Why We Need to Reform the Food Stamps Program and How to Approach Reform

Facebook debates can be nasty and unproductive at times. Yesterday, I was in the middle of one about food stamps that was, on the whole, productive. We talked about countercyclical demand and the merits of the food stamp program. In a more ideal world, there would not be a demand for food stamps because food insecurity would be all but non-existent. I would also like to live in a world where government intervention is not the answer to everything. However, I don't live in such a world. I have to address this problem with the Supplementary Nutritional Assistance Program (SNAP) as the status quo. Even if you want to argue that SNAP has any merit, it is hard to deny that the program does not come without its fair share of downsides. As I pointed out a couple of months ago, the program has a plethora of problems, including fraud, high administrative costs, increased unemployment, lack of transparency, bureaucratic redundancies that cause inefficiencies, increased dependency on government, lack of wealth creation, inability to provide healthier dietary habits, and scant evidence that SNAP actually helps with hunger relief. That is quite a list of deficiencies. There is a part of me that has a knee-jerk reaction to cut the program based on this long list. However, given that eliminating the program is the least politically feasible of existing options, I would need to take a more gradual approach that either results in significant downsizing or being totally stamped out in the medium-to-long term. Here are some reforms that I decided to analyze:

1. Separate SNAP from agricultural subsidies. This is a means-tested welfare program, not an agricultural program. The USDA is ill-equipped to handle the food stamps program. If you're going to keep this program on the federal level, at least have the Department of Health and Human Services (HHS) run the program. And while we're at it, let's legislatively separate SNAP from agricultural subsidies. It's blatant politics when you have to sneak in something as economically inept as agricultural subsidies into the bill with food stamps. They are two separate policies. Let's keep them that way. Plus, farm bills are renewed every five years, which is way too infrequent to reevaluate a program such as SNAP, which is larger than that of agricultural subsidies.  
2. Remove bonus payments for increased registration. Rewarding states for increasing enrollment might sound like a good thing. I don't think that making more individuals dependent on Big Government is a good thing, but let's set that one aside for the moment. The issue is that it perverts incentives for states because it makes their primary priority to acquire more applicants to the point where they expand their programs beyond helping the truly needy. If any sort of reinforcement should be used, it should be the negative reinforcement of penalizing states who have high rates of making erroneous payments, especially since erroneous payments cost $2.5B, which was 3% of outlays, back in the 2010 fiscal year (CBO [2012], The Supplemental Nutrition Assistance Program, p. 11).  
3. Fortify work requirements. You might tell yourself that SNAP has nice work requirements on paper, but they don't do much if they're not being enforced. As the CBO states (p. 6), "for most households, there is no limit on how long they may participate in SNAP and effectively no work requirement." At best, SNAP should be a temporary safety net. It should not discourage people from working, and it should not increase medium-term or long-term dependency on Big Government. Unconditional aid leaves very little incentive to ameliorate one's economic situation. Much like with Temporary Assistance for Needy Families (TANF), there was a strong incentive to find work. Any able-bodied adult receiving benefits should do so under conditionality, e.g., employment training or finding gainful employment. Those who implement SNAP need to make this a higher priority.  
4. Eliminate broad-based categorical eligibility and return to traditional assets and income testing. A sizable amount of the SNAP participation rate increase can be attributed to more lax eligibility requirements. In 2010, one half of SNAP recipients qualified for SNAP through broad-based categorical eligibility, which means that their qualification for TANF automatically triggered eligibility for SNAP. According to the Congressional Research Service (CRS), legislation under the Obama administration allowed applicants to bypass the assets and income test, as well as raised dollar limits for eligibility (p. 4). Although there is the worry of greater administrative costs and more errors under this reform, subjecting those under to broad-based categorical eligibility to traditional assets and income testing would focus on those who truly need assistance, as well as save $10.3B in the next ten years (CBO, 2013, Options for Reducing the Deficit, 2014-2023; p. 30). 
5. Modifying the gross income limit. As of now (CBO, 2012, p. 9), a qualifying household needs to have gross income less than or equal to 130 percent of the federal poverty guideline. The proposal would be to reduce that amount to 100 percent of the federal poverty guideline. Much like #4, this policy would also focus on those who truly need assistance. It would also save $1.7B over the next ten years (CBO, 2013, p. 30). The savings in this policy are not as large because those who would not receive benefits have a higher income, which means they have been receiving less benefits to begin with. One could also argue that the adverse effects of lowering the gross limit harm those who "still need the help."
6. Eliminate the LIHEAP loophole. LIHEAP stands for Low-Income Home Energy Assistance Program, which is designed to assist low-income households with winter energy services. Some states send token utility allowances to SNAP participants, which can be several hundred dollars a month. Removing the link between LIHEAP and SNAP would produce a savings of $10.3B over the next ten years (CBO, 2013, ibid).   
7. Enact caps on future spending. Are food stamps the primary drivers of federal debt? No. Those would be Social Security, Medicare, and Medicaid. Even so, if we're going to avoid as much longer-term pain involved with debt as possible, we need to consider spending cuts in all programming, especially when discussing SNAP expenditures in the larger context of welfare spending and entitlements. Food stamp spending doubled during the Bush administration, and it did so again during the Obama administration. SNAP expenditures are currently projected to not decrease greatly. If the primary driver of the increase in participation rate is due to the recession (let's not forget the USDA's drive to recruit participants or more liberalized eligibility requirements are additional factors that drove up the participation rate), then we need to reduce spending back to pre-recessionary levels within the next couple of years, especially since we are technically not in a recession anymore (stagnant recovery, yes, but it's not a recession). Once spending has returned to pre-recessionary levels, make sure that any spending growth does not exceed inflation and population growth. Only during times of exceptionally high employment should this cap be temporarily removed.  
8. Turn the in-kind transfer into a direct cash transfer. Matthew Yglesias makes the point that giving low-income households cash is more economically efficient, which is true. Although there are worries about "where will they spend the money," given the lax nature of what one can spend with SNAP benefits, I don't know how well that works. Ultimately, the SNAP program has a paternalistic vibe to it, and turning SNAP into a direct cash transfer would be about as politically infeasible as abruptly eliminating the program.  
9. Increase health standards for food eligibility. Looking at what qualifies as eligible food items under SNAP, one could argue that the program does not put enough emphasis on the "Nutrition" aspect of SNAP. The USDA should put further restrictions on what SNAP beneficiaries could purchase in order to encourage healthier eating, especially since obesity is a problem amongst low-income households. Forget the fact that this proposal is way too paternalistic for my taste. How would the USDA determine what is healthy? With a long list of exemptions and what is eligible, how would recipients know what qualifies under SNAP? As much as the obesity problem amongst the poor needs to be addressed, this is not a remedy.   
10. Return power to the states by using block grants to allocate funds. Centralized government has the problem of applying a one-size-fits-all approach. This is particularly true with the federal poverty line (FPL), which assumes that the average income is the same in all regions of the country. Although block grants would not give the states complete authority to administer the program, the states would still have significant autonomy to set its own eligibility criteria and benefit levels that better reflect the local needs. Block grants would also provide states to design their own programs and experiment more, which would mean more opportunities to discover reforms that can be implemented in other states. The amount saved would depend on the formulae used for the block grants, but the CBO (Options for Reducing the Deficit, 2014-2023; p. 33) estimates that the savings would be $281B over the next ten years. Although those are some good savings, this alternative has a few drawbacks. One is that block grants are not as responsive to economic conditions as federal spending is. With block grants, funding is contingent upon whether the federal government increases spending during an economic downturn. If not, states that cannot increase their own revenues will have to cut back on the number of recipients. Basing the outlays on inflation versus countercyclical demand is probably not the intent of SNAP. This problem of limited funding during economic decline is reflective of what happens when the states are too dependent on federal government largesse. Also, as the Cato Institute points out in its recent study on SNAP, this leads the states to interpret block grants as "free money," which leads to further waste and inefficiencies, as opposed to genuine experimentation. Even so, some of those inefficiencies can be mitigated by not having the federal government take money from the states only to give it back, which makes for inefficient allocation of funds. Returning complete control over to the states would be most efficient.    

Postscript: This is what I was able to come up with that was directly related to the program. This blog entry does not even consider other reforms that could increase one's income (which would decrease the demand for food stamps) or delve into the causes of poverty. Although these reforms are not anywhere near what I would consider "a libertarian ideal," at least they lead us in the right direction.