Food stamp cuts’ $10B effect doesn’t tell the whole story

Getty Images Volunteers help bag to-go meals at Cathedral Kitchen in Camden, NJ.

Getty Images
Volunteers help bag to-go meals at Cathedral Kitchen in Camden, NJ.

Margaret Purvis makes her living by ensuring that low-income people have enough to eat, and she sees that job as about to get a lot tougher.

That’s because benefit cuts to food stamp recipients kick in Friday, a move that will siphon $5 billion off a program that helps out one in seven Americans put breakfast, lunch and dinner on the table.

As president of the Food Bank for New York City, Purvis expects those cuts will direct even more people to her organization, whose 1,000-plus member groups already provide 400,000 meals a day, she said.

“Our members are panicking,” Purvis said as time wound down to the benefit decreases. “We’re telling everyone to make sure that you are prepared for longer lines.”

Recipients of food stamps—officially called the Supplemental Nutrition Assistance Program—are expected to lose an average $36 from a $275.13 monthly benefit per household. A near-record 47.6 million Americans representing 23.1 million households are on the program, the cost of which will hit $63.4 billion this year.

(Read moreAs holidays near, food stamp recipients face cut)

The cuts are a result of the expiration of a SNAP budget increase that was part of President Barack Obama’s 2009 stimulus bill. Over the past few years, a bipartisan group of Democrats and Republicans have voted in favor of the cuts in exchange for higher education funding and school nutrition programs.

A group of Democrats who initially supported the cuts organized a protest earlier this week to demand that funding be reinstated.

“It was a piece of legislation that said let’s change nutrition standards, let’s get junk foods out of our schools, and let’s make sure that our kids can have those fruits and vegetables,” Connecticut Rep. Rosa DeLauro told the Huffington Post about the nutrition bill.

“There was no money for it. The price of it was $2.2 billion. That came from the food stamp program, and all of us here complained,” she said. “And we were opposed to that, but we knew that it was a good first step in getting the Hunger-Free Kids Act.”

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There appears little appetite to reverse the cuts, however, despite the protests and worries from charity leaders such as Purvis at the New York food bank.

The repercussions go far beyond the city and are more than humanitarian.

Programs such as SNAP have what economists call a “multiplier effect”—in other words, a dollar given to an entitlement recipient has amplified economic benefits. In this case, those consist primarily of the grocers who benefit when food stamp users shop in their stores. The estimated multiplier effect for food stamps is as high as 2 to 1.

“This isn’t just a New York issue,” Purvis said. “In the world of hunger relief, food stamps are supposed to be the first line of defense.”

Amira Watson, a working single mother of four in Brooklyn, recently had to sign up for food stamps after her marriage ended and she lost one of the two jobs she was working after taking maternity leave.

(Read moreScary month for job growth in October, ADP says)

Though she applied a few months ago, her approval won’t take effect until Nov. 1—coincidentally or not, the day the cuts kick in.

Watson, who works nights as a medical assistant at an assisted-living facility for the disabled, worries that the SNAP benefits won’t be enough to feed her kids, ages 15, 13, 4 and 3 months.

“The job is good with medical benefits, but not with the paycheck,” she said. “I’m always in the hole with bills. If I pay the rent I’m sacrificing the light. If I pay the light bill I’m sacrificing the gas bill. It’s always something.”

Having the pantry on hand helps.

“Thank God for the food pantry and the Campaign Against Hunger,” she said. “While I’m waiting for all this processing—glitches here and glitches there—thank God I could go there and shop for some food. I got some baby milk for my newborn, got rice, got a nice amount of stuff that will sustain us until something comes up.”

People on food stamps have become easy to demonize—many nonrecipients have stood in line behind those who pile their shopping carts high, using their allocation on beer and junk food.

And while there are some abuses, the need for the program says something about the dichotomy of the stock market’s soaring to new heights while income disparity widens to Great Depression-era levels.

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SNAP participation has doubled over the past 10 years and risen nearly 25 percent over the past four.

“Something has changed about America since the financial crisis, and the still widespread popularity of the SNAP program is emblematic of that shift,” Nick Colas, chief market strategist at ConvergEx, a New York-based brokerage and investment research firm, said in a report. “The American economic record, based on the food stamp data, is still pretty lousy.”

Colas said the economic hit from the food stamp cuts will be roughly $10 billion, with the numbers probably not telling the full story.

“It may not matter to the economic data on which Wall Street hangs its fedora, but it is certainly enough to spark a political response,” he said. “How this plays out, I honestly have no idea. We are in uncharted waters here, as the historical record clearly shows.”

—By CNBC’s Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom

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