The New Farm Bill and Asset Limit Reform
By: N. Baharanyi, R. Zabawa, A. Paris and J. Quaye-Wilson, Tuskegee University
The Farm Bill is the largest piece of legislation affecting the United States' farm and food policy and consequently determining not only what farmers grow but also the individuals' access to safe, affordable and nutritious food. Over the years, food and nutrition assistance programs have formed the largest expenditures of the USDA, typically accounting for more than 40 percent of its budget outlays. However, the widely distributed benefits of these food and nutrition programs, benefit about 62 million mostly poor Americans a year through food stamps, school lunches, and supplemental nutrition program for women, infants, and children (Oxfam 2007). The Food Stamp Program created by the Food Stamp Act of 1964 "to strengthen the agricultural economy; to help to achieve a fuller and more effective use of food abundances; and to provide for improved levels of nutrition among low-income households," has been particularly important to overall national food assistance (Kaiser and Lamp 2007). Although rapid expansion and increased expenditures have called for several changes to improve efficiency of the programs, a lot still remains to be done to make the programs more accessible and more efficient.
The Nutrition title of the 2008 Farm Bill provides the vehicle to revise these programs and reorient the outlays to the most important national priorities. This section makes three changes related to the food stamp program's resource, or asset limit: (1) it adjusts resource limits so that they will keep pace with inflation; (2) it harmonizes program rules pertaining to retirement accounts and excludes certain additional retirement accounts from counting as a resource; and (3) it excludes education savings accounts from counting as a resource.
Adjusting the Current Asset Limit for Inflation
Asset limits for Food Stamp eligibility have been frozen since 1986 at $2,000 for most households and $3,000 for households with members who are elderly or disabled. The steady shrinkage in the inflation-adjusted value of the asset limits discourages saving and undermines a key path to self-sufficiency. Low-income households that would otherwise qualify for food stamps are excluded from the program due to the asset restrictions and those who receive benefits are discouraged from saving for fear of losing their benefits. Consequently, about 85 percent of eligible children are enrolled, but only about 30 percent of the eligible elderly populations participate in the program (Kaiser and Lamp 2007). Food Stamp Program asset rules have grown increasingly punitive compared to other federal programs as the cost of living has increased. In effect, families are being required to spend down what limited savings they possess before they are eligible for meager food assistance benefits of roughly $1 per person per meal. Had the $1,750 asset limit that was set in 1977 been indexed for inflation, the current asset limit in the Food Stamp Program would be nearly $6,000. However, due to cost constraints, this provision indexes for inflation the asset-limit from its current $2000 level ($3000 for households with elderly members or members with a disability). The senate bill had increased the current asset limit to $3500 for households and $4500 for households with elderly or disabled members but the final bill did not raise asset limits due to the high cost estimates. According to the Congressional Budget Office, indexing the asset limit in the Food Stamp Program will enable 23,000 individuals to newly participate in the Food Stamp Program by 2012, increasing to 115,000 individuals by 2017.
Harmonizing Program Rules Pertaining to Retirement Accounts
Program rules also vary in their treatment of retirement savings accounts, with some accounts being exempted from asset limits and others being treated against the limits. While asset limits were designed to prevent the distribution of benefits to households that do not need them, they have had the opposite effect. These restrictive asset policies discourage or even prohibit low-income families from saving the very resources that could prevent them from falling into poverty. The Food Stamp Program excludes amounts in 401(k) retirement plans from the asset test, but counts amounts in IRAs. Workers who have saved in 401(k) plans but change (or lose) their job often must take retirement benefits out of the employer's 401(k) plan and roll them over into an IRA. Thus, the food stamp rule means that changing jobs or being laid off can cause a low-wage working family with a modest retirement account to be terminated from the Food Stamp Program unless the family liquidates its retirement account and spends the proceeds. This provision harmonizes Food Stamp Program rules by exempting all tax-preferred retirement savings accounts from counting against the asset limit in the Food Stamp Program.
Excluding Education Savings Accounts from Counting as Resource
Similar to the treatment of retirement accounts program rules also count educational savings accounts such as 529 accounts against program asset limits. This new provision would therefore exclude certain education savings accounts (such as 529 plans) from the food stamp asset test, thereby removing the Food Stamp Program's disincentive for households to save for education. According to the Congressional Budget Office, exempting retirement and educational savings accounts from the calculation of assets in the Food Stamp Program will enable 100,000 families to newly participate in the Food Stamp Program.
Taken together, these changes in the asset limits for eligibility in the food stamp program now the supplemental nutrition assistance program removes the current saving disincentive for working poor families and therefore represents a major victory for asset building advocates. It would also simplify and modernize the Food Stamp Program to improve access and better reflect the needs of recipients and States, while maintaining continued focus on program integrity.
Kaiser, L. and C. Lamp. 2007. "Nutrition Issues to Address in the 2007 Farm Bill: A California Perspective." University of California, Agricultural Issue Center. Farm Bill Brief # 2
Oxfam America. 2007. "Fairness in the Fields: A Vision for the 2007 Farm Bill." www.oxfam.org. [Retrieved May 21, 2008]
U.S. Senate Committee on Agriculture, Nutrition, and Forestry. Food and Energy Security Act of 2007. www.agriculture.senate.gov [Retrieved June 30, 2008]