Food Subsidies

  • Chris Edwards
May 26, 2016
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The largest portion of the U.S. Department of Agriculture's budget goes toward food subsidies for lower-income families. Food subsidy programs will cost $107 billion in 2016 and account for more than two-thirds of the department's budget.1 The main food programs are food stamps, the school breakfast and lunch programs, and the women, infants, and children program. The combined cost of the programs has doubled since 2002.

The food programs in the U.S. Department of Agriculture (USDA) developed out of the need to dispose of surplus farm production generated by farm subsidy programs. Food programs have gained political support over the years from both farm groups and anti-poverty groups. The combination of farm and food programs in USDA funding bills has encouraged support from both rural and urban members of Congress.

Food subsidy programs are aimed at helping lower-income families, but the situation of those families has changed dramatically since the programs were created. As the economy has grown over the decades, the incidence of households with an inadequate quantity of food has declined. The problem of insufficient calories in past decades has been replaced by growing obesity problems in the low-income population.

The following sections discuss the food stamp, school breakfast and lunch, and women, infants, and children (WIC) programs. These federal programs should be abolished, and each state should determine appropriate policies for its own residents. Some states may decide to fund existing food subsidies, while others may choose less costly approaches to providing aid. Devolving responsibilities to the states would result in more innovative approaches to helping people in need.

Food Stamps

The food stamp program aids lower-income families in purchasing food products at grocery stores, convenience stores, and other retail outlets. The program's official name is the Supplemental Nutrition Assistance Program (SNAP), and it will cost federal taxpayers $78 billion in 2016.2

There are 46 million food stamp recipients.3 The maximum monthly benefit in 2016 for a household of four is $649.4 Eligibility for food stamps is based on a recipient's level of assets and income, with the basic gross income cutoff set at 130 percent of the poverty level. However, nearly all states have expanded eligibility beyond the basic limits with various types of "categorical eligibility."5 Citizens and most legal noncitizens are eligible for the program.6

The first food stamp program was temporary, running from 1939 to 1943.7 The program issued stamps that could be used to purchase food that the USDA deemed surplus. After the temporary program ended, there were numerous attempts in subsequent years to reestablish a federal food stamp program.

Congress passed legislation authorizing food stamps in 1959, but the Eisenhower administration did not implement a program. The Kennedy administration initiated various food stamp pilot programs. Then the Johnson administration proposed making food stamps permanent, and Congress followed through with the Food Stamp Act of 1964. The new program had the dual goals of "improved levels of nutrition" and "strengthening the agricultural economy."8

The food stamp program was expanded during the 1970s, and the number of recipients soared from 4 million in 1970 to 21 million in 1980.9 Some restraints were added to the program during the 1980s in an effort to control rising costs. As a believer in federalism, President Ronald Reagan proposed that the food stamp program be transferred to state governments, but that reform was not enacted.

In 1996 Congress reformed the nation's main welfare program (now called Temporary Assistance for Needy Families) by turning it into a block grant for the states. The food stamp program was not substantially changed by the 1996 law, but as a side effect of declining welfare caseloads the number of food stamp recipients fell from 27 million in 1995 to 17 million by 2000.10

The 2002 farm bill reversed course and made changes that increased the costs of the food stamp program. The bill expanded eligibility to noncitizens, increased benefits for large families, and made administrative changes to make it easier to claim benefits.

The food stamp program ballooned in size during the George W. Bush and Barack Obama administrations. The number of recipients rose from 17 million in 2000 to 46 million by 2015.11 The program's cost quadrupled from $18 billion in 2000 to $78 billion in 2016.12

The food stamp program is run jointly by the USDA and state governments. Federal taxpayers pay for the program's benefits, but they share the program's administrative costs with state taxpayers. Food stamp administration costs about $9 billion a year.13 That means that about $9 billion of the "benefits" of the program go to government bureaucracies, not to low-income families. Those administrative costs are equal to about 13 percent of the value of food stamps distributed.14

Food stamp administration is expensive because officials need to keep detailed and up-to-date files on 46 million recipients. Caseworkers need to meet with or phone each recipient on his or her first application and to recertify the benefits for each recipient every year. Because food stamps are means-tested welfare benefits, administrators need to keep records on each recipient's income, expenses, assets, living arrangements, and other personal data.

Fraud and abuse have long been problems with food stamps. State officials are supposed to keep track of millions of individual recipients and verify that their information is accurate. And to prevent illegal trafficking, federal officials are supposed to keep tabs on the 259,000 retailers across the nation that deal in food stamps.15

The food stamp program has spawned a black market as recipients exchange their government benefits for cash. Law-breaking retailers have typically offered 50 cents on the dollar for food stamps. Thus an individual needing $100 in cash would go to a crooked retailer and get the cash in return for a $200 charge to his electronic food stamp card. The amount of such trafficking appears to have fallen in recent years, and the government claims that the rate of food stamp overpayments is only about 3 percent of total benefits, or about $2 billion annually.16

Are overpayments really that low? The overpayment rates for other large benefit programs are much higher — for the earned income tax credit the rate is more than 20 percent. With food stamps, the federal government is responsible for retailer fraud, but there are apparently only about 100 inspectors covering the 259,000 SNAP retailers.17 Investigations have found that about 10 percent of SNAP retailers are engaged in trafficking.18

State governments are supposed to weed out fraud by recipients, but it is difficult for them to keep track of the income and eligibility status of 46 million people. Some experts are skeptical that the mispayment rate is as low as claimed because the federal government does not have good data on recipient fraud within the states.19

Another concern with the food stamp program stems from the change in America's low-income population over time. Social conditions are vastly improved since the food stamp program was created. Today, just 5.6 percent of U.S. households report one or more episodes a year during which food intake is reduced due to a lack of resources, which is called "very low food security."20 Harvard University's Robert Paarlberg notes that on any typical day less than 1 percent of households face this situation.21 By contrast, about 18 percent of U.S. households receive food stamps.22

The main food-related health problem for the low-income population today is not hunger, but obesity.23 Welfare scholar Douglas Besharov argues, "Today, instead of hunger, the central nutritional problem facing the poor, indeed all Americans, is not too little food, but rather too much — or at least too many calories."24 Today, 70 percent of American adults are "overweight" or "obese," up from 56 percent in the late 1980s.25 On average, people with lower incomes are more overweight and more obese than people with higher incomes.26 Children age 6 to 11 in low-income families are almost twice as likely to be obese than children in high-income families.27 In general, low-income Americans are suffering not from too little food, but from too much of the wrong kinds of food. 28

Food stamps can be used to purchase just about any edible item in grocery and convenience stores other than alcohol, vitamins, and hot food. In its guidelines, the USDA lists the few food items that are not allowed, and then essentially says that anything else goes, including "soft drinks, candy, cookies, snack crackers, and ice cream."29 It is likely that many billions of taxpayer dollars for food stamps are being spent on junk food.

How much? We do not know because the government will not release detailed data on food stamp spending. The public pays the cost of the $78 billion food stamp program, but the government will not tell the public know how their tax dollars are being spent.

Leaders of the Association of Health Care Journalists argue that the government should provide information on what products food stamps buy and at which retailers food stamps are spent.30 The association argues that the program's secrecy "runs contrary to President Obama's promise of government transparency, and stands in sharp contrast with practices at other federal agencies….With any federal program, but especially one as large as SNAP, records should be public unless there is a compelling reason to hide them."31

In 2015 the USDA did release a study showing that 40 percent of food stamp recipients were obese compared to 32 percent of low-income individuals not on food stamps.32 Both adults and children in food stamp families are more obese than other Americans.

The USDA has also found that food stamp recipients scored lower on a "healthy eating index" than other individuals with low incomes, and also individuals with higher incomes.33 Food stamp recipients are less likely to consume whole grains and raw vegetables, and are more likely to consume regular soda than other people.34 So it is ironic that the SNAP program is called a "nutrition" program.

Some policymakers and health experts favor prohibiting junk food purchases with food stamps, and there are efforts in some states to do that. An advantage of banning junk food in SNAP is that it would reduce demand for the program, and thus reduce taxpayer costs. If policymakers decided that food stamps could only be used to buy items such as fresh vegetables, fewer people would use the program, which would be a good thing.

The way to reform the food stamp program is to end federal involvement and transfer the full funding and administration to the states. Each state could decide to provide benefits either more or less generous than current benefits, and each state could decide whether or not taxpayers should subsidize "soft drinks, candy, cookies, snack crackers, and ice cream."

School Breakfast and Lunch

The federal government funds school lunch and breakfast programs at about 100,000 public schools and nonprofit private schools across the nation. The lunch program covers 31 million children, while the breakfast program covers 14 million children.35 The two programs, which provide free and reduced-price meals, will cost $22 billion in 2016.36 School lunch and breakfast benefits are available without regard to immigration status.37

The programs had their origins in the Federal Surplus Commodities Corporation established in 1935. That entity distributed "surplus" meat, dairy, and grain products to the needy, including children in schools. An official history of the school lunch program says that farm policies of the 1930s aimed "to remove price-depressing surplus foods from the market," and that "many needy school children could not afford to pay for lunches."38 Apparently it did not occur to the historian, or to policymakers in the 1930s, that some children could not afford lunches because the government was pushing up food prices by restricting supply.
 
The official history describes how, prior to the 1930s, local governments and private charities in city after city provided food aid to their schools. However, "aid from federal sources became inevitable" because local governments "could not provide the funds necessary to carry the increasing load."39 But that justification for federal intervention makes no sense. The federal government has no funds of its own — it gets all of its money from taxes paid by people who live in local communities.

The modern school lunch program dates to the National School Lunch Act of 1946. The program covered 7 million children in its first year and was expanded to 22 million children by 1970. The number of recipients was trimmed during the 1980s, but has risen since the 1990s. Congress began the school breakfast program as a pilot program in 1966 and made it permanent in 1975. Congress added an after-school snack program in 1998.

The school lunch and breakfast programs are not just for low-income families. Any child at participating schools is allowed to receive meals under the programs. Families with incomes below 130 percent of the poverty level receive free meals, while those between 130 and 185 percent of the poverty level receive reduced-price meals. Families above 185 percent pay "full price," but that price is also subsidized to an extent. In 2015, 65 percent of the meals were free, 7 percent were reduced price, and 28 percent were full price.40

Like the food stamp program, the school breakfast and lunch programs were designed to reduce hunger. But the low-income population has changed over the decades, and excess weight and obesity have become serious problems among children. The school lunch and breakfast programs may contribute to the weight problems experienced by young people from low-income families.

The school lunch and breakfast programs are subject to widespread fraud and abuse. The official rate of improper payments for the school lunch program is 16 percent, while the rate for the breakfast program is 25 percent.41 Local governments do relatively little verification of recipient eligibility, and so large shares of free and reduced-price meals are taken improperly by families with incomes above the cutoff levels.

No proof of income, such as a paystub or W-2 form, is needed for school lunch applications, and federal rules restrict school districts from an upfront verification of eligibility.42 But when federal auditors have examined samples of applications in detail, they find that about half require downward adjustments in benefit levels because incomes are misreported.43 The USDA Inspector General has recommended that applicants provide proof of income, which would be a basic check on abuse.44

A pattern of abuse by teachers and officials discovered in the Chicago Public Schools (CPS) is indicative of the problems. The Chicago Tribune reported:

At the West Side school, more than a dozen CPS and city employees had submitted false applications for free or reduced-price lunches, according to James Sullivan, Chicago Public Schools' inspector general. The alleged offenders included teachers, teachers assistants, district employees, a security officer and two people in law enforcement, some of them earning six-figure salaries.

The findings led Sullivan to conclude in his report that the National School Lunch Program, meant to provide basic nutrition to needy students, was "ripe for fraud and abuse" because of layers of bureaucracy, incentives for high enrollment, and minimal checks and balances.

School districts reap rewards for enrolling as many students as possible in the lunch program, in part because those numbers help determine funding tied to poverty levels. At the same time, federal law allows school officials to vet only a fraction of the lunch applications they receive — in the case of CPS, fewer than 1 percent."45

Other articles suggest similar sorts of abuses across the country.46 Local governments have incentives to maximize the number of program recipients, and so reducing abuse is not a priority for them. In effect, the school lunch and breakfast programs operate largely on the "honor system," as the Tribune story noted. Sadly, the honor system is not good enough these days when so many people are willing to swindle government programs.

Congress should end the school lunch and breakfast programs. If state and local governments wanted to take over the programs and fund them, they could do so. The states would have a stronger incentive to limit the abuse if it was their own taxpayer money that they were spending.

Women, Infants, and Children (WIC)

The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) provides baby formula, food, and counseling to 8 million lower-income women and children annually.47 WIC covers pregnant women, new mothers, and children until the age of five. The WIC program will cost more than $6 billion in 2016.48

The federal government provides grants to the states to pay for WIC's benefits and administration costs, and the states disburse funding to the thousands of local agencies that operate the program. Congress established WIC as a pilot program in 1972 and made it permanent in 1974. WIC spending grew modestly during the 1970s and 1980s, soared during the 1990s, and continued to rise during the 2000s. However, WIC spending has dipped a little since 2012.

WIC recipients receive vouchers that they exchange for food items, such as baby formula, at authorized retailers. The retailers redeem the vouchers for cash at state WIC agencies. WIC benefits are available without regard to immigration status.

A troubling aspect of WIC is that while program administrators are supposed to encourage mothers to breastfeed, the program incentivizes mothers to use infant formula because it is provided to them free. The WIC program accounts for about half of all infant formula used in the nation.49 About 90 percent of WIC infants use some formula.50

The share of mothers on WIC who breastfeed is substantially less than the share of mothers not on WIC who breastfeed.51 Studies even find that mothers on WIC breastfeed less than other low-income mothers who are not on WIC.52 A Centers for Disease Control study found, for example, that at six months after birth, 33 percent of mothers on WIC were breastfeeding compared to 50 percent of low-income mothers not on WIC.53

In recent years, WIC guidance promoting breastfeeding has been put into place, but the reduced level of breastfeeding persists because formula continues to be provided free. That pro-formula effect of WIC runs counter to the universal advice of doctors regarding the superiority of breast milk for child development.

A simple and obvious reform would be to end baby formula subsidies in WIC. An even better reform would be to repeal the WIC program entirely. As with food stamps and school lunches, WIC activities are properly the responsibility of state and local governments and the private sector. If the federal government ended its food subsidy programs, the states would respond with their own policies. The states would probably take a variety of different policy approaches, but that would be a good thing because it would allow the states to learn from each other and adopt innovations.

Prior to the establishment of federal food subsidies, many local governments and private charities already had food relief programs in place.54 The mistake by Congress was to believe that the federal government could step in and create more efficient food relief programs than the ones that communities were already developing.

Federal funding has gained support from state policymakers over the years, not because it is efficient, but because it provides states with "free" benefits. But funding for federal aid programs ultimately comes from taxpayers who live in the 50 states, and so aid is not really free at all.

Federal aid programs, including food programs, are less efficient than state, local, and private efforts.55 Federal politicians focus on steering spending to their states, not on program quality. The states are wasteful in administering federal aid because the funding seems free to them. And because multiple levels of government are involved in federal aid programs, the system lacks accountability.

America does not need federal food subsidy programs. Instead, the states should either fund their own food programs or rely on private charitable efforts to help people in need.




1 Budget of the United States Government, Fiscal Year 2017 (Washington: Government Printing Office, 2016), Public Budget Database.
2 Budget of the United States Government, Fiscal Year 2017 (Washington: Government Printing Office, 2016), Public Budget Database.
3 www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap.
4 www.fns.usda.gov/snap/eligibility.
5 One type of categorical eligibility allows individuals to be automatically eligible for food stamps if they are receiving certain other benefits. Another type is "broad based" categorical eligibility, under which some states have scrapped asset tests and raised the income cutoff. See Greg Falk and Randy Alison Aussenberg, "The Supplemental Nutrition Assistance Program: Categorical Eligibility," Congressional Research Service, July 22, 2014.
6 www.fns.usda.gov/snap/snap-policy-non-citizen-eligibility. The 1996 welfare reform bill rescinded food stamp benefits for noncitizens, but those benefits were restored in the 2002 farm bill.
7 U.S. Department of Agriculture, Food and Nutrition Service, "A Short History of SNAP," November 20, 2014, www.fns.usda.gov/snap/short-history-snap.
8 U.S. Department of Agriculture, Food and Nutrition Service, "A Short History of SNAP," November 20, 2014, www.fns.usda.gov/snap/short-history-snap.
9 www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap.
10 www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap.
11 www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap.
12 Budget of the United States Government, Fiscal Year 2017 (Washington: Government Printing Office, 2016), Public Budget Database.
13 The federal and state governments split food stamp administration costs, so I have doubled the federal share of state administration costs of $4.2 billion in 2016, and I have added federal administration costs of about $600 million.
14 Some estimates are higher at 15 percent or more. See Julia Isaacs, "The Costs of Benefit Delivery in the Food Stamp Program," Brookings Institution, March 2008, Appendix 1.
15 www.fns.usda.gov/snap-retailer-data.
16 www.fns.usda.gov/snap/quality-control.
17 Luke Rosiak, "Those at the Front Lines of Junk-Food Food Stamp Purchases Rail at USDA Secrecy," Washington Examiner, August 12, 2014.
18 U.S. Department of Agriculture, "The Extent of Trafficking in the Supplemental Nutrition Assistance Program: 2009-2011," August 2013.
19 Paul Brennan, "Some Feds Have No Idea the Extent of SNAP Fraud, Says Iowa Official," Watchdog.org, September 11, 2014. And see U.S. Department of Agriculture, Office of Inspector General, "Analysis of FNS' Supplemental Nutrition Assistance Program Fraud Prevention and Detection Efforts," September 2012.
20 www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics.aspx. And see Douglas J. Besharov, University of Maryland, testimony to the House Committee on Agriculture, February 25, 2015.
21 Robert Paarlberg, "Obesity: The New Hunger," Wall Street Journal, May 11, 2016.
22 About 22 million households receive food stamps out of 125 million households in the nation. Data for households on food stamps is at www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap.
23 Douglas J. Besharov, University of Maryland, testimony to the House Committee on Agriculture, February 25, 2015. And see Douglas Besharov, "We're Feeding the Poor as if They're Starving," American Enterprise Institute, December 8, 2002.
24 Douglas J. Besharov, University of Maryland, testimony to the House Committee on Agriculture, February 25, 2015.
25 U.S. Department of Health and Human Services, National Center for Health Statistics, "Health, United States, 2015," Table 58, www.cdc.gov/nchs/data/hus/hus15.pdf.
26 U.S. Department of Health and Human Services, National Center for Health Statistics, "Health, United States, 2015," Table 58, www.cdc.gov/nchs/data/hus/hus15.pdf.
27 U.S. Department of Health and Human Services, National Center for Health Statistics, "Health, United States, 2015," Table 59, www.cdc.gov/nchs/data/hus/hus15.pdf.
28 Douglas Besharov, "We're Feeding the Poor as if They're Starving," American Enterprise Institute, December 8, 2002.
29M www.fns.usda.gov/snap/eligible-food-items.
30 Felice J. Freyer and Irene M. Wielawski, "What Do Food Stamps Buy?" Los Angeles Times, August 2, 2013.
31 Felice J. Freyer and Irene Wielawski, "Journalists Call on USDA to Release Food Stamp Information," Association of Health Care Journalists, April 8, 2013. And see Chris Edwards, "Food Stamp Fraud and Twinkies," Cato Institute, April 19, 2013.
32 U.S. Department of Agriculture, "Diet Quality of Americans by SNAP Participation Status," May 2015, www.fns.usda.gov/sites/default/files/ops/NHANES-SNAP07-10.pdf, p. x.
33 U.S. Department of Agriculture, "Building a Healthy America: A Profile of the Supplemental Nutrition Assistance Program," April 2012, p. 21.
34 U.S. Department of Agriculture, "Building a Healthy America: A Profile of the Supplemental Nutrition Assistance Program," April 2012, p. 22.
35 www.fns.usda.gov/pd/child-nutrition-tables.
36 Budget of the United States Government, Fiscal Year 2017 (Washington: Government Printing Office, 2016), Public Budget Database.
37 U.S. Department of Agriculture, "Eligibility Manual for School Meals," July 2015, p. 28.
38 Gordon W. Gunderson, "National School Lunch Program: Background and Development," U.S. Department of Agriculture, Food and Nutrition Service, June 17, 2014.
39 Gordon W. Gunderson, "National School Lunch Program: Background and Development," U.S. Department of Agriculture, Food and Nutrition Service, June 17, 2014.
40 Data available at www.fns.usda.gov/pd/child-nutrition-tables.
41 Government Accountability Office, "School-Meals Programs," GAO-14-262, May 2014, p. 15.
42 Government Accountability Office, "School-Meals Programs," GAO-14-262, May 2014, p. 9.
43 U.S. Department of Agriculture, Office of Inspector General, "FNS: National School Lunch and School Breakfast Programs," April 2015, p. 4.
44 U.S. Department of Agriculture, Office of Inspector General, "FNS: National School Lunch and School Breakfast Programs," April 2015, p. 12.
45 Monica Eng and Joel Hood, "School Free-Lunch Program Dogged by Abuses at CPS," Chicago Tribune, January 13, 2012.
46 David Bass discusses abuse problems in a number of school districts. David N. Bass, "Fraud in the Classroom," Education Next 10, no. 1 (Winter 2010)
47 Data available at www.fns.usda.gov/pd/wic-program.
48 Budget of the United States Government, Fiscal Year 2017 (Washington: Government Printing Office, 2016), Public Budget Database.
49 George Kent, "WIC's Promotion of Infant Formula in the United States," International Breastfeeding Journal 1, no. 8, April 20, 2006.  And see Victor Oliveira, et al., "WIC and the Retail Price of Infant Formula," Economic Research Service, U.S. Department of Agriculture, May 2004.
50 Kelly Lawrence Patlan and Michele Mendelson, "WIC Participant and Program Characteristics 2014: Food Package Report," Insight Policy Research for the U.S. Department of Agriculture, February 2016, p. 32.
51 Scanlon, K. S., et al. "Racial and Ethnic Differences in Breastfeeding Initiation and Duration by State," Morbidity and Mortality Weekly 59 no. 11 (2010): 327-334. And see George Kent, "WIC's Promotion of Infant Formula in the United States," International Breastfeeding Journal 1, no.8, April 20, 2006.
52 Scanlon, K. S., et al. "Racial and Ethnic Differences in Breastfeeding Initiation and Duration by State," Morbidity and Mortality Weekly 59 no. 11 (2010): 327-334.
53 Scanlon, K. S., et al. "Racial and Ethnic Differences in Breastfeeding Initiation and Duration by State," Morbidity and Mortality Weekly 59 no. 11 (2010): Table 1.
54 Gordon W. Gunderson, "National School Lunch Program: Background and Development," U.S. Department of Agriculture, Food and Nutrition Service, June 17, 2014.
55 Chris Edwards, "Fiscal Federalism," DownsizingGovernment.org, Cato Institute, June 1, 2013.

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