The Federal Government: Corrupt as Hell?

I think we can all agree that this kind of thing (original report here) is highly undesirable, is a breach of public confidence, and should be punished severely. But before we form a lynch mob with pitchforks and torches to demand the abolition of the federal government, let’s try to establish some context.

First of all, the amount of money we’re talking about here (i.e., money involved in unapproved transactions plus the value of unaccounted for property) is about $7.5 billion, or 0.28% of the federal budget for the year examined (FY2006). This is obviously a fair amount of money in absolute terms, but it’s by no means the apocalypse in the context of the whole federal budget. And this amount reflects all purchases that did not comply with proper approval procedure and all “pilferable” property that cannot be accounted for. Some of these purchases may well have been for legitimate expenses and some of the unaccounted for property may have simply been misplaced.

Another way to evaluate the extent of the problem is to take the amount of money involved, and divide it by the total federal workforce. If we divide $7.5 billion by the 2.6 million people in the federal workforce (including postal workers, who are included in the study), we get an improper payment of $2,885 per federal employee. This sounds like a fairly significant amount, but again, by no means earth-shattering. Moreover, the vast majority of these transactions are almost certainly made or authorized by people at the very top of the federal employment hierarchy, since these are presumably the only ones who can authorize major purchases on a regular basis (actually only about 300,000 federal employees have purchase card accounts). As an anecdotal example, one top executive at the Department of Agriculture was responsible for embezzling $642,000, considerably bringing up the average for everyone. And though this executive did embezzle quite a bit of money, it bears noting that $642,000 is peanuts compared to the amounts of money embezzled by private sector executives in the Enron era.

Finally, I think it’s interesting to look at how much different parts of the income distribution have to shell out to finance such improper activity. The top 1% of income earners in this country make, on average, $1.1 million/yr. and account for 40% of all federal income tax receipts. (Note: income taxes account for 69% of general federal revenue, i.e., excluding payroll taxes, so I only account for 69% of the cost of improper activity here. If included other taxes, the cost to the very rich would increase a bit but the cost to everyone else would stay about the same). This means that each person in the top 1% pays, on average, $690, or 0.063% of their income to finance improper federal purchases. Of the next 9%, or people earning between $100,000 and $350,000, each person pays on average $57.25 to finance such activity. And each person in the bottom 50% pays, on average, $1.04 towards such improper transactions; people in the bottom 40% don't pay anything at all. So when Uncle Gloz or Uncle Vinez come to town and talk about how their tax money is being wasted, you should ask them how much money they make. Because chances are, they’re paying less than the cost of a bottle of second rate champagne.

That said, by all means, we should implement tighter controls. If we have any of this crap, then we have too much of it.