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Argument: Increasing food stamp benefits can help stimulate spending

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Supporting evidence

  • Congressional Budget Office. "Options for Responding to Short-Term Economic Weakness". January 2008 - "Food Stamps. Another approach would be to temporarily increase Food Stamp benefits for households already receiving them. In general, to be eligible for Food Stamp benefits an applicant’s monthly household income must be at or below 130 percent of the poverty guideline (currently $2,238 for a family of four in the contiguous United States), and countable assets must be less than $2,000. Once eligibility has been determined, the amount of the monthly Food Stamp benefit is calculated. A household is expected to contribute 30 percent of its net income (gross income minus deductions for certain expenses) toward food expenditures. In 2008, the maximum amount that an eligible four-person household with no income in the contiguous United States can receive is $542 per month.
During fiscal year 2006, approximately 27 million people received Food Stamp benefits each month. Nearly all benefits went to the 87 percent of Food Stamp households that were in poverty. Over half of all benefits went to the 39 percent of Food Stamp households whose income was less than or equal to half of the poverty line. The vast majority of Food Stamp benefits are spent extremely rapidly. And because Food Stamp recipients have low income and few assets, most of any additional benefits would probably be spent quickly."

Dollar-for-dollar, this is one of the most effective forms of stimulus available. Virtually all of an increase in food stamp benefits would be spent, since food stamp households — about 90 percent of whom live below the poverty line — generally spend all their resources to meet their daily needs. Martin Feldstein, chairman of President Reagan’s Council of Economic Advisers, recently joined those calling for a temporary food stamp increase, noting that it would be stimulative because it would provide resources to people with a high propensity to consume.

Moreover, increased food stamp benefits would be injected into the economy much more quickly, and could be implemented much more easily, than almost all other forms of stimulus. Increased food stamp benefits can be issued within 60 days after enactment, and about 80 percent of all food stamp benefits are redeemed within two weeks of issuance. Some 97 percent are redeemed by the end of the month. Moreover, the administrative costs of a temporary benefit increase would be negligible. In contrast, temporary expansions of most other programs except unemployment insurance would take additional months to actually show up in the economy and, in many cases, would entail increased administrative costs.

USDA’s Economic Research Service (ERS) estimates that each $1 billion of retail demand by food stamps generates $340 million in farm production, $110 million in farm value-added, and 3,300 farm jobs; and each $5 of food stamps generates almost $10 in total economic activity. Changes in food stamp policy have significant impacts on economic activity and household income across the economy, according to an ERS study finding that hypothetical cuts in food stamp benefits reduce food demand and farm production. Food stamp participation closely follows the economic cycle. With few exceptions (notably 1981-1983 following substantial program cutbacks) food stamp caseloads have closely tracked the unemployment rate, rising as unemployment rises, and falling when it declines. Food stamps also promote self-sufficiency, which leads to more economic activity. For every additional dollar a food stamp recipient earns, his or her benefits decline by 24-36 cents, thus providing a strong incentive to work longer hours and search for better employment opportunities.

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