All households receive a standard deduction from gross income that is intended to account for unusual or unexpected household expenses that could limit food purchasing power. The deduction varies by household size and is adjusted annually. The deduction is set at 8.31 percent of the income eligibility standard, not to exceed 8.31 percent for a family of six. The 2012 standard deductions are $147 for households of one to three members, $155 for households of four, $181 for households of five, and $208 for households of six or more. Wilde (2002) estimated that a $1.00 increase in the standard deduction raises SNAP benefits by $0.30 to $0.45 for households with positive net cash income. This variation occurs because of an interaction between the standard deduction and the excess shelter deduction. That is, a $1.00 increase in the standard deduction raises benefits by $0.30 for those without an excess shelter deduction, but raises them by $0.45 for those who also have the shelter deduction but are below the shelter cap.
Geographic Adjustment of SNAP Benefits
In addition to the adjustment to the maximum benefit for residents of Alaska and Hawaii, several aspects of the current SNAP benefit formula directly or indirectly accommodate differences in cost of living across regions of the country. This has the effect of either lifting some to the maximum benefit (because the deductions lower net income to zero) or raising the monthly benefit payment. This geographic adjustment is accomplished directly by the excess shelter deduction, which, as described previously, permits the deduction of housing and housing-related costs above 50 percent of net income after other deductions. Because housing costs vary widely across the nation, this deduction accommodates to some extent the geographic variation in cost of living. In FY 2012, however, this deduction was capped at $459 per month, and nearly 30 percent of recipients have housing costs in excess of this cap, suggesting that the cap is a binding constraint for many SNAP households.
There are two major deductions available to working SNAP recipients that implicitly introduce geographic differences in SNAP benefits. The first is the 20 percent deduction of earnings from gross income. Wages vary greatly across the country because of differences in local labor markets (Moretti, 2011); moreover, wages for the same job in the same company but in different locations vary greatly both within and across countries (Ashenfelter, 2012). Thus two SNAP recipients working full-time as cashiers