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This story originally was published by Real Clear Wire
By Alli Fick , Liesel Crocker
Rob Undersander is a millionaire. He also received taxpayer-funded food stamps. His story illustrates an absurd – and intentional – loophole in America’s welfare system that taxpayers need closed immediately.
Rob applied for food stamps in 2016. A Minnesota resident, he clearly exceeded the program’s asset limits. But in the application process, he was deemed eligible to receive a brochure on domestic violence services, which under state policy allowed him to receive food stamps. Three weeks later, his first food-stamp benefits arrived in the mail. The taxpayer cash arrived like clockwork for the next 19 months, ultimately amounting to more than $6,000. (Rob only did this to prove the system was broken, and instead of keeping the money, he donated every penny to charity.)
It’s no accident that despite being a millionaire, Rob received welfare payments that are supposed to be for the truly vulnerable. The federal government and states have conspired to create a system that intentionally bypasses the program’s eligibility standards. Call it fraud by design.
Federal law establishes two ways to qualify for stamps – either by meeting the income and asset limits, or by qualifying for a cash welfare program. But in 1999, the Clinton administration issued guidance that lets states decide what qualifies as a benefit under those programs. States have responded by offering benefits that are nothing of the kind, in a deliberate attempt to bypass the asset and income limits for food stamps. The domestic violence brochure that Rob received is a good example. States routinely print pamphlets or establish hotlines that have nothing to do with food stamps, yet states deem them as benefits that let ineligible people get on the program anyway.
The Clinton administration frankly admitted the guidance violated congressional intent. The Obama administration later encouraged as many states as possible to use this loophole, while giving it a formal name: “Broad-Based Categorical Eligibility.” Today, 43 states and Washington, D.C.. have embraced this fraud. Our organization estimates that at least 5.9 million otherwise ineligible people are enrolled in food stamps through this loophole. They are also a major reason why at least one out of every $10 spent on food stamps is improper.
The good news is that states now have a reason to close this loophole. Starting in 2027, thanks to the reconciliation bill President Trump signed last year, states with a food-stamp spending error rate of 6% or higher must pay for a portion of the program’s cost. Some 42 states and D.C.are in that boat, and if they want the federal government to continue paying for 100% of food stamps, they must enact reforms to get fraud under control.
Eliminating Broad-Based Categorical Eligibility is an obvious solution. USDA data shows that more than 80% of payment errors are to households enrolled in food stamps in this way. Closing the loophole could bring most of the fraud-ridden states back to a level where the federal government picks up all the program’s tab. Clearly, there’s interest: Indiana ended this fraud by design earlier this year.
Blue states will be the least likely to enact this reform, given the left’s obsession with welfare for all. But the White House could make opposition moot by closing the loophole via regulation. The first Trump administration proposed such a rule in 2019, but the Biden administration swiftly withdrew it. President Trump has announced a forthcoming rule to finish the job. Unfortunately, a future Democrat (or squishy Republican) could restore this fraud by design with a regulation of their own. Ultimately, Congress needs to codify President Trump’s forthcoming rule and close this loophole via law, perhaps in a second reconciliation bill this year.
Welfare fraud is always unacceptable, but the current system of fraud by design is especially egregious. Food stamps exist to serve the truly vulnerable – not middle-class Americans. And certainly not millionaires.
Alli Fick is research director at the Foundation for Government Accountability.
Liesel Crocker is a senior research fellow at the Foundation for Government Accountability.
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