains presents significant administrative challenges, including how to value non-tradable assets and how to treat illiquid taxpayers who may have paper gains but lack cash on hand to pay their minimum tax bill."

Not only does this create a greater compliance burden for taxpayers, but the already-overwhelmed Internal Revenue Service (IRS) would have to create a new wealth reporting system to make sure that taxpayers are in compliance. Not only would such a reporting system mean increased government surveillance and intrusion into private affairs. As I brought up when I was criticizing the wealth tax, measuring the value of wealth is more complicated than with income. 

The valuation will be even more complicated to determine since the assets have not been realized (sold). Until there is an actual transaction, the valuation is more subjective and the compliance more onerous, which means taxing unrealized gains would be more open to interpretation and ultimately government abuse because the government would have greater control over assets. This would explain why European countries wait to tax capital gains until the gains are realized, and also why the United States has taxed capital gains when the gains are realized. Not only is it unfair to tax on paper gains that may never materialize. As prominent Left-leaning economists recognize (Piketty and Saez, 2022), "No income tax system to date has been able to tax the full return on wealth, including unrealized capital gains." 

Another reality is that this would increase tax burden on U.S. savers and reduce the savings rate in this country. In the long-run, this would reduce American incomes because the investment returns would flow to foreign savers instead of U.S. savers. This would also likely disincentivize angel investing, entrepreneurship, and risk-taking, all of which would result in less economic dynamism. After all, start-ups and small businesses rely on investments from individuals willing to take risks in the hopes that their investment pays off in the long-run. One research paper modeling the effects estimates how a tax on unrealized capital gains could lower the GDP, purchasing power, and investment while reducing jobs by 300,000 individuals (Kumar, 2023).

And if you think this tax would only hit the wealthiest in the long-run, think again. This would set a dangerous precedent for more deleterious taxation in the future. Here are some examples from U.S. taxation history of how taxes on the rich eventually hit us all. In 1898, the government passed an excise tax on telephones. It only affected the rich then because only the wealthiest had phones in 1898. Once the phone became commonplace, everyone paid the 3 percent tax on long-distance phone service until the tax was discontinued in 2006. 

A bigger example is the federal income tax. When it first was enacted in 1913, it was only 7 percent and fell on those making a half million or more [in 1913 dollars]. What started off as "soaking the rich" eventually soaked the everyday American. We can thank Franklin Roosevelt for expanding the income tax base, which is one reason in a long list of reasons I do not like him. A similar phenomenon happened with the Alternative Minimum Tax and the inheritance tax. 

If you give the government an inch, it will take a mile. Senator Wyden (D-OR) already proposed an unrealized capital gains tax for those with a net wealth as low as $10 million. Although not inevitable, it would not be at all surprising given precedent if an unrealized capital gains tax would eventually make its way down to the upper-middle class or even middle class. 

To recap, this unrealized capital gains tax would create a complicated tax regime, new compliance costs, disincentivize savings and investments, create more difficult administrative challenges for the IRS while giving them more access to private affairs, and create a minimal amount of government revenue. It does not take all that much foresight to see how much this untested idea would harm the economy. If Harris cared about creating economic opportunity for all, she would remove the government barriers of spending, taxes, and regulations to make it work. Unfortunately, all her economic plan indicates is using heavy-handed government to make the lives of Americans more difficult.  

Trump's In-Vitro Fertilization Plan Is Costly and Manages to Annoy All Sides of Political Aisle

As much I have enjoyed criticizing such kooky Kamala Harris ideas as excluding tips from taxation, price controls on groceries, a corporate tax hike, and down-payment assistance for first-time house-buyers, I think I need to take a bit of a break and come back to criticizing Trump's campaign ideas. A couple of weeks ago, Trump made a campaign promise that either the government or health insurance would pay for all in-vitro fertilization (IVF) costs. The IVF procedure entails taking mature eggs collected from ovaries and are fertilized by sperm. After the egg undergoes embryo culture for 2-6 days, it is transferred to the uterus in the hopes of a successful pregnancy. IVF is a form of assistive reproductive technology to help women with fertility issues become pregnant. 

From a political lens, Trump's IVF plan can be seen either as a ploy to placate suburban women voters, appear pro-natalist, or to brand himself as an advocate for reproductive rights. What is a political move has managed to annoy both the Left and the Right. The anti-abortion activists on the Right are outraged because the IVF process disposes of unused embryos, embryos which many in the pro-life movement view as fully human as born human beings. The pro-abortion activists on the Left are enraged because they see Trump's move as a distraction from Roe v. Wade being overturned. 

If angering both the Left and Right was not enough, let us think about what it would take to actually implement. The libertarian Cato Institute estimates that Trump's plan would cost about $7 billion annually. Then there are the indirect costs:

• For one, this would likely be paid by the taxpayers in one fashion or another, which means it would continue to put upward pressure on healthcare costs in the United States. Why? Because health providers will inevitably pass the costs on to the consumer. This is all the more so the case given that Trump has not specified an exemption for small businesses or even businesses that have moral or ethical objections to IVF.
• Second, most IVF patients are self-pay. This means that IVF providers have an incentive to keep costs affordable so they can attract patients. Having the government pay for the procedure will remove that incentive. Patients will no longer consider comparing costs, which means that providers will be incentivized to push prices even further upward. It would be the same phenomenon of cost inflation we see in the myriad of healthcare goods and services where the government meddles.  
• Third, this can incentivize couples to delay childrearing. This is important since CDC data show that the success rate declines with age, from 50 percent for women under 35 to 8 percent for women over 40. Not only would this give older women false hope, but it would be a waste of taxpayer dollars and resources, assuming that the government subsidy delays IVF. The subsidy could incentivize women who might not be candidates to keep trying IVF instead of considering adoption.

Not only does an IVF mandate agitate both the political Left and Right, but there is a considerable price tag attached to Trump's IVF plan that has a high likelihood of perverting incentives. As another Cato Institute report illustrates (Calder and Follett, 2023), subsidizing childbearing has done nothing of statistical significance to increase fertility rates while managing to increase childbearing costs. 

Instead, we have to remind ourselves that healthcare is a commodity, not a right. To maximize IVF access, we should focus on removing regulatory barriers that make IVF more difficult to acquire, such as a cap of number of embryos created, a ban on pre-implantation genetic testing, or mandating how many eggs can be fertilized. Tangentially, a paper from George Mason University shows that childcare regulation causes an increase in the fertility gap (Flowers et al., 2024). Deregulation in the IVF marketplace, as well as the childrearing market more generally, will do a great deal more to help out families than a subsidy or mandate that will distort healthcare decisions and end up costing taxpayers. 

We Deserve Better Housing Reform Than Harris' Down Payment Assistance Scheme for First-Time Buyers

When Vice President Kamala Harris first took on the mantle of being the Democratic presidential candidate, it was a mystery as to what she advocated for on a policy level. Then she announced her economic plan on August 16. Needless to say, it has given me both plenty of fodder for my blog and plenty to make me worry. I already lambasted Harris' price controls on the grocery market as taking the cake for dumbest policy proposal this presidential campaign. 

The economic plan addressed housing in a few ways, including stopping investors from marking up and buying homes in bulk and using price-setting tools to increase rents. The policy idea I would like to cover today is the idea of giving a $25,000 down-payment support for first-time homebuyers that have paid their rent on time over the past two years. The Harris campaign believes this tax credit would help 4 million homebuyers over a four-year time period. The purpose of this tax credit is to provide relief for those who struggle with saving enough for a down payment on their first home. While it sounds noble, we have to dig into the details to find out why it is far from a good idea and even drew some ire from the Washington Post. 

There is the matter of the price tag. According to the bipartisan Committee for a Responsible Federal Budget (CRFB), the estimated cost for this tax credit is $100 billion. The CRFB believes that more than four million would receive this tax credit, thereby increasing the cost. Furthermore, this would cost more than four million if the government decided to make the tax credit permanent. 

Forget for a moment how Harris would pay for this tax credit, as well as the myriad of policy ideas she has proposed. This demand-side tax credit does not get at the crux of the issue in the housing market, mainly that there is not enough housing supply. Due to the fungible nature of money, the down-payment assistance will only provide additional purchasing power to bid up the price of homes that are already in short supply. It will be likely that the tax credit is capitalized, i.e., the seller will charge more if they know the buyer is receiving a tax credit. Rather than solve the problem, Harris' idea will perpetuate crippling housing prices. 

If you want to enact actual housing reform, look no further than this policy report that the Mercatus Center released shortly before Harris released her economic plan. The report addresses multiple aspects of housing, whether it is the regulatory overreach, ways to streamline procedures, improving legal frameworks, or updating construction standards. 

State and local jurisdictions could remove land use regulations and zoning laws, especially those that prevent multi-family housing. There could be a reduction in building and permitting fees, not to mention tariffs on construction materials that get in the way of producing good housing stock. Addressing housing supply will help Americans with the dream of owning a home. Without that supply component, throwing money at the problem in a supply-constrained housing market merely serves to perpetuate the problem by raising housing prices. 

Why Free Trade Is Good for National Security

One of the aspects that has made the United States a prosperous nation was its embrace of freer trade. In spite of becoming an economic powerhouse, the question of national security has been intertwined with free trade. Even Adam Smith recognized that national security could arguably be an exception to the free trade norm. 

Those who advocate for these protectionist or neo-mercantilist policies on the national security argument assume that we as a nation should have economic independence and self-sufficiency. This self-sufficiency, which is known as autarky, would allow us to have necessary supplies to fight or keep the economy going in the event of wartime. If autarky was such an easy and viable option during wartime, then blockades would be pointless. Yet blockades are an effective military and economic tactic precisely because that economic self-sufficiency is not feasible in practice. Tangentially, this zero-sum mentality explains why economic nationalists erroneously worry about trade deficits.

But I digress because I have to question the dichotomy between free trade and national security. It is instances such as these that make me feel despairingly about national security becoming a guise for such subpar economic policy as tariffs. But maybe I should not despair. This research paper from the American Institute for Economic Research (AIER), entitled A Free, Prosperous and Secure America, made me think that trade and national security are not such rivals. 

Much like with the "environment versus economy" argument, the two do not need to be at war with one another (pun intended). Rather, freer trade could improve national security. The AIER paper makes two arguments. One, enhancing economic growth allows the United States to resource its national security needs effectively. Second, it facilitates (but does not guarantee) more peaceful relations between other nations. While I was reading the AIER paper, I came across a research paper from the American Security project highlights five benefits of free trade to national security (Day, 2014): 

1. Signaling commitment to allies: Not only does the free trade with the country show a favorable relationship, but that it symbolizes commitment. While free trade agreements are not perfect, they are still better than having soldiers in another country. 

2. Secure access to military technology: By using comparative advantage, militaries can keep production costs low and within budget. Free trade also helps ensure a diverse, stabler market in case a certain region experiences instability. Contrary to what nationalists believe, renationalizing international supply chains does not increase a country's resilience in the wake of severe disruptions (e.g., Bonadio et al., 2020).

3. Promoting global stability: As we have seen during the Great Depression, the oil crisis in the 1970s, and the 2007-08 global financial meltdown, not working together economically causes more instability. As I am fond of saying, "Those who trade together stay together." Why? Because with established economic ties and cross-border investment, they are less likely to metaphorically shoot themselves in the foot by going to war. This article from Law & Liberty highlights the "substantial empirical evidence indicating that growing trade between nations lowers the odds of serious military conflicts with other countries." 

4. Setting a free trade precedent: The ball really got rolling after World War II with the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade (GATT). Setting this precedent will allow for more stable and predictable trade relations and investment opportunities, which also stabilizes national security. 

5. Enhanced global influence. In the 21st century, we measure power by military strength (hard power) as much as we do economic prowess, the latter of which is a form of soft power. Whether it is economic, social, or cultural in nature, soft power lends international legitimacy to a country. As developing countries continue to economically develop, the United States contributing with soft power can develop more stable relations, thereby solidifying the country's national security for decades to come. 

Example to Counter Protectionism. I could select multiple examples, but I will select President Trump using Section 232 to impose tariffs on steel. I criticized the tariffs in 2017 because there was no national security rationale and I was right to criticize the tariffs. It turns out that the Section 232 steel tariffs have done a bad enough of a job that raw steel production sank to a level lower than when the tariffs were imposed. In the meantime, the numerous amount of goods and services that require steel have gotten more expensive thanks to Trump's tariffs. I pointed out this past May how Trump's steel tariffs lowered export growth, decreased the GDP, caused a net loss of 75,000 jobs, and increased consumer prices because U.S. consumers were the ones who paid the price for Trump's folly. This example serves to show the overall trend of how protectionism harms the economy while doing nothing positive for national security (or even harming national security).

Conclusion. Since the days of ancient Greece, there has been government interference in trade policy. There are certain countries that are not going to play nice or adhere to the standards set in international relations, as is the case with China. Geopolitical rivalries do exist and there are times in which at least some benefits of trade have to be traded off for national security considerations. As this article from Econlib shows, many of those arguments are flimsy and tenuous. 

As such, it is generally true that freer trade is better for national security. It is a benefit of free trade we can add to the list of benefits along with the economic arguments, moral arguments and social welfare arguments. While I do not see either presidential candidate or either major political party in the United States clamoring for freer trade, I do hope that we get ourselves out of this protectionist rut so that we can implement international trade policy that is both good for the economy and national security.