By Claudia Sahm / Bloomberg Opinion
House Speaker Kevin McCarthy has vowed to pass legislation this week to temporarily increase the U.S.’s borrowing capacity that includes expanding work requirements for recipients of the Supplemental Nutrition Assistance Program, also known as food stamps, and creating them for Medicaid. To receive benefits, adults ages 19 to 55 without disabilities or dependents would be required to work a minimum number of hours, be in a training program or perform community service.
The stated goals are for beneficiaries to lift themselves out of poverty through work and to cut program costs and discretionary spending while easing labor shortages. The reality is that work requirements won’t achieve these goals and including them in the legislation could impede efforts to raise the so-called debt ceiling.
In short, the combined budgetary savings from the additional work requirements would be minuscule, amounting to rounding errors on the federal debt that exceeds $30 trillion. The bipartisan Congressional Budget Office estimated it would only be about $10 billion per year on average, or 0.5 percent of discretionary outlays. But including the requirements would mean real hardship for many people. Some 1.5 million adults would lose federally funded Medicaid, and 275,000 would lose food stamps from the expanded work requirements. Then there’s the problem that work requirements add to any program’s administrative costs, and the inevitable errors lead to the removal of eligible people.
Those most likely to lose their benefits due to the work requirements are among the most vulnerable in the programs, such as people who are older or homeless. The vulnerable tend to face barriers to work rather than insufficient motivation, so a work requirement would not solve the problem and might even worsen it. Poor health is associated with job loss, so keeping people on Medicaid and food stamps may do more to set them on a path to stable employment than a work requirement.
Relatedly, work requirements do not increase work, according to numerous studies of safety net programs. A recent example is new research by University of Chicago professor Damon Jones and co-authors on the enhanced Child Tax Credit in 2021. Unlike the preexisting credit, the new credit had no work or income requirement, so all but the wealthiest families received the monthly transfer. The removal of the income requirement did not significantly affect hours worked or labor force participation. The CBO agrees that the employment effects of the additional work requirements in this legislation would be modest.
Anyone who believes in work incentives should be more concerned about the fact that after the first dollar, beneficiaries are punished for working. Safety-net programs phase out with income and do so at different levels by program, creating a series of what are called “benefit cliffs.” For food stamps, the cap on income is 130 percent of the poverty line, and for standard Medicaid, it is 138 percent of the poverty line. Also, about 25 percent of adults without children receive food stamps and Medicaid. You can see how this gets complicated fast for both individuals and program administrators.
There are ways to cut costs, lift people out of poverty through work and help address labor shortages, even if work requirements are not among them.
First, create a portfolio approach to the safety net programs. A benefits counselor would be assigned to each beneficiary and guide them through the rules of the programs they are eligible for. The counselor will be the main point of contact and maintain the contact information for the beneficiaries. Lower-income individuals tend to move frequently, so an inability to find them often complicates recertification. Almost half of the adults who lose their food stamps are still eligible and are only removed in error due to administrative problems. That is costly for the program since many reapply and must be processed again.
Next, address the specific barriers to work. Safety net programs are not meant to be workforce development programs. Rather than forcing recipients to work or lose benefits, connect them with assistance programs tailored to their circumstances. For example, Coalition for the Homeless, a nonprofit advocacy and direct service group, helps homeless individuals find stable housing and job training. Such support would be more effective than taking away food stamps or health insurance; the investment will pay off over time in many ways.
Finally, clear the backlog of immigration work permit applications. About 1.5 million immigrants with jobs lined up in the U.S. are waiting for one. The delay is mainly due to shutdowns during the pandemic and increased applications. Admitting these immigrants is a better way to address shortages than work requirements on Medicaid and food stamps. They often have technical skills and will pay taxes. Most importantly, they do not need a work incentive; they already have work in the U.S. More financial resources to hire staff and upgrade technology would speed up the processing. These actions would help address labor shortages now and future ones tied to the aging population.
McCarthy, who is a Republican from California, set sensible goals: self-sufficiency, cost-effective outlays, and more labor supply. But work requirements are not a sensible way to achieve them, and they would be disastrous if trying to enact them causes a default on the federal debt.
Claudia Sahm is the founder of Sahm Consulting and a former Federal Reserve economist. She is the creator of the Sahm rule, a recession indicator.
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