Replacing Food Stamps With Cash Is a Terrible Idea

James Greiff is an editor for Bloomberg View. He was Wall Street news team leader at Bloomberg News and senior editor for Bloomberg Markets magazine. He previously reported on banking for the St. Petersburg Times and the Charlotte Observer.
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Have Republicans in Congress offered an opening for reforming the nation's food-stamp program? Slate's Matthew Yglesias thinks so.

The House has on various occasions proposed a) cutting the program by $40 billion during the next decade, or b) separating food stamps from the farm subsidies they traditionally have been paired with to ensure support from rural Republicans and urban Democrats.

So Yglesias says that since Republicans have reneged on their side of that longstanding deal, Democrats should do the same by demanding that the poor and hungry receive cash rather than vouchers. Cash support, he says, would also be "simpler, easier, cheaper." Many economists, includingHarvard's Edward Glaeser and Princeton's Uwe Reinhart have made similar arguments over the years.

It's a tempting idea, but ultimately a foolish one.

Yglesias rightly notes the administrative chores that retailers must go through in order to accept food stamps. In contrast, no store needs training on how to deal with cash. Another criticism of the program is that food stamps lead to more spending on food than otherwise would be the case. They can't be used to purchase other products, so the incentive is to buy until the benefits are exhausted. By some estimates, food stamps lead to over-purchasesof food equal to about 15 percent of total benefits. If so, the $75 billion annual food-stamp program generates more than $11 billion in extra food spending.

This was a huge reason legislators from farm states -- most of them Republicans -- were once such ardent proponents of food stamps: It was a hefty goodie for their agriculture constituents on top of the roughly $25 billion in explicit annual government handouts for agriculture. If food stamps were converted to a cash benefit it's likely that the overspending -- and thus a big piece of ag industry pork -- would diminish or disappear.

What's more, Yglesias says, the voucher system we now have breeds fraud and corruption, a standard plaint of Republicans. (In an amusing aside, he describes how some years ago he used to buy cigarettes -- which can't be purchased with the vouchers -- for a neighbor who was on food stamps, who in turn bought him boxes of Diet Coke. Food-stamp fraud alert.)

Hold on a minute. Studies suggest thatfraud is modest, equal to about 1 percent of the program's spending. That's still a lot of money, but as a percentage of the total it's minor. Furthermore, fraud has gotten harder ever since benefits have been issued on electronic-benefit transfer cards, which operate like a debit card at the grocery store.

What's more, drawbacks to doling out cash are real and fly in the face of the moral component of receiving a government benefit. Aid comes with strings attached as part of the goal of inducing behavior that's deemed socially beneficial. That's why food stamps can't be used to buy tobacco or alcohol. If a cash handout is easier for a store to administer, the same is true for a cash benefit used to buy dope on the street.

Yes, there is an element of paternalism in food stamps. Yet it's hard to justify the government using taxpayer money to subsidize iPhone purchases instead of spending on a necessity such as food. And what about those parents who lack the discipline or willingness to make good decisions. Food stamps prevent them from shifting spending on food for their children to other less-essential goods.

If we want to alter the food-stamp status quo, a better idea is to cut the program and roll the money into an expanded earned income tax credit, which provides a tax refund that's especially valuable for working couples with kids. The credit has fewer negative incentives and seems to encourage work. As for those who are elderly and disabled, money from food stamps could be shifted to other programs, such as Social Security.

There may be beauty in such a solution, too: Farm subsidies, separated from food stamps, would have to stand on their own -- but now without the benefit of backing from urban Democrats.

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