If Defrauding the Federal Government was its Own Country, it Would be the World’s 8th Largest Economy

Fraud is not a peripheral problem in the United States government. It is systemic, persistent, and measured not in millions or even billions, but in trillions of dollars. For decades, federal watchdogs have warned that enormous portions of taxpayer funds are being misappropriated, improperly paid, or outright stolen, often with little consequence and even less reform.

According to the Government Accountability Office, the federal government has lost an estimated $233 billion to $521 billion every year to fraud in recent years. While the precise number is difficult to calculate due to the nature of fraud itself, the GAO has made clear that the problem is widespread and deeply embedded across major federal programs. These losses are not theoretical. They represent real tax dollars diverted away from legitimate public purposes and into the hands of fraudsters.

One of the clearest ways to understand the scale of the problem is through “improper payments,” a category tracked annually by the federal government. Improper payments include fraud, overpayments, ineligible payments, and payments made with insufficient documentation. While not all improper payments are fraud, all fraud is, by definition, improper.

Since 2003, cumulative improper payments by the federal government have exceeded $2.8 trillion. That figure alone should give taxpayers pause. To put it in perspective, $2.8 trillion is roughly comparable to the annual economic output of a major industrialized nation such as Italy, which consistently ranks among the world’s ten largest economies. In other words, over the past two decades, the federal government has misdirected an amount of taxpayer money equivalent to the entire GDP of a global economic powerhouse.

The bulk of these losses are concentrated in a handful of massive federal programs. Medicare and Medicaid account for tens of billions of dollars in improper payments each year, driven by billing fraud, phantom providers, upcoding, and eligibility failures. Taxpayer-funded benefits such as the Earned Income Tax Credit and SNAP suffer from chronic improper payment rates, often due to misreported income or household information. Pandemic-era programs, including unemployment insurance expansions and small-business relief funds, exposed how quickly fraud explodes when safeguards are loosened in the name of speed.

What makes the problem even more troubling is that these figures almost certainly understate the true scope of fraud. Not all federal programs are required to estimate improper payments, and many agencies lack the tools or incentives to aggressively identify fraud. The GAO has repeatedly placed several federal agencies and programs on its “High-Risk List,” citing long-standing vulnerabilities that Congress and the executive branch have failed to adequately address.

State governments face similar problems, particularly in programs jointly administered with federal funds, but there is no nationwide accounting of state-level fraud. What is known from audits and prosecutions suggests that billions more are lost through weak oversight, complex eligibility systems, and a lack of accountability.

The cumulative effect is a slow but massive transfer of wealth from American taxpayers to bad actors who exploit government systems with little fear of detection. Every dollar lost to fraud is a dollar that cannot be used to strengthen national defense, secure the border, support legitimate safety-net programs, or reduce the national debt.

Fraud on this scale is not an accounting error. It is a failure of governance. The fact that trillions of dollars have vanished through improper and fraudulent payments over the past two decades reflects a political system that has prioritized expansion over enforcement and spending over stewardship.

As Washington debates new programs, higher spending levels, and expanded federal authority, one fundamental question remains unanswered: if the government cannot safeguard the trillions it already collects from taxpayers, why should Americans trust it with even more?