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This file includes material relating to the efforts attempting to reform the Food Stamps program administratively and legislatively, and court cases challenging those reforms.
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Food Stamps (3)
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This file includes material relating to the efforts attempting to reform the Food Stamps program administratively and legislatively, and court cases challenging those reforms.
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James M. Cannon Files (Ford Administration)
James Cannon's Issues Files
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The original documents are located in Box 15, folder "Food Stamps (3)" of the James M.
Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 15 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
THE WHITE HOUSE
WASHINGTON
May 16, 1975
MEMORANDUM FOR:
THE PRESIDENT
FROM:
JIM CANNON
SUBJECT:
Food Stamp Reform
FORD & LIBRARY GERALD
The purpose of this memorandum is to present various actions
which can be taken to reform the Food Stamp program. We
have limited the options presented for your decision to the
key issues but information on all elements of the reform
proposals are provided in the tabs.
BACKGROUND
A description of the current program and a brief background
summary are included in Tab A. In essence the program has
grown from a $200 million program in 1968 serving 2.5 million
people to an estimated $6.6 billion program serving 21 million
people in 1976.
ABUSE OR LEGITIMATE GROWTH (Tab B)
It is difficult to determine with precision what proportion
of this growth is due to abuse of the system and what is
due to factors entirely legitimate under current law such as
Congressionally mandated outreach efforts to encourage parti-
cipation. It is clear, however, that the greater part of the
most recent growth has been related to factors outside the
program such as unemployment and increase in the cost of food.
POINTS OF NOTE
Two points should be brought to your attention:
1. The information base upon which estimates are made of
the impacts of the various options in this paper is
extremely shaky. While it is the best available it
does not enable a confident prediction of program
impact on caseload, costs, or actual benefits.
-2-
2. The U.S. Department of Agriculture study from which
this package of recommendations is developed does
not address the asset test aspects of the program.
Many of the apparent abuses which receive publicity
are caused by the existing lenient asset test (i.e.,
participants are permitted to retain multiple auto-
mobiles, large cash value insurance policies, expen-
sive houses, etc.). The specific reforms suggested,
however, tend to eliminate the higher income partici-
pants where these assets are particularly a problem.
ADMINISTRATIVE REFORM
Twelve specific legislative proposals to simplify adminis-
tration, tighten accountability and penalize and retard
abuses have been agreed upon by OMB, the Department of
Agriculture and the Domestic Council. These are largely
noncontroversial, specific actions which we believe should
be taken regardless of other decisions. They are listed
and described in Tab C.
OPTIONS FOR CONSIDERATION
The following summarize the essential options for your
consideration. Details on each are provided in the designated
tabs.
A. Group Eligibility (Tab D)
1.
Strikers - All employable food stamp recipients
are denied eligibility if they refuse to accept
employment. Being on strike, however, is not
grounds for denying eligibility
--- one possibility would be to require
strikers to wait 60 days before becoming
eligible for food stamps. Since the striker
issue affects a number of income assistance
programs, we recommend this issue not be
part of the food stamp reform.
2.
Addicts and Alcoholics - Eligibility is denied
to residents of institutions where meals are
prepared for them. Current law exempts drug
addicts and alcoholics in institutional treat-
ment programs enabling them to be the only
institutionalized individuals eligible for
food stamps
-- we have proposed eliminating this exemption.
-3-
3.
College Students - Two elements of the current law
affect eligibility of college students for food
stamps
a. current law is confused in regard to eli-
gibility for students who are claimed as
a tax deduction by families which are not
eligible for food stamps.
b. eligible students are exempt from require-
ment to accept employment
-- we recommend clarifying the tax
dependency provision but continuing
the exemption from work requirement.
B. Income Eligibility and Benefit Structure
We recommend that your reform package include con-
sideration of the eligibility determination based on
income since this is the central factor determining
caseload, costs, and the benefits people receive.
The following options are available:
1.
Include in an Overall Reform - The most logical
and effective food stamp reform would be to
consider food stamps as part of a complete
overhaul of all income transfer programs.
-- we recommend that should an overhaul of all
income transfer programs be considered, food
stamps be included. This should not preclude
taking independent action on food stamp
program now.
2.
Action Now - If you agree that action should be
taken now on the income eligibility and benefit
structure of food stamps there are two general
approaches:
a.
Eliminate Food Stamps (Tab E)
Current use of food stamps could cease and
eligible recipients would simply be mailed
a check for the cash value of the current
bonus they receive. Some sort of standard de-
duction could be used to determine eligibility.
-- overall effect would be to increase benefit
costs which are 100% Federal since more
people would participate.
-- estimates of potential additional Federal
costs in FY 76 range from $1.4 Billion to
$3.6 Billion.
-4-
b. Revise Current Eligibility System (Tab F)
If you decide to continue use of food stamps
and to recommend revisions in eligibility
determinations, you could
-- select one specific plan.
-- recommend a standard deduction type of
plan and let Congress set dollar amount.
-- offer a choice of specific plans and
let Congress select one.
The plans developed deal with:
-- deductions, currently a complex and
arbitrary system permits people to
deduct a number of items from their
gross incomes to enable their becoming
eligible even though their gross income
may be well above poverty line.
-- automatic eligibility for welfare
recipients, no matter what their actual
cash and in kind income is.
The specific plans developed:
1. Set a $100 monthly national standard
deduction for all families and eliminate
categorical eligibility.
2. Set a $100 national standard deduction
which varies by family size with special
$50 addition for aged and eliminate
categorical eligibility.
3. Set a single $100 national standard
but continue categorical eligibility and
include a special deduction for the aged
of $50.
4. Set $100 national standard deduction, deny
categorical eligibility but add $25 special
deduction for aged.
5. Create a progressive chart of income
eligibility and bonus values.
6. Put dollar limits on amounts which can be
deducted under current law.
ESTIMATED 1976 IMPACT*
CURRENT
PLAN I
II
III
IV
Total Households Participating
(Millions)
5.4
4.3
4.2
5.4
4.8
Total Annual Cost (Billions)
6.6
5.9
5.9
6.6
6.6
Number of Households with Bonus
Unchanged (Millions)
-
1.6
1.2
2.1
1.2
Number of Households With
Bonus Increased (Millions)
-
1.3
1.3
2.0
2.6
Number of Households With Bonus
Decreased (Millions)
-
2.7
3.1
1.6
1.9
*Estimates for Plans V - VI are not available
RECOMMENDATIONS
1.
Administrative Reform Package, we recommend that you
approve the package of 12 specific administrative reforms.
OMB and Agriculture agree.
Approve
Disapprove
2.
Strikers, we recommend that no change be made in current
eligibility for strikers. The Department of Labor agrees.
Approve
Disapprove
3.
Addicts and Alcoholics, we recommend legislation to
eliminate the present exemption permitting food stamp
eligibility for institutionalized addicts and alcoholics.
Approve
Disapprove
4.
College Students, we recommend legislation to clarify
tax dependency aspect of eligibility for college students
with continuation of exemption from work requirement.
Approve
Disapprove
5.
Overall Reform, we recommend inclusion of food stamps
if an overall reform of income assistance programs is
undertaken but we also recommend that independent action
be taken now to reform food stamp eligibility.
Approve
Disapprove
6.
Eliminate Food Stamps, we recommend that food stamps
continue to be used and therefore not be "cashed out"
at this time. Bill Seidman and the Department of
Agriculture also support continued use of food stamps.
Approve
Disapprove
7.
Specific Revision of Eligibility, we recommend that you
choose plan III which:
a.
replaces allowable deductions from income
with one monthly standard deduction of $100.
b.
continues automatic eligibility for welfare
recipients.
C.
provides as special additional income deduction
of $50 per month for the aged.
Approve
Disapprove
Tab A
BACKGROUND
CURRENT PROGRAM
Eligibility for food stamps and benefit levels are deter-
mined by income, assets, household size and a defined set
of allowable deductions from gross income. The allotment
is the amount of food stamps a household may purchase based
on family size. The cost to an eligible household to
purchase an allotment is based on income. The difference
between the purchase price and the face value of the allot-
ment is the "bonus." The bonus is 100% federally funded.
A food stamp household may choose to vary the level of
participation by committing once each month to purchase
25, 50, 75 or 100 percent of its allotment. Food stamps
are available automatically to all public assistance and
most SSI households.
Households with net earned income become eligible according
to the following schedule ( a more detailed schedule is
attached as the last page to this tab) :
Household Size
Monthly Income Limit
1
194
2
280
3
406
4
513
5
606
6
700
7
793
8
886
It is important to note that the net income in question
is gross income minus a number of allowable deductions
for medical costs, housing, child care, payroll taxes
and a number of other specific deductions. These deductions
have played a central role in opening eligibility to families
whose gross incomes are well above the poverty level.
The food stamp program has two objectives stated in law
in 1964:
1. Raise nutritional levels of low income households.
2. Distribute agricultural surpluses.
- 2 -
Neither of these objectives is applicable today.
-- Although in effect for 10 years, there is
still no evidence that the program raises
nutritional levels.
--- Distribution of agricultural surpluses is
not a problem.
Instead, the program has, since 1968, become a vast income
support mechanism with the largest caseload and fastest
growing costs of any major welfare program:
FY 1968
FY 1970
FY 1972
FY 1974
FY 1976 (est.)
Participants
2.5
6.5
10.5
13.5
21.0
(millions)
Cost (billions)
.2
.6
2.0
2.8
6.6
Until 1974, most of these increases were due to added
participation by those receiving some form of public assistance.
Since that time, however, the growth has been due primarily
to increased participation by those who are not eligible
for any other welfare program. Currently, participation
in food stamp program
Public Assistance:
46%
9.7 million
Non Public Assistance:
54%
11.3 million
It should also be noted that since 1972 the value of the
food stamp bonus and, therefore, eligibility for participation
has been tied to increases in the cost of food.
RECENT FACTORS
The FY 1976 budget proposal for a uniform charge (30% of
net income) for food stamps was overturned by P.L. 94-4.
Concurrently, Senator Dole initiated S. Res. 58, requiring
the Secretary of Agriculture to review the food stamp
program and to recommend by June 30 legislation to:
-- Disqualify families with adequate incomes;
-- Reduce administrative complexity;
GERALD ROND CIGNARY
--- Tighten accountability; and
-- Increase penalties for fraud.
Senate Agriculture Committee will soon hold hearings on
food stamp legislation. USDA has drafted a study and
proposed recommendations.
FOOD STAMP ALLOTMENTS AND PURCHASE REQUIREMENTS (Effective January 1)
48 States and
Number of Persons in Household:
District of Columbia
1
2
3
4
5
6
7
8
Monthly Coupon Allotment:
$46
$84
$122.
$154
$182
$210
$238
$266
Monthly Net Income
Monthly Purchase Requirement:
$
0
to
19.99
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
20 to
29.99
1
1
0
0
0
0
0
0
30
to
39.99
4
4
4
4
5
5
5
5
40
to
49.99
6
7
7
7
8
8
8
S
50
to
59.99
8
10
10
10
11
11
12
12
60
to
69.99
10
12
13
13
14
14
15
16
70
to
79.99
12
15
16
16
17
17
18
19
80
to
89.99
14
18
19
19
20
21
21
22
90
to
99.99
16
21
21
22
23
24
25
26
100 to 109.99
18
23
24
25
26
27
28
29
110 to 119.99
21
26
27
28
29
31
32
33
120 to 129.99
24
29
30
31
33
34
35
36
130 to 139.99
27
32
33
34
36
37
38
39
140 to 149.99
30
35
36
37
39
40
41
42
150 to 169.99
33
38
40
41
42
43
44
45
170 to 189.99
36
44
46
47
48
49
50
51
190 to 209.99
36
50
52
53
54
55
56
57
210 to 229.99
56
58
59
60
61
62
63
230 to 249.99
62
64
65
66
67
68
69
250 to 269.99
64
70
71
72
73
74
7.5
270 to 289.99
64
76
77
78
79
80
81
290 to 309.99
82
83
84
85
86
87
310 to 329.99
88
89
90
91
92
93
330 to 359.99
94
95
96
97
98
99
360 to 389.99
100
104
105
106
107
108
390 to 419.99
104
113
114
115
116
117
420 to 449.99
122
123
124
125
126
450 to 479.99
130
132
133
134
135
480 to 509.99
130
141
142
143
144
510 to 539.99
130
150
151
152
153
540 to 569.99
154
160
161
162
570 to 599.99
154
169
170
171
600 to 629.99
154
178
179
180
630 to 659.99
178
188
189
660 to 689.99
178
197
198
690 to 719.99
178
202
207
720 to 749.99
202
216
750 to 779.99
202
225
780 to 809.99
202
226
810 to 839.99
226
840 to 869.99
226
870 to 899.99
226
For each additional household member over 8 add $22 to the 8-person allotment.
2
B
TAB B
ABUSE OR LEGITIMATE GROWTH
As the background materials (Tab A) indicate there has been
substantial growth in both the numbers of people participating
and in the costs of the program. Whether this growth re-
flects legitimate increases in the number of households
eligible under the law or it is due to large scale abuses
and violations of the program is difficult to determine.
This difficulty is due in part to the structure of the
program which has the states administering the eligibility
determinations, the U.S. Department of Agriculture certifying
and reviewing the stores which accept the food stamps as
payments, banks cashing the stamps for the stores and both
the Federal and state governments handling the stamps
themselves. In sum, program control is scattered and
therefore accurate information is difficult to collect.
There are clearly areas of abuse
-- the total allowable deductions claimed now average
49 percent of a participant's gross income.
Items such as housing costs, child care and emergency
expenses are open to abuse.
-- food stamps have in a sense become an accepted
currency generally negotiable in many communities.
-- the many steps in the handling of stamps provide
opportunities for nonrecipients to avail themselves
of unused stamps by completing a recipient's pur-
chase requirement and retaining bonus stamps.
-- states pay no part of the cost of the bonus recipients
receive but pay 50% of administrative costs. Thus
efforts to improve administrative control are costly
to states and bring no dollar return.
Similarly there are factors totally legitimate which have
enabled this growth
-- increases in the cost of food raise eligibility
levels at a pace faster than wages.
--- unemployment increases participation.
-- Congress has pushed for increased participation
by those who are eligible.
- -2-
In sum, there are many explanations of the sudden growth -- -
some legal, other illegal -- but the program is so complex
and its administration so open to confusion and abuse that
it is not possible to weigh precisely the cause of this
growth. There is little question, however, that recent
trends in unemployment and in the cost of food have played
a major role in this growth.
FORD & LIBRARY GERALD
D 17 ?
TAB C
ADMINISTRATIVE REFORM
The Department of Agriculture, OMB, and Domestic Council
staff have agreed on the following legislative proposals
to deal with tightening accountability, penalizing and
retarding abuses and simplifying administration:
1. Eliminate Variable Purchase
Eliminate the option to purchase 25% and 75% of
a full coupon allotment by deleting the variable
purchase provision. This will improve administra-
tion by reducing the potential for fraud but will
leave participants the option of purchasing coupons
twice monthly if short of cash.
2. Withholding Purchase Requirement
Let State agencies decide whether to withhold
Food Stamp purchase requirements from public assist-
ance checks. This will increase State flexibility
to apply different systems where statewide or local
conditions permit.
3. Adjusting Fines
Adjust the maximum fine for misdemeanor offenses
to equal the jurisdictional limit of U.S. Magistrate
Courts. At present, the limit is $1000. This will
make it easier to prosecute Food Stamp criminal
offenders.
4. Civil Penalties
Permit the Secretary to levy civil money penalties
for certain program violations. This will add to
the available sanctions and facilitate prosecution
of Food Stamp offenders, but will not add commen-
surately to court congestion.
5. Illegal Aliens
Clarify that illegal and temporarily present aliens
are not eligible for Food Stamp participation.
This will codify present regulations and will make
Food Stamp and SSI statutory requirements more
consistent.
-2-
6. Employer Supplied Housing
Eliminate the $25 of countable income which is
imputed to employer-supplied housing. This will
simplify program administration and make the
treatment of in-kind housing consistent with the
treatment of other in-kind benefits for Food
Stamp purposes.
7. Demonstration Projects
Authorize the Secretary to approve administrative
demonstration projects which may be proposed by
the states. This will encourage state innovations
to improve local, and hopefully national program
administration.
8. State Accountability
Augment State administrative responsibilities to
include "accountability for" coupons, as well as
receipt and issuance of coupons. This will allow
states to be fully accountable for all intra-
State coupon activities, including periodic
reconciliation of coupon and cash transactions.
9. Defining Negligence
Reduce the standard of negligence applicable to
State administrative performance from gross to
ordinary negligence. This will make it easier
to seek recoupment of Federal bonus costs where
State certification practices are deficient.
10. Wrongfully Denied Benefits
Allow lump sum cash payments to participants,
equal to their "bonus" entitlement, where benefits
have been wrongfully denied. This will simplify
administration and will be more equitable than
reducing future purchase requirements, which
is the current practice.
11. Mechanical Failure
Authorize cash payments to individuals where
mechanical failure prevents State issuance of an
Authorization-to-Purchase card. This will eli-
minate the need for states to maintain redundant
computer systems and/or stand-by manual issuance
capability.
-3-
12. Age for Work Requirement
Lower the maximum age for mandatory work regis-
tration from 65 to 60 years. This will make work
registration consistent with other Food Stamp
age provisions and simplify the administration of
work registration requirements.
D
Tab D
GROUP ELIGIBILITY
Issue: Strikers and Food Stamps
Current Law
Under current law, strikers do not violate the "refusal
to accept employment" work requirement, and strikers are
eligible for food stamps based on their post-strike income.
Facts/Background
USDA and outside critics believe that providing food
stamps may tend to prolong strikes. Analysis of the
impact of food stamps on the length of labor disputes
is not available.
Alternatives
Require strikers to wait 60 days before becoming eligible
for food stamps, but retain the present exemption for
refusal to accept suitable employment.
Arguments For:
- Immediate eligibility may be unnecessary on a "needs"
basis, and my prolong labor disputes.
- Federal bonus payments may be somewhat reduced.
Arguments Against:
- Creates precedent of non-eligibility for "special"
types of unemployment which is difficult to explain.
- Likely to be unpopular with labor representatives.
- Would be treating a problem which is present in
other income transfer programs but deals only with
food stamp recipients.
Issue: Student Eligibility for Food Stamps
Current Law
FY 1975 appropriations language prohibits participation by
a student, 18 and over, properly claimed as a tax dependent
of an ineligible household. A broader prohibition against
dependent student eligibility under the Food Stamp Act was
declared unconstitutional (Murry VS. USDA). "Bona fide"
students between 18 and 65 are exempt from food stamp work
registration requirements.
Facts/Background
The food stamp program now includes participation by
individuals who voluntarily forego income in order to
attend school. Survey data indicate approximately 2 million
students participatingin the program; however, less than
10% of those would probably be affected by the tax dependency
provision. There are administrative difficulties with any
tax dependency approach. Among these difficulties are the
need for parental contact and the technicalities of a tax
dependency claim.
Alternative A
Amend present law (a) to make the tax dependency prohibition
currently in appropriations language a permanent part of
the Food Stamp Act, and (b) to extend work requirements
to all post-high school students.
Arguments For
- Dependent students of ineligible families should clearly
be ineligible for food stamps.
- Present eligibility provisions need to be clarified to
assure this result.
- "Voluntarily poor" food stamp participants should not
be exempted from work registration requirements.
Arguments Against
- Students from "involuntarily poor" families should be free
to study and improve themselves without having to work.
- Extending work registration requirements complicates
program administration.
Alternative B
Amend present law to prohibit eligibility as above, but
continue to exempt all otherwise eligible and bona fide
students from work registration requirements.
Arguments For
- Poor students should not be required to work to get
food stamp benefits because it could inhibit their
educational development and ultimate economic independence.
- New requirements are not placed on states.
Arguments Against
- There are other better mechanisms for financially
assisting poor students.
Issue: Eligibility of Addicts/Alcoholics
Current Law
Treatment centers are now authorized to act as retailers,
thereby enabling the centers to redeem coupons received from
residents or non-residents for cash.
Facts/Background
Center personnel are in the unique position of having
legitimate access to both a large volume of coupons and a
method for direct conversion of those coupons into cash.
The Department has no assurance that the coupon allotments
are being used for the food purposes provided and are not
being misused. There is currently no data available on
the number of addicts and alcoholics certified and, due to
the nature of the potential abuse, it may be impossible
to document such losses adequately.
Alternative
Repeal the 1973 amendments to (a) make addicts and alcoholics
who live in treatment institutions ineligible for food
stamps, and/or (b) remove the authorization of such centers
as retailers so they cannot accept coupons from residents
or non-residents or redeem the coupons for cash.
Arguments For:
- Adequate alternative programs exist for meeting the
nutritional needs of institutionalized persons, including
direct funding by HEW or the state government.
- Eliminates a unique opportunity for bad faith program abuses.
- Present special eligibility requirements complicate program
administration.
Arguments Against:
- Addicts and alcoholics seeking rehabilitation should be
eligible for food assistance to maintain them during the
rehabilitation process.
- Non-resident addicts and alcoholics should be able to use
coupons or buy meals from the center the same as the
elderly can from communal dining facilities.
LIBRARY
FORD
3
TAB E
"CASH-OUT" OF FOOD STAMPS
The concept of replacing food stamps with direct cash
assistance has been raised before in general terms. In
order to include the "cash-out" concept in this review of
alternative courses for food stamp reform we have suggested
that the concept of Plan I, a standard deduction of $100
a month to replace current allowable deductions be coupled
with
1. elimination of the requirement that participants
pay a purchase price for their stamps.
2. direct distribution of the value of the food
stamp bonus as a cash payment.
RATIONALE
Cashing out food stamps would change the program to a pure
income maintenance program. Some data indicate that food
stamp recipients spend 50 to 65 percent more on food than
they would if they received the bonus in cash but others
have questioned this statistic and have also asked whether
increased expenditure for food means increased nutrition.
Whatever the actual facts, many who are now eligible do
not participate because of the purchase requirement.
This cash-out option would increase the number of parti-
cipants and would allow them the flexibility to purchase
whatever they want instead of being constrained to food as
they now are under the Food Stamp Program.
IMPACT
There are three important areas of impact of this proposal:
(1) the number of households who would participate and
consequent costs; (2) administrative simplification; (3)
acceptability at this time.
PARTICIPATION AND COSTS
Because this plan would eliminate itemized deductions and
implement a standard deduction, the redistributional effects
are the same as they are for Plan I (see Tab F). That is,
households who currently claim deductions in excess of $100
would either become ineligible or would have their benefits
reduced, and those households who currently cannot afford
deductions up to $100 would become eligible or would have
their benefits increased. Thus, some higher or "adequate"
income households would no longer be in the program, but
more poorer households would be better off than they are
now.
-2-
Total eligibility under this plan would be reduced by 11
percent (the same as Plan I), with about 63 percent of
households with reduced benefits being above the poverty
line and with no elderly member. These statistics are the
same as for Plan I. Thus maximum potential program costs
under this plan would be reduced in comparison to the
present Food Stamp Program as a result of eligibility
being reduced in the upper income classes.
However, one sure effect of eliminating the purchase
requirement is that participation will increase greatly.
Currently, only about 33 percent of all eligible house-
holds (based on income only) participate in the Food Stamp
Program, compared to the 94 percent participation rate of
the AFDC program. Participation in SSI falls somewhere in
between, although it is still a relatively new program.
Elimination of the food stamp purchase requirement and its
replacement by cash will doubtless make the program more
attractive to eligibles who now either cannot accumulate
the cash to buy the stamps or who prefer not to earmark
so much of their income for food. Thus, program costs
would increase greatly if participation climbed to 90 or
100 percent rates. If 90 to 100 percent of the 16 million
households (about 41 million persons) who would be eligible
under this Plan actually participated costs would be between
$8.5 and $9.4 billion annually. However, participation
rates that high may not be achieved for some time. If the
participation rate were 75 percent of the eligible population,
the costs would be around $7.9 billion annually, $2.1 billion
more than the current 1976 level of the Food Stamp Program.
ADMINISTRATIVE CONSIDERATIONS
Elimination of itemized deductions and implementation of a
standard deduction would provide the same administrative
simplification as would Plan I without the cash-out provision.
In addition, the cash-out would reduce the administrative
aspects of the current program that include printing, dis-
tributing, and issuing stamps, redeeming the stamps, and
certifying and monitoring grocery stores.
However, the administrative aspects of determining eligibility
for the new cash program and of issuing the checks to
participants should be carefully studied and coordinated
with existing cash and in-kind transfer program. The
following issues would have to be resolved:
-3-
1. Eligibility determination -- the options are:
a. maintain the current food stamp structure
requiring a separate determination for bene-
fits under this new cash program from benefit
determination under AFDC and SSI;
b. turn eligibility determination over to HEW
to be included with either AFDC or SSI.
2. Separate distribution of benefits -- the options are:
a. deliver the benefits as a separate check;
b. since about half of current participants receive
AFDC or SSI benefits, include the new benefits
in those checks;
C. withdraw the Federal share of AFDC, making it a
State program and federally distribute the new
program benefits, which would include the Federal
share of AFDC.
ADDITIONAL CONSIDERATIONS
Since a cashed-out program would have no direct relationship
to a nutritionally adequate diet, an important statutory
objective of the Food Stamp Program would be eliminated.
The nutrition aspect of the Food Stamp Program is a popular
concept and many food stamp supporters would be opposed to
a cash-out. Furthermore, there is evidence of support for
a program that allows taxpayers to have their tax money
earmarked for "good" expenditures on the part of the poor,
but which would not exist for a cash program which allowed
recipients to spend it as they see fit.
$100 standard deduction;*
30 percent Reduction Rate;
No Categorical Eligibility
or minimum bonus
Eligibles,
Participants,
and Costs
Eligible Households (thousands)
16,007
Percent Change from Current
-11%
Total annual cost
$ 9.4
assuming 100 percent
participation of
eligibles (billions)
Percent Change from Current 1/
+62%
Participating Households
14,406
if 90 Percent of Eligibles
Participate (thousands)
Percent Change from Current 2/
+112%
Total annual cost
$ 8.5
if 90 Percent of
Eligibles Participate (billions)
Percent Change from Current 1/
+47%
Participating Households
12,005
if 75 Percent of Eligibles
Participate (thousands)
Percent Change from Current 2/
+76%
Total annual cost
$ 7.9
if 75 Percent of
Eligibles Participate (billions)
Percent Change from Current 1/
+36%
1/ Costs for June 1975, annualized, are $5.8 billion.
2/ Assumes June 1975 participation of 6.81 million households (21.8 million
individuals).
* In addition, mandatory tax withholding and expenses due to casualities
or disasters are allowed.
F
Tab F
Plans For Reforming Income Eligibility Determinations
If you decide to act now on Income Eligibility there are a
variety of strategies available.
Option 1. Recommend a specific change in eligibility and
income tests.
Arguments For:
- It is the only proposal which will yield significant savings
(up to $1 billion) in 1976 and 1977.
- Reducing eligibility and benefits to higher income families
will have the greatest effect in restricting long-term
program growth.
- While data on which the size of benefit changes are estimated
have substantial deficiencies, it is the best that could be
available to the Administration or the Congress for nine
months to a year. There is no current indication that a
national survey is being planned.
- Can provide a redistribution of benefits by which 1.3 to
2.6 million families (mostly the poorest) gain benefits.
- A standard deduction, as proposed in several of the plans,
will do the most to simplify program administration.
- The proposed eligibility and income test changes are not
inconsistent with comprehensive welfare reform.
Arguments Against:
- Moving now on a major change in the benefit structure could
complicate and possibly impede comprehensive welfare reform
by:
Setting a negative tone for ultimate welfare reform to
the extent that it proposes a net reduction in benefits.
Proceeding piecemeal in a fashion which does not provide
a change integrated with other welfare programs, including
even school feeding.
Resulting in higher benefits which would have to be
"bought up" in welfare reform, if the Congress uses
this opportunity to expand benefits.
- 2 -
- From 1.6 to 3.1 million participating families will lose
benefits abruptly.
- Because of limited and aged data, the benefit loss impact
on families could be understated. Precise estimates on
the range of error are not available.
- During the current economic conditions, Congress is unlikely
to accept any plan which has significant benefit reductions,
even if many poorer families would gain.
- Opening up the basic benefit structure of food stamps at
this time could lead to substantial liberalization of the
program.
Option 2. Recommend legislation to establish a standard
deduction with no categorical eligibility, with a special
deduction for the elderly but with the specific deduction
levels subject to negotiation with the Congress.
Arguments For:
- Advances the basic reform of a standard deduction.
- Avoids vulnerability to criticisms of specific benefit
loss impact or uncertain knowledge of that impact by in-
volving the Congress in those sensitive decisions.
- Is quite defensible as a response to Senate's request
for recommendations.
Arguments Against:
- Fails to stake out a firm initial position from which to
negotiate.
- Could provide more leeway for the Congress to liberalize
the program (standard deduction could be easily increased).
- Introduces an inequity that is difficult to justify on
anything other than political grounds.
Option 3. Offer the Congress a discussion of several options
on eligibility and income tests, together with legislative
proposals for administrative reform.
- 3 -
Arguments For:
- Avoids the problems cited in arguments against Option 1.
- Partially responds to Senate Resolution and places the
burden on the Congress to address the problem.
- Could be coupled with a recommendation to seek better data
on which to base subsequent proposals.
- Facilitates reform as a part of comprehensive welfare reform.
Arguments Against:
- The Administration could be criticized as being nonresponsive
on the income and eligibility issue.
- Does not propose basic limitations on program growth.
- Fails to seek budgetary savings.
- Does not successfully avoid the criticism that the plans all
result in benefit losses to a substantial number of families.
- Would initiate a debate that the Administration should control.
Choosing a Specific Plan
If you elected Option 1, it is necessary to choose among the
alternative plans outlined in the following section.
Alternative Plans for Changing the Eligibility and Income Tests
There are six alternative plans for eligibility and income
tests from which you can select for use as discussion items
or a specific legislative recommendation. The plans are
outlined in Table 1 followed by individual discussions.
Data on the benefit impact of the last two plans is being
produced, but will not be available for two weeks.
Major Components
There are four components in most of the alternatives:
- 4 -
Standard Deduction: In lieu of the current computation of
net income by allowing numerous itemized deductions from gross
income, a standard deduction is proposed. This could vary
with family size, but would not vary with income or family
circumstances.
Effects
Simplifies administration.
Eliminates eligibility or reduces benefits for persons
with high income and large deductions and is more
liberal for those with low deductions.
Does not reflect particular family circumstances, e.g.,
medical bills, work expenses.
Added Aged Deduction. A higher standard deduction could be
proposed for households with persons over age 65. This is
not in the current program.
Effects
Minimizes the losses for a large and vocal beneficiary
group.
Creates inequities because income needs are not higher
for aged compared to non-aged persons.
Would establish a precedent for special treatment of
an interest group.
Minimum Bonus. By law, the bonus must not fall below set
minimum levels by family size (e.g., $24 per month for a
family of four) so long as a family remains eligible. If
the minimum bonus were eliminated, benefits would scale down
to zero, based on net income.
Effects
Equity goals are furthered by similar treatment.
Removes the present "notch" -- substantial loss of
benefits due to a small income increase.
Costs are reduced by scaling benefits to income.
- 5 -
Participation would decline among households now
receiving minimum bonus amounts.
Elimination of the minimum bonus by regulation was
attempted and was overridden by intense Congressional
pressure in 1972.
Categorical Eligibility. All AFDC and 71% of SSI households
are now eligible for benefits without regard to their income.
Effects
Equity suggests abandoning this provision to achieve
like treatment of families in same (income and size)
circumstances.
Benefits would be abruptly cut off for non-low income
eligible aged, disabled, and AFDC recipients.
To the extent that alternatives incorporate these components,
some plan for phasing, to avoid abrupt changes in benefit
levels, needs to be developed.
PLAN I - STANDARD DEDUCTION
A. Description: This plan provides a $100 monthly
standard deduction to all households, regardless of
age or family size. It eliminates categorical
eligibility for public assistance recipients.
B. Rationale: Treats all participants of a given income
level in the same way.
C. Impact: Overall participation would be about 20% lower
than it is now, and so total bonus costs would drop by
15% ($1.0 billion). At the same time, this plan makes
about 132,000 households eligible who are currently
ineligible, of which 13% are below the poverty line
and 87% are above.
1. 15.5 percent (109,000) of currently participating
households below the poverty line and including
an elderly member would be "worse-off" than they
are now because they currently claim itemized
deductions in excess of $100.
-- About 9 percent, or 9,000 households, in
this group would actually become ineligible.
-- 100,000 households would have their bonuses
reduced.
2. 39 percent of currently participating poverty
households with an elderly member actually have
their bonuses increased.
3. 7,600 households become eligible who aren't now
because they do not claim deductions.
LIBRARI
PLAN I
Impact Assessment
1/
Thousands of families losing/gaining $5 to $24 per month
Family Size
1
2
3-5
6 or more
Gross
Income Class
Gain
Lose
Gain
Lose
Gain
Lose
Gain
Lose
0
0
0
0
0
0
0
0
0
1-99
5
0
7
3
4
1
0
0
100-199
200
79
179
15
81
21
26
6
200-299
232
134
65
124
88
107
19
11
300-399
0
51
36
115
96
204
24
9
400-599
0
16
6
121
96
209
82
53
0
1
600-799
0
29
12
209
44
51
0
0
0
800+
24
0
370
36
59
1/
Zero indicates either no measurable data or no impact. USDA
will categorize each cell before memo goes to the President.
Plan I
Impact Assessment
Thousands of families losing/gaining more than $25 per month
1
/
Family Size
1
2
3-5
6 or more
Gross
Income Class
Gain
Lose
Gain
Lose
Gain
Lose
Gain
Lose
0
0
0
0
0
0
0
0
0
1-99
0
0
0
0
0
2
0
0
100-199
0
3
0
7
6
6
6
0
200-299
0
22
0
11
17
19
8
5
300-399
0
10
0
28
7
19
7
5
400-599
0
0
0
22
11
85
24
18
600-799
0
0
0
0
0
72
2
32
800+
0
0
0
0
0
108
0
154
1/ Zero indicates either no measurable data or no impact. USDA
will categorize each cell before memo goes to the President.
PLAN II - STANDARD DEDUCTION
A.
Description: This plan is based on a $100 monthly
standard deduction varied by size of household plus
$50 monthly if the household includes an elderly
member. The actual standard deduction varies by
household size so that one-person households have
a standard deduction of $36 monthly while seven-
person households have a deduction of $137 monthly
Automatic eligibility for public assistance recipients
is eliminated.
B.
Rationale: Designed to vary the deduction so that
it would be small for small households and large for
large households. Special treatment for the elderly
is included for three primary reasons:
1. Current deduction rules are designed SO that the
elderly are treated preferentially by allowing
large deductions for small families with high
incomes.
2. There is considerable precedent for special
treatment for the elderly in other Federal programs,
including the double deduction allowed for persons
over 65 on their Federal income.
3. The $50 extra for the elderly was added as a
partial compensation to the elderly who live in
small households and would be made worse off
because of the size adjustment in this plan.
C.
Impact: This plan reduced eligibility by 16% and
participation by 23%. In spite of the special
deduction for the elderly, 40% of currently par-
ticipating households with an elderly member would
lose benefits, and 25% of participating elderly
households below the poverty line would lose
benefits. Adjusting the amount of the deduction
for family size would provide greater benefits to
the larger households, who already have larger
allotments.
Plan II
Impact Assessment
Thousands of families losing/gaining $5 to $24 per month:
Family Size
1
2
3-5
6 or more
Gross
Income Class
Gain
Lose
Gain
Lose
Gain
Lose
Gain
Lose
0
0
0
0
0
0
0
0
0
1-99
3
24
7
15
4
5
1
0
100-199
105
200
71
88
67
36
28
3
200-299
15
185
96
176
73
135
34
8
300-399
0
51
40
98
86
202
35
7
400-599
0
16
3
122
108
191
66
26
600-799
0
1
0
29
37
197
53
38
800+
0
0
0
24
2
233
52
48
Zero indicates either no measurable data or no impact. USDA
will categorize each cell before memo goes to the President.
PLAN II
Impact Assessment
Thousands of families losing/gaining more than $25 per month1/
Family Size
1
2
3-5
6 or more
Gross
Income Class
Gain
Lose
Gain
Lose
Gain
Lose
Gain
Lose
0
0
0
0
0
0
0
0
0
1-99
0
0
0
3
0
0
0
0
100-199
0
35
2
8
14
6
17
0
200-299
0
49
3
37
31
22
17
3
300-399
0
9
0
53
24
31
20
2
400-599
0
0
0
33
39
90
90
14
600-799
0
0
0
0
2
67
30
15
800+
0
0
0
1
0
102
23
119
1/
Zero indicates either no measurable data or no impact. USDA
will categorize each cell before memo goes to the President.
PLAN III - STANDARD DEDUCTION
A.
Description: Provides $100 monthly standard deduction
to all households plus $50 monthly if the household
includes an elderly member. This plan retains auto-
matic eligibility for AFDC and SSI recipients so
that they are eligible even if their income is higher
than the limit that pertains to all others. Also,
the current minimum bonus is retained, so that no
participating household ever receives less than $24
monthly in bonus (free) stamps.
B.
Rationale: Retention of categorical eligibility is
desirable in the sense of maintaining the status
quo and recognizing that eligibility for public
assistance is indicative of the need for food
assistance.
This plan also retains the minimum bonus feature of
the current program which is intended to increase
participation of eligible households who might
otherwise consider the amount of their bonus not
to be worth the time and effort.
C.
Impact: Addition of automatic eligibility for public
assistance recipients and the minimum bonus to a
standard deduction plan adds greatly to costs and
caseloads. This plan would increase program costs.
by 11% over Plan I, of which 6% is a result of the
$50 extra deduction for the elderly, and 5% is a
result of categorical eligibility and the minimum
bonus. However, it maintains the status quo for
the 13% of currently participating households who
are eligible because of this special treatment for
public assistance recipients.
PLAN III
Impact Assessment
Thousands of families losing/gaining $5 to $24 per month 1/
Family Size
1
2
3-5
6 or more
Gross
Income Class
Gain
Lose
Gain
Lose
Gain
Lose
Gain
Lose
0
0
0
0
0
0
0
0
0
1-99
5
0
7
3
4
3
0
0
100-199
287
50
110
14
81
19
22
6
200-299
244
81
192
94
87
99
22
11
300-399
12
43
119
58
121
196
24
9
400-599
0
13
60
65
134
164
84
49
600-799
0
0
0
1
116
119
36
50
800+
0
0
0
0
0
29
20
43
1/
Zero indicates either no measurable data or no impact. USDA
will categorize each cell before memo goes to the President.
PLAN III
Impact Assessment
Thousands of families losing/gaining more than $25 per month
1/
Family Size
1
2
3-5
6 or more
Gross
Income Class
Gain
Lose
Gain
Lose
Gain
Lose
Gain
Lose
0
0
0
0
0
0
0
0
0
1-99
0
0
0
0
0
0
0
0
100-199
84
3
25
5
11
5
10
0
200-299
15
16
31
8
26
19
9
3
300-399
0
9
9
21
15
19
7
3
400-599
0
0
2
14
20
71
27
18
600-799
0
0
0
0
12
56
10
27
800+
0
0
0
0
2
31
25
55
1/
Zero indicates either no measurable data or no impact. USDA
will categorize each cell before memo goes to the President.
PLAN IV - STANDARD DEDUCTION
A.
Description: Provides $125 monthly standard deduction
to all households plus $25 monthly if the household
includes an elderly member.
B.
Rationale: The standard deduction for all households
in this plan is larger than in the other plans in
order to minimize the number of current participants
who would be worse off by moving to a standard deduc-
tion. However, the $150 maximum for households with
an elderly member is retained by providing them $25
extra per month.
C.
Impact: The higher standard deduction of $125 aids
mainly non-elderly households in poverty. This plan
produces a 3% decrease in the cost of the program,
but would increase the number of participants by 2%,
and the total number of eligible households would in-
crease slightly. Thus, this plan, compared with the
others, has a minimal impact on the level of program
operation.
Plan IV
Impact Assessment
Thousands of families losing/gaining $5 to $24 per month:
1
/
Family Size
1
2
3-5
6 or more
Gross
Income Class
Gain
Lose
Gain
Lose
Gain
Lose
Gain
Lose
0
0
0
0
0
0
0
0
0
1-99
5
0
7
3
4
3
1
0
100-199
330
23
155
12
145
12
32
3
200-299
233
68
223
43
145
30
34
11
300-399
3
45
127
61
127
64
33
6
400-599
0
16
46
116
167
163
69
27
600-799
0
1
0
29
52
199
52
42
800+
0
0
0
24
2
239
43
51
Zero indicates either no measurable data or no impact. USDA
will categorize each cell before memo goes to the President.
PLAN IV
Impact Assessment
Thousands of families losing/gaining more than $25 per month 1/
Family Size
1
2
3-5
6 or more
Gross
Income Class
Gain
Lose
Gain
Lose
Gain
Lose
Gain
Lose
0
0
0
0
0
0
0
0
0
1-99
0
0
0
0
0
0
0
0
100-199
86
0
42
3
34
2
12
0
200-299
15
8
43
3
58
16
14
5
300-399
0
5
13
17
58
11
12
3
400-599
0
0
2
20
46
51
79
14
600-799
0
0
0
0
3
58
20
19
800+
0
0
0
0
0
100
11
140
1/
Zero indicates either no measurable data or no impact. USDA
will categorize each cell before memo goes to the President.
LIBRARY
PLAN V - VARIABLE TAX PLAN
A.
Description: Under this plan itemized deductions
would be allowed only for payroll withholding,
medical expenses over $10 per month, and housing
up to a maximum based on BLS low budget housing
figures. Purchase requirements would then be estab-
lished on the basis of rates that vary, so that low
income households would pay a low percentage of net
income, and higher income households would pay a
higher rate. Conceivably, these rates could range
from zero to 99 percent.
B.
Rationale: The primary aim is a more progressive
redistribution. Furthermore, it somewhat masks
the percentage of income paid, since the percent
would vary.
C.
Impact: The impact of this type of plan can be very
much the same as the impact of any given level of a
standard deduction in that some households would
become ineligible, some would have reduced bonuses
while others would become eligible and still others
would have their bonuses increased. How many
participants fall into these categories would depend
on the maximum eligibility income level and the
income level at which the purchase requirements
became so high that participation would be discour-
aged.
Computer analysis of benefit impact will be completed
for this plan within two weeks.
GERAL, FORD LIBRARY
PLAN VI - DEDUCTIONS FOR NECESSITIES
A. Description: This plan is similar to the current program
in that it allows the current itemized deductions, except
those for educational fees, work-related expenses, and
payroll deductions, except Federal and States taxes.
However, the primary differences is that for each deduc-
tion, there would be a maximum limit placing a cut-off
point on the deductions. The limits would be:
- Shelter up to the BLS low budget shelter cost.
- Day care up to one-third of a parent's earned
income.
- Medical in excess of 10% of monthly income, or
$10, whichever is greater.
B. Rationale: This plan is a "middle ground" approach
because, while it would curtail benefits to upper
income participants, it would not improve benefits
or equity to lower income households. It would not
be perceived as a major program overhaul, but would
remove some households with "adequate incomes" from
eligibility.
C. Impact: This plan would moderately simplify program
administration. Computer analysis of benefit impact
will be available within the next two weeks.