Home' Trinidad and Tobago Guardian : March 26th 2015 Contents MARCH 2015 • WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
INTERNATIONAL | BG21
No one ants to pay taxes, and collecting them is not
the easiest thing in the world. So it stands to reason
that a gap will yawn between the amount of money
Americans owe and the amount the government
What is remarkable, however, is the size of that gap, which
reached a whopping US$450 billion in 2006, the most recent year
for which data are available from the Internal Revenue Service.
That is quite a chunk of change to go missing from the national
till. The IRS reckons that it can recover about US$65 billion of
that. The remaining US$385 billion will simply line the pockets
of tax dodgers.
The IRS is hardly alone in its ineptitude. Plenty more egregious
examples have been chronicled by the Government Accountability
Office in its annual "Government Efficiency and Effectiveness"
report, presented to the Senate earlier this month.
Though lawmakers tussle over how to reduce spending and
increase revenues, the GAO reported. simply trimming some gov-
ernment fat "could lead to tens of billions of dollars of additional
The report makes distressing reading, not least because it seems
addressed to persons of very little brain. For example, the GAO
suggests that, if the IRS spent less time examining "less productive
groups of tax returns" and more on "more productive groups," it
might recoup more than US$1 billion in extra tax revenue every
Another striking idea is for Congress to prevent tax dodgers
from getting new passports. The government issued about 16
million passports to people in 2008, one per cent of whom col-
lectively owed more than US$5.8 billion in back taxes. Really,
though, the GAO helpfully notes, anything the IRS can do to
improve its collection efforts would make a difference, since even
a 1% improvement in the net tax gap would generate almost US$4
billion in revenue collections each year.
Another problem area involves entitlements. Critics have long
complained that these programs are financially unsustainable, par-
ticularly because spending on Medicare, the government's health-
care plan for the elderly, tends to grow faster than the economy.
What few seem to notice, however, is that the government's
generosity also exceeds its mandate. The GAO found that "improper
payment estimates" reached nearly US$125 billion during the last
fiscal year, a US$19 billion rise from the year before, mostly because
of misplaced generosity to recipients of Medicare, Medicaid and
the earned-income tax credit.
Here, too, the report's authors offer some handy penny-saving
tips. Besides suggesting more audits and better systems for reviewing
and approving some of this spending, the GAO points out that
Medicare cards still come stamped with the Social Security numbers
of their beneficiaries, which makes them easy targets for fraud.
The agency mentioned this years ago, the report's authors add.
One can almost hear the sigh.
The GAO has few kind things to say about the government's
approach to information technology, on which it plans to spend
US$79 billion in this fiscal year. Fragmented data storage and
needless duplication have wasted billions of dollars.
For example, the Department of Defense---which accounts for
around half of federal discretionary spending, and so may well not
notice when billions of it vanish like loose change between sofa
cushions---and the Department of Veterans Affairs are each now
developing, from scratch, separate electronic health-record systems,
even though they basically will serve the same people.
However, the most common problem with the government's IT
ventures is a mix of grand ambitions and incompetence, as the
launch of Healthcare.gov in 2013 handily showed. One of the most
elaborate IT schemes involved a tri-agency weather-satellite
program, which after 16 years and almost US$5 billion at last was
put out of its misery in 2010. Among the GAO's recommendations
for better IT decision-making, included in a report in February,
is the employment of workers who have "the necessary knowledge
Federal agencies take the GAO's advice seriously. Past suggestions
already have saved the government roughly US$20 billion between
2011 and 2014, according to GAO estimates. Of the 440 improve-
ments recommended between 2011 and 2014, however, fewer than
a third have been acted on.
Meanwhile Uncle Sam's profligacy goes cascading on.
@2015 The Economist Newspaper Ltd. Distributed by the
New York Times Syndicate
America says that it welcomes China's
ascent to great-power status, so long
as the Chinese respect international
norms and play a proper part in the
multilateral system. China suspects
that, in practice, America tries to hem
it in whenever it does anything on
the world stage.
In the case of the Asian Infrastructure Investment Bank
(AIIB ), America seems to be confirming China's darkest
fears. It has adopted a policy of containment that is wrong
in principle and has failed in practice.
Flush with the world's largest foreign-exchange reserves,
China plans a new bank to help match Asia's vast savings
with its even vaster need for new bridges, roads and other
necessities of development. America dislikes the idea because
it thinks the bank will not abide by high standards of cred-
itworthiness and transparency, and it also fears that the
institution will be a vehicle for Chinese influence.
Though the Americans say that they have not lobbied
against the bank, they have put pressure on allies not to join
it. When Britain became the first country outside Asia to
apply for membership, an American official harrumphed
about its trend toward "constant accommodation" of China.
That admonition did not stop France, Germany and Italy
from declaring that they too wanted to be founding members
this week. Others may follow.
America is not wrong to be suspicious of China's motives.
The AIIB is designed to project Chinese power in the region.
Institutions already exist to match capital with projects, most
obviously the Asian Development Bank. Rather than setting
up a new lender, China could have put more money into an
Nor is America wrong to warn against a supine approach
to China. Britain's limp response to the protests that rocked
Hong Kong last year did it no credit.
America's doubts about the bank's lending policies cannot
be wished away, either. As Sri Lanka's largest infrastructure
project shows, Chinese-financed development plans can be
opaque, careless of environmental concerns and shot through
with sketchy political dealings.
There are three reasons why America should be more
receptive toward the AIIB and its allies' potential membership,
The first is that Asia's need for infrastructure is vast and
pressing. The continent's relentless urbanisation will require
at least US$8 trillion of infrastructure spending in this decade,
according to the ADB. The AIIB will not finance this splurge
on its own, since it looks likely to end up with a capital base
of between US$ 50 billion and US$100 billion, but it will
Second, the best way to deal with concerns about Chinese
lending standards is to join the bank and improve it from
inside, not to throw brickbats from outside. Chinese leaders
know perfectly well that the new institution will come under
a great deal of scrutiny. They have an incentive to be open
and transparent, at least at first. Having more nations outside
its orbit on board should help keep things more honest.
Third, although it might have been better to expand and
reform existing institutions such the ADB, the World Bank
and so on, America itself has made that impossible. Even
a modest proposal to increase the resources of the International
Monetary Fund, which would give slightly more votes to
China and other big emerging markets, has been stymied
for years in Congress. America has frustrated efforts to boost
China's clout in the World Bank, and China is not included
in its planned Trans-Pacific Partnership free-trade deal.
Rather than try to thwart the AIIB , America ought to
embrace it. China should invite it to join, and America should
accept. That would be the best way to accommodate Asia's
massive infrastructure plans, to say nothing of a rising China.
@2015 The Economist Newspaper Ltd. Distributed by
the New York Times Syndicate
America sulks as China
takes the world stage
Frugality for Dummies
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