STATEMENT OF HON. WILLIAM E. SIMON, SECRETARY OF THE TREASURY, SUBMITTED TO THE SENATE SELECT COMMITTEE ON NUTRITION AND HUMAN NEEDS, TUESDAY, OCTOBER 21, 1975

I welcome the opportunity to submit this statement and to express my views on the Food Stamp Program and on the complex network of income transfer programs of which it is a part.

Let's begin by trying to put the Food Stamp Program in perspective. We know that when the program was started in the early 1960's, one of its main objectives was to help poor Americans to obtain a nutritious diet. That is a compelling, humane goal. I strongly support the basic objective of the Food Stamp Program: Poor people must have the ability to purchase a nutritionally adequate diet.

The problem with food stamps is that we seem to have lost sight of that objective and have ended up instead with a program that also serves as a kind of income support for many others who do not truly need assistance. Eligibility guidelines are so loosely drawn and the program has grown so rapidly-from under one million recipients per month in 1965 to 17 million per month in fiscal year 1975, to an anticipated 19 million per month during fiscal year 1976-that it practically invites people to take advantage of it.

I must say that I was surprised at the press coverage my brief remarks about food stamp chiselers and rip-off artists were given. Outside Washington, at the grass roots level where people can readily see what's going on in their communities, there is a widespread feeling that undeserving people are abusing the program:

-One of the national news magazines reported recently that it had conducted dozens of interviews across the country and found a "widely held belief that the food stamp program is the most abused of all plans to help the needy." (U.S. News, September 1, 1975.) -Senator Talmadge, a distinguished member of this Committee, said earlier this summer that every time he goes home to Georgia, he hears "frequent complaints about abuses that citizens have noticed." "Increasingly," he said, "hardworking, taxpaying Americans are getting fed up with and disgusted with the abuse that is rampant in the program."

-Senator Buckley has said that "shocking Federal regulations have turned a truly working and humane food stamp program into an administrative nightmare and a public rip-off.'

-In Chicago, the Tribune called it a "fiasco" and said "many of us have seen the abuses first hand -A county Assistant District Attorney for Little Rock, Arkansas, said in his testimony before the Senate Agriculture Committee on October 7 that from his five-month investigation of 500 food stamp cases of families with five persons or more who paid nothing for food stamps the degree of recipient fraud was as

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high as 50 percent. A legislative Joint Auditing Committee in Arkansas has been studying errors in the program. Similarly, a Georgia State Senate Food Stamp Study Committee has made a number of recommendations for reform after discovering numerous inequities and instances of abuse.

My mail has reflected this feeling, too:

-A woman from Lynnwood, Washington said that "the Food Stamp Program has gotten completely out of hand. There are getting to be fewer and fewer working people and more and more who feel the government owes them a living."

-And a woman from Montclair, New Jersey has openly written about friends providing false information to obtain food stamps, because "it is so easy to lie" about their income.

Indeed, reflecting a deepening public sentiment, over 100 Members of the Congress are now supporting legislation which would provide strong reforms.

The sad part about this is that when funds are diverted from the needy to undeserving recipients, fewer funds are available to help the truly poor. And when people believe that a program for the poor is being badly abused, political support for the program evaporates and eventually the program may be gutted. In both cases, the poor are the ones who are hurt.

Clearly, we must end the abuses and ensure that the Food Stamp Program becomes as fair and efficient as possible. If we do not, we risk the real danger of losing public support for a program we do need to help the poor.

The immediate problem is to redefine the purpose of the Food Stamp Program and to assure that it fully serves that purpose. The President's program, which Secretary Butz presented to the Senate Agriculture Committee yesterday, would accomplish the necessary reforms. Today we have a program which permits participation by the truly poor, and also by those who are temporarily unemployed (even though they may have substantial assets), those who are not earning income because of personal choice, and those who have incomes above the poverty line but who are able to qualify because of the program's liberal eligibility criteria and/or shoddy administration in State welfare agencies. These are the "legal abusers"-those who are indeed eligible and who take advantage of the program even though they are not in the category of the truly poor who the program was created to serve.

Apart from these "legal abusers" of the program, however, it was more flagrant abusers I had in mind when I spoke of the Food Stamp Program as a haven for chiselers and rip-off artists. Chiselers and ripoff artists in my view are those people who take advantage of the program in a manner which breaks the law. They may be participants who supply inaccurate information on complex application forms which are not adequately checked in State issuing offices. They may be clerks in grocery stores who accept stamps for non-food items or exchange money for stamps. They may be mail clerks who pilfer authorization-to-purchase cards. They may even be welfare workers who create fictitious cases in order to obtain food stamps illegally.

My point is that this program is open to abuse by those who want to cheat it. The program circulated food stamps with a face value

totaling $7 billion in fiscal year 1975, of which the Federal share-or the so-called "bonus value" was $4.4 billion.

In the same year, a total of 29.4 million people used the program at some time during the year. Because many people qualify for only a few months, the average monthly rate during that year was 17 million. The estimated number of eligible Americans, however, was 40.6 million.

The program is administered locally through 3,034 project areas serving the entire population. Stamps are redeemed for food at some 247,000 certified wholesale and retail food outlets. The program makes every food checker in every retail store a kind of law enforcer, responsible for assuring that only food items are bought with stamps.

The sheer size of this program, the potential for abuse-and increasing public awareness and concern about that abuse--make reform vital.

In this statement, I will review the importance of our transfer payment programs as an expanding share of our Federal budget expenditures and will point out the implications for the future if these programs continue to grow at current rates. I will then turn to the growth of the Food Stamp Program, which has become an important income transfer program. I hope my discussion will show that the original objectives of the program have changed substantially over time through legislative modifications which have had an immense impact on the program's growth. I will discuss problems of abuse in the program. I will also describe the President's proposals for reform which will concentrate benefits on those truly in need and simplify administration of the program.

TRANSFER PAYMENT PROGRAMS IN THE FEDERAL BUDGET

I would first like to describe the Food Stamp Program, and other social welfare programs, in the context of our national tax and transfer system, and as a growing share of total Federal Government expenditures.

In fiscal year 1976 the Federal Government will be spending about one billion Federal dollars a day, or about $370 billion compared to spending of $196.6 billion in fiscal year 1970, $118.4 billion in fiscal year 1965 and $68.5 billion in fiscal year 1955.

Fifty-two percent of this increase since 1955 has been the result of a dramatic growth in Federal payments to or on behalf of individuals. These payments include outlays for social security, unemployment assistance, veterans' benefits, Medicare, Medicaid, housing payments, public assistance, and other payments (Exhibits 1 and 2).1 As a result, these transfer payments have grown substantially as a portion of total budget expenditures. They accounted for 19 percent of Federal spending in fiscal year 1955, compared to 27 percent in 1965, 32 percent in 1970, and 46 percent in the current fiscal year (Exhibit 3).2

This growth in relation to the GNP is demonstrated by the fact that from fiscal year 1955 to fiscal year 1974, Federal outlays for these payments increased at an average annual rate of 8.8 percent in real terms that is, after adjusting for price changes. This is more than

1 See p. 37.

2See p. 38.

double the average annual real GNP growth rate of about 3.5 percent (Exhibit 4). Interestingly, at least three-fourths of the 8.8 percent growth rate was accounted for by new programs and expansions of existing ones-not by growth in the beneficiary population.

A Treasury study shows that growth of transfer payment programs since the mid-sixties has resulted in a growth in total beneficiary households from 26.3 million in 1967 to 32.4 million in 1974, a 23 percent increase. Because of even more rapid growth in benefits per recipient, total outlays rose from $49.8 billion to $99.7 billion, a 100 percent increase. By comparison, the number of taxpayers grew by only 14 percent, while tax receipts grew some 60 percent (Exhibits 5 and 6).*

The rapid growth in transfer payments to individuals since 1955 gives cause for very serious concern about future spending. I would like to compare potential future growth under two different assumptions.

OMB's Mid-Session Review of the 1976 Budget projects payments to individuals of $232 billion in fiscal year 1980, or 48 percent of total projected Federal outlays of $483 billion, in current dollars. These projections assume continuation of existing law-no new programs and no broadening of the coverage of existing ones. This compares with an estimated $147.6 billion in payments for individuals in FY 1975, or 45 percent of total Federal outlays of $324.6 billion. Another projection, by Treasury, based on the historical trend since 1955, indicates that Federal payments for individuals could reach $277 billion in 1980, more than 50 percent of a $550 billion total budget. This projection assumes that new programs or the expansion of old programs would be introduced at the same rate as during the past two decades. Although this is clearly not a forecast of what the Government will actually be spending in 1980, it does indicate where the recent trend of rapid growth in transfer payments programs could help take us (Exhibit 7).5 It certainly explains this Administration's strong desire to bring the growth of the Federal budget under control.

What does a future of such unrestricted Federal expenditures for income transfer programs imply for the growth of the economy and for individual Americans? We face a variety of problems in this regard:

(1) The ability of the Federal Government to operate a balanced budget and achieve a reduced tax burden is undermined by runaway expenditures. This is of deep concern to the Administration because increases in government expenditures on such consumption-oriented programs will tend to reduce the savings and capital formation that are essential for the future growth of our economy.

(2) In receiving Federal benefits targeted for specific needs, the individual recipient tends to lose his freedom of choice to use these resources as he might want. We should be able to develop a more flexible system which grants the recipient more freedom in choosing how to spend his resources, while still maintaining overall program

control.

3 See p. 39.

4 See pp. 40 and 41.

5 See p. 42.