Five Things You Probably Don’t Know About Food Stamps

January 20, 2012 at 4:05 pm

The Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, is in the news these days because of comments made by some Republican presidential candidates. Below are five things you probably don’t know about the program.

  1. A large and growing share of SNAP households are working households (see chart). In 2010, more than three times as many SNAP households worked as relied solely on welfare benefits for their income.

    The share of SNAP households with earnings has continued growing in the past few years — albeit at a slower pace — despite the large increase in unemployment.

    One reason why SNAP is serving more working families is that, for a growing share of the nation’s workers, having a job has not been enough to keep them out of poverty.

  2. SNAP Working Households Have Risen

  3. SNAP responded quickly and effectively to the recession. SNAP spending rose considerably when the recession hit. That’s precisely what SNAP was designed to do: respond quickly to help more low-income families during economic downturns as poverty rises, unemployment mounts, and more people need assistance. In 2010, for example, SNAP kept more than 5 million people out of poverty and lessened the severity of poverty for millions of others, under a poverty measure that counts SNAP benefits as income.

    Economists consider SNAP one of the most effective forms of economic stimulus, so SNAP’s quick response to the recession — as well as a temporary benefit increase enacted in the 2009 Recovery Act — helped the broader economy. The Congressional Budget Office (CBO) rated an increase in SNAP benefits as one of the two most cost-effective of all spending and tax options it examined for boosting growth and jobs in a weak economy.

    Converting SNAP to a block grant, as some have proposed, would largely destroy its ability to respond to rising need during future recessions, forcing states to cut benefits or create waiting lists for needy families.

  4. Today’s large SNAP caseloads mostly reflect the extraordinarily deep and prolonged recession and the weak recovery. Long-term unemployment hit record levels in 2010 and has remained extremely high. Today, 43 percent of all unemployed workers have been out of work for more than half a year; the previous post-World War II high was 26 percent in 1983.

    Workers who are unemployed for a long time are more likely to deplete their assets, exhaust unemployment insurance, and turn to SNAP for help, since it is one of the few safety net programs available for many long-term unemployed workers. In most states, other programs — such as cash assistance under the Temporary Assistance for Needy Families (TANF) and state General Assistance programs — haven’t responded effectively to rising need during the recession.

    More than one in five workers who had been unemployed for over six months received SNAP in 2010, according to Congress’s Joint Economic Committee.

  5. SNAP has one of the most rigorous quality control systems of any public benefit program. Each year states pull a representative sample (totaling about 50,000 cases nationally) and thoroughly review the accuracy of their eligibility and benefit decisions. Federal officials re-review a subsample of the cases to ensure accuracy in the error rates. States are subject to fiscal penalties if their error rates are persistently higher than the national average.

    In 2010, only 3 percent of payments went to ineligible households or to eligible households but in excessive amounts. Payment accuracy has continued to improve in the past few years, despite the large increase in SNAP enrollment.
  6. SNAP is Projected to Shrink as a Share of GDP

  7. SNAP’s recent growth is temporary. CBO predicts that SNAP spending will fall as a share of the economy as the economy recovers and the Recovery Act benefit increases expire (see chart). By 2021, SNAP is expected to return nearly to pre-recession levels as a share of the economy.

    Over the long term, SNAP is not growing faster than the economy. So, it is not contributing to the nation’s long-term fiscal problems.

One down, six to go!

January 20, 2012 at 10:57 am

Rhode Island officials decided this week to take an easy and useful step to improve public access to the state budget process: post online the official state estimates (known as “fiscal notes”) of how much money proposed legislation would cost — or save — the state.

The role of fiscal notes in the legislative process varies by state, but in most states they are highly influential, and the information they contain can determine whether policymakers approve a bill or not.  It’s important that states post these estimates online so that the public, the media, and policymakers can review them and judge their accuracy.

As a report we released last week with ACLU indicates, rigorous fiscal notes have numerous benefits, including helping states recognize the value of certain criminal justice reforms that save money while protecting public safety.

With Rhode Island’s recent decision, only six states still do not post their fiscal notes online: Arkansas, Delaware, Georgia, Hawaii, Massachusetts, and Mississippi.  One of these states — Hawaii — never produces fiscal notes, which is a problem in itself.  The others should follow Rhode Island’s lead and make their budget process more transparent.

Missouri Governor Shows How Not to Balance a Budget

January 19, 2012 at 2:17 pm

“In a global economy with constantly evolving technology, training and education can never stop,” Missouri governor Jay Nixon said in announcing his budget earlier this week.  Unfortunately, his proposed deep cuts to higher education will make it harder to train the skilled workforce that Missouri will need to compete in the global economy he describes.

The governor’s proposal shows why revenue increases must be on the table as states prepare their spending plans for the coming fiscal year, which begins July 1 in most states.

Missouri faces one of the country’s largest budget shortfalls as a share of its budget, as our recent survey points out.  (More states likely will report shortfalls as other governors propose their budgets in the coming weeks.)  Governor Nixon proposes closing this shortfall through spending cuts alone — avoiding tax increases at the expense of educational investments that the state will need to thrive in the future.

Nixon’s proposal cuts funding for higher education by 14 percent.  These cuts come on top of the state’s large cuts in higher education funding in the past few years.

The University of Missouri system raised tuition by 5.5 percent for the current school year in response to funding cuts, and Nixon’s proposal makes additional tuition hikes next year more likely.  Nixon could have lessened the need for such drastic cuts by taking a more balanced approach to the state’s budget, one that included additional revenue.

Governor Nixon is right:  training a highly skilled workforce is critical to a state’s economic future — and the country’s.  But cutting higher education funding year after year is a step in the wrong direction.

Grading the President’s Jobs Council on Corporate Tax Reform

January 19, 2012 at 11:27 am

The President’s Council on Jobs and Competitiveness, a group consisting mostly of business executives that advises the President on ways to strengthen the economy, released its year-end report this week.  That report included a section on corporate tax reform, an issue that has generated significant attention in recent months and that Congress may consider this year.

While the report is obviously not a full proposal, it’s worth examining whether the Council is heading in the right direction on some of the key tests for corporate tax reform proposals that we outlined here.  Below is how we would grade the report in four key areas:

  • Raising additional revenue. The United States is on an unsustainable fiscal path and will face wrenching policy choices in the coming years.  In addition to restraining health costs and other spending, we will need to raise taxes.  Unfortunately, the Council largely ignores this harsh reality, merely observing in a “final word” at the end of the report that the retirement of the baby boomers will “affect the role of revenues.” Grade:  Fail
  • Encouraging investment in the United States. The Council calls for lowering the corporate tax rate, arguing that this would help American businesses and workers.  At the same time, however, some members sent strong signals that they would move to a “territorial” international tax system, under which foreign profits of U.S. multinationals would face a zero tax rate.  (The report does not make a final recommendation, noting that its members were divided on this point.)

    Giving foreign profits a massive and permanent tax advantage over domestic profits would create a strong incentive for multinationals to move investment and profits offshore.  And, given budget constraints, eliminating taxes on overseas profits would create pressure to set taxes on domestic investments higher than they would otherwise be.  Grade:  Incomplete

  • Reducing the tax code’s bias toward debt financing. The report observes that “because interest is a deductible business expense, the corporate tax system favors debt financing over equity financing.”   Encouraging corporations to rely excessively on debt poses risks for both the firms and the broader economy, as the recent financial crisis highlighted.  A key priority of any corporate tax reform should therefore be to reduce tax subsidies for debt.  The Council’s report highlights the bias in the current system stemming from the full deductibility of interest. Grade:  Pass
  • Broadening the corporate tax base by reexamining the boundary between corporate and non-corporate taxation. The Council’s report highlights that, despite its high statutory corporate tax rate, the United States collects little in corporate income taxes relative to other members of the Organisation for Economic Co-operation and Development.  We rank 25th, out of the 29 OECD members for which such data are available, in corporate taxes as a share of the economy.

    The report points out that a major reason is that about half of business income is not even subject to the corporate income tax.  A growing number of business owners have opted to organize their firms as partnerships and S corporations, which means the firm’s profits are “passed through” to the owners. These owners benefit from the same tax deductions and credits as corporations do but pay taxes only at the individual level.

    Reining in this arbitrary tax preference needs to be a major focus of tax reform.  While the report made no final recommendation on this point, the Council draws attention to this important issue. Grade:  Pass

Three Things for Congress to Remember When Voting on the Debt Limit

January 18, 2012 at 11:16 am

With the President’s announcement last week, the debt limit is about to rise — automatically — unless Congress enacts a law freezing it at its current level.  While lawmakers may not enjoy allowing a debt limit increase, they all should keep the following facts in mind:

  1. Raising the debt limit allows the government to pay the bills it has already incurred, not incur new ones. As we pointed out last summer, “the amount of debt outstanding reflects Congress’s [previous] tax and spending decisions and the state of the economy, not the level of the debt ceiling.  Citizens who urge their members to vote against raising the debt limit as a way of expressing displeasure with federal borrowing are picking the wrong target.”
  2. Congress has already enacted spending cuts that fully offset the automatic debt-limit increase. Last August’s Budget Control Act called for $2.1 trillion in cuts over the next decade, which will occur through caps on annual discretionary (non-entitlement) spending and automatic cuts in many programs starting in 2013.  It also authorized a $2.1 trillion increase in the debt limit, to occur in three installments; the President’s announcement last week triggered the last of the three.  While we disagree strongly with the concept (reflected in the Budget Control Act) of making debt-limit increases contingent on an equal amount of deficit reduction, those spending cuts will take effect unless Congress votes to block them.
  3. A vote to freeze the debt limit increase is a vote for default. Congress can prevent the automatic debt-limit increase with a two-thirds vote in both the House and Senate.  But if it does, the federal government will default within a matter of months — roiling financial markets, boosting U.S. interest rates immediately and perhaps markedly, and probably sending the U.S. and global economies into a deep tailspin — unless it can immediately start running budget surpluses instead of deficits.  Opponents of raising the debt limit haven’t offered a plan to accomplish that.

And no wonder — preventing the debt from rising would require some combination of budget cuts and tax increases totaling about $1.2 trillion per year, to take full effect immediately. To achieve that goal, Congress could cut all federal programs (including Social Security and Medicare) by one-third, or raise all taxes (income, payroll, gas, etc.) by more than 45 percent.  Macroadvisers, a highly respected economic forecasting firm, wrote last fall that balancing the budget immediately would have a “catastrophic” impact, convert the sluggish economic recovery into an extraordinarily deep recession, and double the unemployment rate.

A first-ever U.S. default would mark a profound change in the nation’s global standing, change perceptions of U.S. debt as the world’s safest investment, and trigger an almost certain economic disaster; immediately cutting the deficit by about $1.2 trillion per year would trigger a different kind of economic disaster.  In short, a vote not to raise the debt limit is simply irresponsible.