President Donald Trump’s new $4.1 trillion tax reform program, released on May 23, could have a significantly adverse effect on food retailers. That’s because, as part of the overall $1.7 billion in cuts, the president’s new plan calls for a $193 billion reduction to the federal SNAP (Supplemental Nutrition Assistance Program) food assistance budget over the next decade. Currently, 42 million Americans rely on SNAP benefits.
Besides massive reductions proposed for Medicaid and federal pensions, Trumps budget also seeks large cuts in farm subsidies.
Political insiders believe the proposed cuts likely won’t pass the House and/or Senate in their current form, given likely bipartisan resistance to the measure. However, the deep level of proposed cuts ($800 billion alone in Medicaid) clearly signals an intention to dramatically cut federal food assistance to low-income Americans.
If passed at an even a reduced level of trimming, this would mark the second time in four years that both consumers and merchants would face a level of fewer available funds in the food assistance benefits system.
“The president’s proposed budget seems to estimate that $2 billion in revenue to reduce expenditures on the Supplemental Nutrition Assistance Program would be generated for the first time, by imposing fees on retailers serving as the delivery mechanism for these benefits,” noted Leslie G. Sarasin, president and CEO of the Food Marketing Institute, the large food retailing trade association. “As the president’s proposal, it is meant to message priorities the administration views as important, such as additional spending on defense. The Congress will work through its budget process and will include additional priorities to serve as the basis for an agreed-upon framework. As this process goes forward, we look forward to working with the administration, the Budget Committee and the House and Senate Agriculture Committees to address concerns to the food retail industry, including the flawed policy of imposing fees on food retailers in order to reduce the cost of the federal government’s nutrition assistance benefits to the most needy in our society.”
In 2013, under former President Barack Obama, according to the U.S. Department of Agriculture, monthly SNAP benefits were cut 11 percent which translated into a $20 per month decrease in households that utilized food assistance benefits.
The president’s 2018 budget proposal states that the drastic reductions in SNAP funding will be achieved through measures that expand work requirements, narrower eligibility, and establishes a matching component for states to cover a portion of benefit, which may be seen as a potential first step toward block granting the program.
A nearly $200 billion pullback over 10 years would amount to a 30 percent cut, which would reduce average monthly household benefits from the current $252 to $173.
A steep reduction like this would put tremendous pressure on retailers that serve many low-income consumers. Despite an improving economy, many retailers have noted that recent reductions to SNAP benefits have hurt their bottom lines. That was the case the last time the SNAP budget was cut, during the Obama administration.
One of President Obama’s first successful pieces of legislation was the 2009 Recovery Act, which was designed to offset the economic challenges caused by the major recession of 2008. The Recovery Act, however, was a temporary measure and ended after four years. That termination resulted in benefits reductions for nearly every SNAP household. Then, in February 2014, President Obama signed a Farm Bill that cut $8.7 billion in food stamp benefits over the next 10 years, causing 850,000 households to lose an average of $90 per month.
According to the USDA’s economic research service, when households spend their SNAP benefits, the direct effects are increased economic activity by the producers of the goods and services being purchased, as well as by the retail, wholesale and transportation system that delivers the goods and services. In an economic downturn when resources are underemployed, increased SNAP benefits start a multiplier process with an economic impact that is greater than the initial stimulus.
That might be sound logic, but for most retailers, especially those operating in urban areas where the economic climate is often more challenging, more food assistance chopping will undoubtedly mean smaller basket sizes, declining average transactions and decreased per store annual sales.
