7. THE FOOD STAMP PROGRAM AS A PERCENTAGE OF THE FEDERAL BUDGET

"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 (Ex hibits 1 and 2). As a result, these transfer payments have grown substantially as a portion of total budget expenditures. They ac· counted 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)."

99 15

"OMB's Mid-Session Review of the 1976 Budget projects payments to individuals of $232 billion in FY 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). It certainly explains this Administration's strong desire to bring the growth of the Federal budget under control." i

These alarming figures are countered by a study recently released by the Senate Budget Committee. This report, prepared by the Congressional Budget Office, predicts that spending for major income assistance programs will not necessarily be a greater percentage of the GNP in 25 years than they are at the present time. The Congressional Budget Office feels that it is unlikely that Federal entitlement programs will continue to expand at the rate of the past 20 years. Now, income assistance programs amount to 9.3 percent of the GNP. In the year 2000, they are predicted to be between 9.4 percent and 10.4 percent of the GNP.

Furthermore, Secretary Simon's discussion of the growth of payments to individuals as a percent of the budget leaves the impression that the majority of funds under this category go to welfare programs such as food stamps. AFDC, and Medicaid. Actually this is not the case. In fiscal year 1975, payments to individuals were allocated as follows:

15 See p. 15.

16 See p. 16.

Almost two-thirds of the total payments to individuals went for various forms of retirement and disability payments. The remaining third was divided between public assistance payments, veterans benefits and unemployment insurance. Only 18 percent of these payments to individuals went for welfare programs.

[Testimony Before the Senate Select Committee on Nutrition and Human Needs, October 21, 1975]

THE ROLE OF THE FOOD STAMP PROGRAM

[By Richard P. Nathan 1]

Mr. Chairman, the considerable public attention now focused on food stamps is understandable. The public is becoming aware of this program because in recent years it has become one of the Nation's major programs for aiding the poor.

The food stamp program needs to be understood in relation to the total mix of the Nation's welfare programs. Welfare is controversial. It is no surprise that the emergence of food stamps on the welfare scene is cause for much critical comment. In my view, the growth of the food stamp program from $600 million in Federal outlays in 1970, as the commodity-distribution program has been phased out, to a current annual spending rate of close to $6 billion constitutes the most important change in public welfare policy in the United States since the passage of the Social Security Act in 1935. In fundamental ways, food stamps fill gaps in current welfare programs, and, although not intendede make the overall mix of these programs more equitable and more adequate to meet minimal human needs.

Furthermore, Mr. Chairman, contrary to what may be a widespread public impression, the food stamp program is not the fastest growing welfare program of the Federal Government at the present time. In fact, participation in the food stamp program, as this testimony indicates, has leveled off as unemployment has declined and the economic recovery has gotten underway in recent few months. The fastest growing program currently-the Federal welfare-type program most in danger of getting out of control-is not the food stamp program, but the Medicaid program, estimated in the Federal budget to cost $7,766 million in fiscal 1976. This makes Medicaid by far the single most costly welfare program to the Federal Government.

CONTENT OF TESTIMONY

This testimony deals with three subjects: (1) The significance of the food stamp program in relation to other welfare programs; (2) basic facts about current program operation; and (3) the need for reform of the food stamp program and what certain kinds of reforms would mean in terms of the future role of the program.

1 Richard P. Nathan is a Senior Fellow at the Brookings Institution. The information and views presented here are his alone, and do not represent the position of the Trustees, officers, or other staff members of the Brookings Institution.

SIGNIFICANCE OF THE FOOD STAMP PROGRAM

ere are five principles that most experts on welfare-liberal and ervative-would agree are the guiding considerations in deciding welfare policies. They apply both to cash assistance and in-kind ograms (ie. Medicaid and food stamps). Simply stated, these five principles are:

Horizontal equity. -Do all persons in like circumstance receive like treatment?

Vertical equity.-Are we able to avoid cases where poor persons with some income in the final analysis end up having less total income than families completely dependent of welfare? This is the dilemma behind blue collar resentment towards many welfaretype programs.

Work incentives. -Do programs which aid the working poor do so in a manner that doesn't cut their incentive to earn more? Adequacy. Do welfare programs provide enough income to the working and unemployable poor to enable them to have what in our rich Nation would be considered a reasonably decent minimal standard of living?

Efficiency. Can we run welfare programs efficiently-cut error rates and abuses, avoid long waiting lines, eliminate fraud? To summarize, when looked at in relation to other welfare-type programs, the food stamp program can be seen to aid horizontal and vertical equity, to have a strong work incentive effect and to improve the adequacy of welfare-type payments. The food stamp program however does contain administrative flaws that must be dealt with to make it more efficient. I also believe changes are needed in this program to increase its equity-enhancing effect in relation to other welfare-type programs.

The manner in which the food stamp program enhances the equity and adequacy of welfare can be seen by examining two fundamental ways in which the program effects the overall mix of welfare-type programs:

(1) The food stamp program reduces disparities among the States in welfare benefit-levels for poor families.-One of the problems we were most concerned about when work first began on the Family Assistance Plan in 1969 was that AFDC benefits in high-benefit States (such as New York, Michigan, Massachusetts) were as much as ten times per person per month more than those in the lowest benefit State, Mississippi. Food stamps have dramatically reduced these disparities. This is because food stamps, in effect, serve as a supplement to AFDC benefits; the lower is a family's AFDC benefit, the higher the value of its food stamps.

Currently, AFDC plus food stamps for a family of four in Mississippi (approximately $2,500) are one half of what a New York family of four can receive under the two programs combined (approximately $5,000). While this 2:1 difference is still large (too large to be attributed to differences in costs and wage rates between low-benefit and high-benefit States) the former gap of as much as 10:1 has been substantially reduced because of the availability of food stamps.

(2) Food stamps also provide a supplement to the wages of the "working poor", that is family heads whose family is so large and wages so low that without food stamps their total income would be way below the poverty

level. This group is precisely the group that the Family Assistance Plan was intended to serve. The irony today is that although the Family Assistance Plan was not enacted, the food stamp program has become the "unintended welfare reform." The food stamp program now can provide benefits to most working poor families which are higher than the benefits they would have received under the most liberal (Senator Ribicoff's) version of the Family Assistance Plan. Anyone who opposed the Family Assistance Plan should also be opposed to the dramatic expansion of the food stamp program.

PROGRAM FACTS

Mr. Chairman, at this point, I would like to briefly put in perspective some major facts about the food stamp program.

The food stamp program was established as a pilot project in 1962. It was expanded to all counties in 1965; although, it was not operating in all counties until 1974. The preliminary August 1975 figure of 18.8 million participants (the latest month for which data are available) is up 4.5 million from August 1974, indicating the magnitude of growth in recent months. However, participation in the food stamp program actually peaked in April of this year at 19.6 million persons. Since then it has been declining.

Participation in the food stamp program, 1975

Millions of
persons

According to a study of Census income data just done by USDA officials, 84 percent of all food stamp households have incomes under $6,000 per year. Yet 6 percent have incomes over $9,000. This latter group is too large and has caused much of the resentment (along with the participation of full-time students) toward the food stamp program. Taking the food stamp and commodity distribution programs combined, participation was fairly stable at about 15 million persons (average per month) in the three years from 1972 through 1974.1 Participation has risen significantly since then. Many persons would argue that this is an important advantage of the food stamp program, namely its responsiveness to recession and high unemployment.

As indicated earlier, participation has been declining lately. Although figures for the future are controversial, USDA projections show a peak of 20.9 million participants in the 1977-78 period, and 19.1 million in 1980.

1 A recent USDA study estimates that, taking into account in- and out-movement, some 30 million different individuals participate each year in the food stamp program, about 15 percent of the population. January 1975 was the base month for this analysis. See "Report in Accordance with Senate Resolution 58," Committee on Agriculture and Forestry, July 21, 1975.