Food Stamp Cuts: Good for U.S. Budget, Bad For Families and Business

Source: Thinkstock

Source: Thinkstock

When President Barack Obama signed the farm bill, he set off a cascade of effects. The most obvious were agricultural measures, including provisions to aid dairy farmers. Then there were the much discussed budget reduction measures — a necessity for Republicans in Congress. The cuts were intended to be made through tightening loopholes in the Food Stamp (SNAP) program, but ultimately led to a $8.6 billion cut in the program to take place over the next ten years, and have an effect on fifteen states and countless families.

After the bill was signed into effect, and the programs began adjusting to meet the new rules, it became clear that states were able to avoid some of the cuts through a “heat and eat” assistance program that allows them to qualify for additional aid. A heating bill can be shown in order to gain more SNAP benefits, but certain states were choosing the option of people proving they receive aid from the Low-Income Home Energy Assistance Program. This has led to a great deal of coverage on whether or not the cuts were even effective and claims that cuts were being dodged regardless of the legislation.

Even so, Republican leadership insists that appropriate budget reduction will be managed. “The press reports assume that the change in behavior of these states eliminates the savings estimated from the reforms included in section 4006 [of the farm bill],” explained a memo from Republican leaders, obtained by Politico. “This is false and fails to recognize CBO [Congressional Budget Office] considerations included in the savings estimate.”

Judging from the effects the cuts have had on business and families, states indeed have not fully dodged reductions. Looking at overall data from the U.S. Food and Nutrition Service, there’s been a drop of $6.46 per person in monthly benefits from 2013, and a $14.81 monthly drop per household, almost $180 less a year. The enrollment rate in food stamps is showing sizable drops after a major increase during the recession. In 2003 there were 21.2 million enrolled, and by 2013 that number had more than doubled to 47.6 million. 2014 has seen enrollment drop from its height in 2013 to 46.7 million, according to FNS data.

Who is this hurting specifically? This has changed somewhat from historical beneficiaries of the program. In the past, the elderly and young were the largest group requiring government aid in the SNAP program. Based on a 2014 study, The Christian Science Monitor reports that since the recession a larger proportion of the programs recipients have been working age adults and students just out of college.

While in the past high school dropouts accounted for many of the beneficiaries, individuals with some college education is now much more common. Over the past thirty years the number of households heads receiving aid with high school diplomas has gone from 9 percent to 37 percent, likely reflecting the high unemployment and underemployment still endemic in the U.S.

Cutting families’ government subsidies is predictably going to change their spending habits, and this has an impact on certain businesses more than others. Wal-Mart, for example, is seeing distinct changes in its quarterly report that it attributes to SNAP cuts. It reported diluted earnings per share from continuing operations of $1.34 for the fourth quarter, sending shareholders off to groan. The EPS were $1.60 compared to the fourth quarter of 2013, at $1.67.

Charles Holley, executive vice president and chief financial officer of Wal-Mart, pointed to “economic factors” to explain the downturn this quarter. “Some of the factors affecting our consumers include reductions in government benefits, higher taxes and tighter credit. Further, we have higher group health care costs in the U.S.,” he said. “These concerns, combined with investments in e-commerce, will make it difficult to achieve the goal we have of growing operating income at the same or faster rate than sales.”

The cold weather may also be responsible for the flat first quarter, said Wal-Mart — and it wasn’t the only one, many businesses had rough winters, with small businesses especially showing decreased revenue due to the cold. A Wall Street Journal/Vistage survey of 727 small-businesses owners and executives showed that almost a third of them said the winter storms required them to decrease January to March sales outlooks.

But while weather may have affected a vast range of stores, Wal-Mart is particularly susceptible to the economic factor. At least one out of five Wal-Mart customers rely on food stamps and half of its sales are from groceries, according to Reuters. While Wal-Mart’s stock fell 1.4 percent in the last year, the Dow Jones Industrial index saw a 8.8 percent rise and the Dow Jones global retailers index also saw an increase of 6.33 percent.

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