The Costs Of Cutting “Food Stamps”

from the Congressional Budget Office

The Supplemental Nutrition Assistance Program (SNAP, formerly known as Food Stamps) provides benefits to low-income households to help them buy food. Total federal expenditures on SNAP amounted to $76 billion in fiscal year 2014. In an average month that year, 47 million people (or one in seven U.S. residents) received SNAP benefits.

Some policymakers have expressed a desire to scale back the program significantly to reduce federal spending. In this report, CBO examines several options for doing so and their effects on the benefits that would be received by households with different amounts of income.

Who Receives SNAP Benefits?

Most people receiving SNAP benefits live in households with very low income, and SNAP benefits represent a significant supplement to their income. In fiscal year 2013, about 85 percent of households receiving benefits had monthly income (excluding SNAP benefits) below the federal poverty guidelines. (Those guidelines are commonly known as the federal poverty level, or FPL; for a household of three, the FPL in 2015 is about $1,700 per month, or about $20,000 per year.) SNAP benefits boosted monthly income for participating households by 36 percent, on average, in 2013.

A household’s SNAP benefits are calculated according to its income and size. The maximum benefit for a household of three in the contiguous United States is currently $511 per month, or about $5.60 per person per day. However, if a household’s income (minus allowable deductions, such as those for housing expenses) increases, each additional dollar in income reduces SNAP benefits by 30 cents – until its income reaches a certain threshold, at which point benefits are stopped altogether.

How Would Reducing SNAP Benefits Affect Households’ Income?

CBO examined what would happen to households’ income if spending on SNAP in 2016 – which CBO currently projects to be about $77 billion – was cut by 15 percent. Such a decline would save $11.5 billion in 2016, putting inflation-adjusted spending roughly on par with spending in 2009. Specifically, CBO examined three illustrative options, each of which would cut federal spending on SNAP in 2016 by 15 percent (see figure below):

• Reducing SNAP benefits for all participants by reducing the maximum benefit by 13 percent and leaving other program rules unchanged (which would result in benefit cuts for all beneficiaries);
• Increasing the rate at which benefits decline from the maximum benefit, as a household’s income (minus allowable deductions) increases, from 30 percent of the additional income to 49 percent; and
• Reducing the monthly income limit for eligibility from 130 percent to 67 percent of the FPL, while maintaining benefit amounts for those who remain eligible (including households with elderly or disabled members and households eligible because they receive cash assistance from certain other programs).

Because very few households with higher annual income receive SNAP benefits under current law, the options would primarily affect households whose income was relatively low. However, groups of lower-income households would be affected differently, depending on how many in each group received SNAP benefits and the income of households in the group. To show those effects, CBO grouped households into deciles (that is, 10 percent shares of the population) according to their annual after-tax cash income (which excludes SNAP benefits); in 2016, CBO estimates, three-person households in the lowest decile will have annual after-tax cash income below about $15,000, those in the second decile will have income between about $15,000 and $25,000, and those in the third decile will have income between about $25,000 and $32,000.

Among the effects of the options that CBO estimates are the following:

• For households with annual after-tax cash income in the lowest decile of the income distribution in 2016, the first option would reduce income (including SNAP benefits) in that year by about $300, or about 4 percent, on average. That calculation includes not only households that would receive SNAP benefits under current law but also those that would not (and thus would experience no decline in income under the option). For households in the lowest income decile that would receive SNAP benefits under current law, the average decline in benefits would be about $600 per year. The other options would have significantly smaller effects on households in the lowest decile of income.
• For households with annual after-tax cash income in the second decile of the income distribution, each of the three options would reduce income in 2016 by about $250 to $500, or about 1 percent to 3 percent, on average; within that range, the first option would have the smallest effect, and the third would have the largest. Among households in that group that would receive SNAP benefits under current law, the average decline in benefits under the three options would be between $550 and about $1,000 per year.
• For households with annual after-tax cash income in the third decile of the income distribution, the reduction in income from each of the three options in 2016 would range from about $100 to $200, or less than 1 percent, on average. Among households in that group that would receive SNAP benefits under current law, the average decline in benefits under the three options would be between $650 and $1,200 per year.
• Among all households in higher income deciles, the average effects of the options would be quite small. However, among households in those deciles that would receive SNAP benefits under current law, the average decline in benefits under the first option would be similar to the declines for the three lower income deciles. Under the second and third options, the decline in benefits for households in higher income deciles that would receive benefits under current law would be most similar to the decline experienced by households in the lowest income decile.

Some policymakers have suggested another option: converting SNAP into a block grant program for states. CBO has not analyzed the effects on different households’ income of such an option, because those effects would depend on the amounts and conditions of the grants – and on decisions by state governments, which are very difficult to predict. However, under a block grant option that reduced federal spending on SNAP by 15 percent in 2016, average benefits would almost surely decline significantly unless state or private funding made up some or all of the difference.

CBO also assessed but did not quantify the effects of the options on SNAP recipients’ incentives to work and consequently on households’ labor income. Overall labor income would increase by a small amount under the first option, CBO expects, and decrease by a small amount under the second and third.

[read the entire report]