Monday, October 29, 2012

Food Stamps for Millionaires? Maybe....

Food Stamps are one of those Government Programs designed to help folks out.  The qualifications for Food Stamps are pretty liberal, in my opinion.   In theory, I could qualify for them, if I restructured my finances.

This has not been a good year for me personally, in terms of economics.  I didn't work very much, probably by choice more than anything else.  But 2013 will be a different story, as a client has promised me a pile of work, perhaps enough to put me back in that vaunted six-figure salary range.

And that is the fun part of being self-employed.  You can make $20,000 one year and $200,000 the next.  And that is why, if you want to start a business, it pays not to saddle yourself with a lot of pointless personal debt or expenses.  And that is one reason I started this blog.  Cutting stupid personal expenses like Cable TV and trendy cell phones, is not optional for the self-employed, it is essential.

I got to thinking, though, "Gee, my income this year was so crappy, I'd probably qualify for food stamps!"  And the scary thing is, well, I probably would come close - even though on paper I am a Millionaire.    How can this be so?   Well, if you have your money tied up in your house (check) and IRA (check) and drive older cars (check, check) and have a low annual income (check) you might just qualify.

Let's look at the criteria on the USDA SNAP site.   They are not called "food stamps" anymore, but the Supplemental Nutrition Assistance Program (SNAP) and they don't hand out stamps anymore, but a debit card.  Pretty sweet!

There are a number of qualification criteria to get Food Stamps, or should I say, SNAP:

Special Rules for Elderly or Disabled


RESOURCES:

Would I qualify for Food Stamps?  Let's look at the first item, resources:
 
Households may have $2,000 in countable resources, such as a bank account, or $3250 in countable resources if at least one person is age 60 or older, or is disabled.  However, certain resources are NOT counted, such as a home and lot, the resources of people who receive Supplemental Security Income (SSI), the resources of people who receive Temporary Assistance for Needy Families (TANF, formerly AFDC), and most retirement (pension) plans.

The procedures for handling vehicles are determined at the state level. States have the option of substituting the vehicle rules used in their TANF assistance programs for SNAP vehicle rules when it results in a lower attribution of household assets. A number of States exclude the entire value of the household’s primary vehicle as an asset. In States that count the value of vehicles, the fair market value of each licensed vehicle that is not excluded is evaluated. Currently 39 States exclude the value of all vehicles entirely. 11 States totally exclude the value of at least one vehicle per household. The 3 remaining states exempt an amount higher than the SNAP’s standard auto exemption (currently set at $4,650) from the fair market value to determine the countable resource value of a vehicle. For more information concerning State specific vehicle policy, check with the State agency that administers the SNAP program. 

OK, this is a no-brainer.  First, I am 53, so while the 60-or-older limit doesn't apply, I will be there pretty soon.  Sweet!   Second, $2000 in the bank account is not hard to swing.  I generally keep only that much in my bank account anyway, as I put any surplus into investments.

And one of those investments is my home, which is worth about $500,000, and is paid for.  A half-million dollars and it doesn't get counted at all!  Super-sweet!

Now, I also have a large sum of money in retirement plans.  Guess what?  That don't count, either!

But what about my cars?  Well, there it gets tricky, as you have to look at State Rules for more information.  For Georgia, the rules can be found here as, oddly enough, a WORD document (they don't have Adobe here in Georgia).    The document is silent about cars, however.  But I assume that since I drive 1999 and 2002 cars, both over a decade old and worth about $10,000 each, I might actually qualify.  Never mind that they are in like-showroom condition and are both BMWs, under the guidelines, I might actually get in!

(And of course, this sort of things is ripe for fraud.  It would not be hard to title cars in the name of a relative to get around this requirement).

39 States don't even count cars - so you could drive to the SNAP office in a Ferrari, and it wouldn't make a difference.  11 States exclude one car per household.  Three States use a standard $4650 exlusion, which sort of puts a damper on the party, don't it?

So, from what I can see, the Resources section isn't a real issue, for a Millionaire wanting to collect food stamps.  From what I can see, that is....   But wait, there's more!


INCOME:

At first, this seems like a toughie.   After all, if you have a million bucks in assets and investments, don't you have a lot of income?  Yes and no.  Much of this income is not realized and thus not taxable income.  If my house goes up in value, that is not "income" until I sell it.  With the IRA, nothing is "income" until a withdrawal is made - and you can decide  not to withdraw money from your IRA until about age 70, when they start forcing you to.

So, for example, at age 60, I might have a very low or non-existent income, but a million dollars worth of uncountable assets.  I get no Social Security, and choose not to take any income from my IRAs, and thus limit my income for the year.   I could, by choice, make myself look poor to the government, and do so, in a perfectly legal manner.

But would I qualify today?  Perhaps not.

The standards for income are set forth in the USDA site:
Households have to meet income tests unless all members are receiving TANF, SSI, or in some places general assistance. Most households must meet both the gross and net income tests, but a household with an elderly person or a person who is receiving certain types of disability payments only has to meet the net income test. Households, except those noted, that have income over the amounts listed below cannot get SNAP benefits.
(Oct. 1, 2012 through Sept. 30, 2013)
Household size
Gross monthly income
(130 percent of poverty)
Net monthly income
(100 percent of poverty)
1
$1,211 $ 931
2
1,640 1,261
3
2,069 1,591
4
2,498 1,921
5
2,927 2,251
6
3,356 2,581
7
3,785 2,911
8
4,214 3,241
Each additional member
+429 +330
Gross income means a household's total, nonexcluded income, before any deductions have been made. Net income means gross income minus allowable deductions.
* SNAP gross and net income limits are higher in Alaska and Hawaii.

For a household of two people, we can make as much as $1640 a month, or about $20,000 a year.  Not a lot of dough, to be sure.  But if your house is PAID FOR, well, you don't really need a lot of money to live on.  And $1000 a month buys a lot of inexpensive Champaign, at least in this house.
 
But wait, it gets better.  If I am "elderly" I may not have to pass the Gross Monthly Income test, just the "net income" test.

Deductions are allowed as follows:

A 20 percent deduction from earned income;
A standard deduction of $149 for households sizes of 1 to 3 people and $160 for a household size of 4 (higher for some larger households);
A dependent care deduction when needed for work, training, or education;
Medical expenses for elderly or disabled members that are more than $35 for the month if they are not paid by insurance or someone else;
Legally owed child support payments;
Some States allow homeless households a set amount ($143) for shelter costs; and
Excess shelter costs that are more than half of the household's income after the other deductions. Allowable costs include the cost of fuel to heat and cook with, electricity, water, the basic fee for one telephone, rent or mortgage payments and taxes on the home. (Some States allow a set amount for utility costs instead of actual costs.) The amount of the shelter deduction cannot be more than $469 unless one person in the household is elderly or disabled. (The limit is higher in Alaska, Hawaii and Guam.)
If you understand that previous paragraph, you have the soul of a government bureaucrat.

The income test might be a squeaker for me, at least this year.   Frankly, we make just a little too much to get in under the $20,000 wire - but this year, it is close!    And with the net income test, it might knock me out, as my medical expenses might not be enough to bring that number down.   But as an early retiree, I might be able to make the net income test, particularly in those years before medicare kicks in and my health insurance costs are higher.

But the point is, I am pretty close to qualifying - a few thousand dollars, and I could get in.  And as a self-employed person, this is not really hard to arrange.

But assuming I could do this, what are the benefits?   Not a lot, as we shall see.


BENEFITS

Like the computation for "deductions" there is a convoluted computation for benefits.   See the USDA website for an example of the "deductions" calculation - I did not reproduce it here.

The benefits are calculated as follows:


People in Household Maximum Monthly Allotment
1
$    200
2
$    367
3
$    526
4
$    668
5
$    793
6
$    952
7
$ 1,052
8
$ 1,202
Each additional person
$    150

Benefit Computation
Example
 Multiply net income by 30%...
 (Round up)
 Subtract 30% of net income from the maximum
 allotment for the household size...
 $1,143.5 net monthly income
 x .3 = $343.05 (round up to $344)
 $668 maximum allotment for 4 - $344 (30% of 
 net income) = $324, SNAP Allotment
 for a full month
If a household applies after the first day of the month, benefits will be provided from t

If you understood any of that, you have a career ahead of you working for the U.S. Government!   From what I can see, if my income was "just barely" enough to qualify, the resulting benefit would be pretty low. The maximum benefit for a household of two is $367 a month.  In order to get this, your net income would have to be ZERO.  If your net income was anything above $1273 a month (for a family of two) your net benefit would be, well nothing.

So, it looks like I won't be getting any food stamps this year (all together now, "Awwww!").

But what is interesting to me is that the eligibility requirements eliminate a lot of real assets (houses, retirement plans, cars) from the equation.  In theory, you can be a Millionaire and collect food stamps - legally - if your money is all tied up in 401(k) plans and IRAs, as well as your home.

It also points out how the system is pretty ripe for fraud.   If you can shift assets to others (put them in a trust for your kids, for example) or hide income (legally or illegally) you could qualify.

For example, Joe Carpenter does carpentry work for various homeowners.  He does odd jobs, cabinet installations, small remodeling projects, and the like.   He gets paid under the table, which his customers don't mind doing, as the jobs are small (no loans involved) and the costs are not deductible business expenses to them.  He also gets some jobs here and there from commercial clients, and those are reported as income.  He tried to keep his reported income as low as possible - preferably under $20,000 a year, so he pays little or no income taxes.

For his family of four, he can qualify for a number of government assistance programs, even though he owns his own home (which he built) outright, and over the years, his contributions to his IRA and 401(k) plans have accumulated to over $500,000.  So long as his reported income shows him to be poor, he qualifies.

It is illegal?  On a number of levels.  Unreported income is a big no-no with the IRS.   But the agency isn't going to go after the Joe's of the world, as there isn't a lot of "there" there to go after.  And similarly, the USDA doesn't have the resources to police their system, either.

Is our food stamp program a problem?   Some think so.    But I am not sure that this is not alarmist talk, in some regards.  Or to put is more succinctly, the talk of "Millionaires on Food Stamps" is perhaps just rhetoric to get people riled up.  As my example above shows, it is pretty darn hard to get on Food Stamps, as a Millionaire, unless you are willing to live on very, very, little, or are defrauding the system.

It is a shame that people have to resort to rhetoric like that to make a point, as the program does have 40-47 million people on it (about 15% of the population!) and is growing like crazy.

So I do think they have a point.  There should be a "needs test" to get on to Food Stamps, and this test should include a calculation of assets as well as income.  If someone has a house worth hundreds of thousands of dollars (in equity), perhaps they don't need government assistance.   Let them sell their house, live off the proceeds, and then give us a call when they run out of that.

Is that "harsh"?  Well, yea.  But you aren't "poor" if you have assets.  Getting public assistance should be hard to do and it should be difficult as well.   When you make it easy to get government assistance, well, more and more people do it.

One of the lessons of Welfare reform of the 1990's was that many folks stopped collecting welfare, even before the reforms were implemented.   Why was this?  Some believe that just the talk of reforms scared many folks off the dole, as they thought they might be caught committing fraud.  And that is a pretty powerful observation right there.   If people think they can get away with something, they will.  If they think they will get caught, they won't.

Similarly, while a 401(k) plan or IRA plan is intended for retirement, we should have some method of counting this, or at least pro-rating the accounting, based on age.   While we don't want to encourage people to cash in their retirement plans at age 30, by age 60, they should be spending at least some of this money, rather than asking the government for more.

But of course, getting people to report assets requires self-reporting of assets.   A case worker could, in theory, look up the deed records of a home and determine, roughly, its value and whether it is encumbered by a mortgage.  However, in most jurisdictions, you have to do a title search to find some of this information (most online sites show only the owner's name and the tax bill.  You have to hire a title searcher to get more detailed documentation).

Similarly, I am not aware of any online database the government has access to, that lists the value of your 401(k) or IRA plans.   So trying to enforce this aspect of an assets test would be nearly impossible.   Without evidence of fraud, you could not prosecute such cases, and you could not even subpoena such records, without solid evidence.

Which is why the government probably has dropped these items from any "needs test" - they are hard to enforce.

But then again, many folks would probably balk if these items were listed on the requirements.   Like with the IRS, fear of being audited is a far more powerful weapon than actual auditing.   A surprising number of people would likely walk away from Food Stamps, if they were told their homes and retirement accounts would be factored into the equation, even if they could lie about these assets.

And similarly, not counting the value of cars seems somewhat short-sighted.  If someone can afford to put $2000 worth of bling rims on their car, do they really need $347 a month in food stamps?   I don't think so, but I am probably in the minority on this.  And again, the enforcement is a nightmare.

Now, I am anticipating a comment from certain quarters (or even a particular commenter) - "One way to eliminate fraud in these kinds of programs is to just not have these kinds of programs!"

And I will leave that up to the reader to decide.   With obesity being the number one medical issue among the very poor, it would seem that, increasingly, it is an argument that might make sense.  When people in this country are getting FATTER AND FATTER, maybe we should stop paying them to eat.

Here is a link to a table on the USDA site of the overall cost of the SNAP program, average benefit per person (less than $200 a month) and total number of people on the program.  As of 2011, about 45 million people are on the program, collecting about $133 each.  Total cost, for 2011, was 75,706,080,000.  That's 75 Billion bucks.  Sounds like a lot of money, until you realize it represents only about 6% of our annual deficit, and about 2% of our overall National Budget.

Or look at it another way, it is about 1/10th of what we spend on defense every year.

But you know, a Billion here, a Billion there, and pretty soon you are talking real money!


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