Why Congress Shouldn’t Change SNAP’s New Payment Error Approach

By Angela Rachidi of AEI.

"Payment errors in the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) have received considerable attention in recent months. While much of the debate has revolved around the One Big Beautiful Bill Act’s (OBBBA) new requirements surrounding SNAP payment errors and the impact on states, many have overlooked the people most affected by improper payments—low-income households.

The national SNAP payment error has hovered around 10 percent in recent years, accounting for almost $10 billion in erroneous SNAP benefits yearly. Some of this is fraud, but much of it involves correctable mistakes by participants or government eligibility workers. Thanks to the OBBBA, states are now financially incentivized to lower their payment error rates because states are required to fund a portion of SNAP benefits if they climb above a payment error rate threshold.

Facing the prospect of substantial financial penalties if they do not lower their error rates, states have begun to tighten their eligibility process. As Congress works toward reauthorizing SNAP through a new farm bill, it must resist calls to weaken this cost-sharing requirement or otherwise alter SNAP’s payment error formula.

The OBBBA requires states to contribute a share of total SNAP benefits issued in their state starting in fiscal year (FY) 2028, unless their SNAP payment error rates fall below a 6 percent threshold or they are otherwise exempt. Only 10 of the 53 states or territories met this threshold in FY2025. If a similar trend holds for FY2026, states will be required to pay up to $11 billion collectively in annual SNAP benefit costs in future years. This stands in stark contrast to the period preceding the OBBBA, in which the federal government covered benefit costs entirely, leaving states to face little to no penalty for high payment error rates.

Given this blunt reality, some have called for delaying the payment error cost share or ending it entirely. Some have even suggested that states will discontinue SNAP if the payment error cost share is not delayed. Other arguments have pointed to a lack of symmetry in the payment error calculation itself, which penalizes underpayments. These arguments may fall on sympathetic ears, with Senate Republicans proposing to delay OBBBA’s payment error requirements in an attempt to pass a farm bill. However, these arguments overlook the negative effects that SNAP payment errors have on low-income families. The best approach is to leave the SNAP payment error formula as it is and fully implement the payment error cost-share requirement as OBBBA intended in FY2026.

Delaying or eliminating the cost-sharing requirement accepts the current high level of SNAP payment errors. While it is true that the vast majority of SNAP payment errors are overpayments rather than underpayments, SNAP households are still negatively affected by overpayments. For example, federal regulations require that state agencies establish a claim against households that receive an overpayment, in an attempt to collect on those claims. Once overpayments are discovered, recouping them can happen by reducing the amount of future SNAP benefits, which can put a strain on a household’s budget or potentially discourage them from participating altogether.

Although research suggests that less than 20 percent of overpayments are eventually recovered, this process can disrupt assistance, requiring recipients to submit additional paperwork or lose eligibility. Avoiding overpayments will ensure that families consistently receive the resources that they need to meet their food needs.

Furthermore, while changing the payment error formula could create symmetry in the treatment of overpayments and underpayments, the consequences of underpayments are immediate and directly harmful to low-income households. This is likely why overpayments will always be more common than underpayments. State workers may be particularly sensitive to underpayments due to the immediate consequences they can have for recipients—an important consideration for treating underpayments differently than overpayments. However, state workers also need strong incentives to avoid overpayments. Requiring a state financial contribution when payment errors exceed a certain threshold will save the federal government money, but it will more importantly avoid disrupting SNAP benefits for participating households.

The Agriculture Improvement Act of 2018 has been operating on a one-year extension since FY2023, making Congress overdue to pass a new farm bill. The farm bill not only sets agriculture policy for the country but also authorizes SNAP, including the treatment of payment errors. The House of Representatives passed a new farm bill in April 2026 that maintained OBBBA’s payment error approach, but the Senate failed to pass a companion bill even after agreeing to delay the payment error cost share. The Senate’s failure offers a good opportunity to leave OBBBA’s payment error approach as intended."

Growth through innovation bursts: Why industrial policy should not bet on size

By Giuseppe Berlingieri, Maarten De Ridder, Danial Lashkari and Davide Rigo. Excerpts:

"Industrial policy is back on the agenda across advanced economies, with a growing channelling support towards large incumbent firms on the premise that they are the most capable innovators. This column uses data on French manufacturing firms to argue that this premise deserves scrutiny. Firms become large primarily through occasional, large 'innovation bursts' rather than by innovating at persistently higher rates. The arrival of these bursts involves an element of chance, so a firm's current size says little about how much it will innovate in the future. Policies that entrench the position of incumbents may therefore slow down the churn that sustains aggregate growth."

"This column is not an evaluation of any specific industrial policy programme, and our discussion has abstracted from any strategic and security motives behind much of the current debate. Our results also do not imply that scale is never efficient: some technologies – notably intangible-intensive ones with high fixed and low marginal costs – feature genuine returns to scale and ignoring this would be costly (De Ridder 2019, 2024, Lashkari et al. 2024). Our findings do suggest that policymakers therefore face a trade-off between accommodating such scale effects, and entrenching incumbents whose size reflects the luck of past innovation bursts. An industrial policy that shields incumbents from that displacement risks slowing the growth it aims to promote." 

Decades Of Ice-Related Climate Misinformation Drove False Claim That Glacier Collapse, Rather Than Bedrock, Caused Nepal Disaster

Egg on their faces, activist scientists and journalists are now blaming “melting permafrost,” but there’s no evidence for that either

By Michael Shellenberger. 

"Anthropogenic climate change caused a glacier to melt, triggering the flooding in Nepal, said scientists and journalists immediately following the disaster. “Climate change is heating up the Himalayas and supercharging the risk of disasters like the deadly flash flooding in Nepal and Tibet,” the New York Times reported on August 27 under the headline “Climate Change Raises Risk of Disasters Like Nepal Floods.” Explained the Times, “As humans warm the planet by burning fossil fuels, the Himalayas are losing their permafrost” and “the thawing permafrost is destabilizing the foundation underneath glaciers, raising the risks of precisely these kinds of landslides and glacial collapses.” It quoted Ashim Sattar of the Indian Institute of Technology Bhubaneswar: “There’s a very straight link between climate change and these types of disasters.” Alton Byers of the University of Colorado told the Times, “Permafrost has been the cryospheric glue that’s held the rock and the ice and the glaciers together for millennia, and now we’re getting increasing evidence that it’s being weakened by warming trends.” Three days later the Times told readers that “one thing seems certain: The risk of such events is increasing.”

But new satellite imagery reveals that the bedrock beneath the glacier collapsed, bringing the glacier down on top of it. “You have this big bedrock failure that took part of the glacier with it,” said geomorphologist Dan Shugar. His colleague Kristen Cook described it as “a collapse of a large piece of bedrock that was sitting below the glacier. The ground underneath the glacier collapsed and took the glacier with it.” Another glaciologist, Jakob Steiner, agreed, explaining that “You basically had the lower part of a glacier tongue that sheared off because the rock below failed.” Cook told the New York Times that “The rock that the glacier was sitting on collapsed,” and yet the Times headline is “Landslide Along With Glacial Collapse Likely Set Off Nepal Flooding, Scientists Say,” which is misleading in that it was the landslide that brought down the glacier. “Essentially, a chunk of the mountainside collapsed,” Shugar told the Times."

Capital Is Not Taking Half of America’s Income, and Other Myths About the “Labor Share"

By Richard DiSalvo, Erica York.

"Economists and journalists have been pointing to a labor share of income series from the Bureau of Labor Statistics (BLS) as evidence that capital is taking an ever-increasing slice of the economic pie. By that series, labor’s share fell from nearly two-thirds in the 1950s to about half today, fueling headlines like “US workers’ share of national income falls to a new low.” 

But a closer look at the national income accounts shows a different story. Labor’s share is both higher and more stable than the BLS series suggests.

Capital Takes Between 17 and 24 Percent, Not Half, of Gross Income

Most recently (Q2, preliminary), the BLS series reports 53 percent of income accrues to labor, leaving 47 percent to nonlabor, which commentators call “capital” or “owner” income. But in that commentary, the definitions of income and the underlying assumptions BLS uses to split it often go unclarified. We untangle those assumptions below; but first, we build directly from the national accounts to show how total US income divides to capital and labor, then contrast that with the BLS series.

Gross domestic income totaled roughly $32.2 trillion at an annual rate in the second quarter of 2026. Of every dollar, 50.4 cents were paid to workers as compensation: 41.5 cents of wages and salaries plus 8.9 cents of benefits. This is unambiguously labor income. But it does not necessarily follow that all 49.6 cents of the “nonlabor” income accrue to capital.

The income unambiguously paid to capital includes corporate profits after corporate tax, interest, and rents, and this amounted to nearly 17 cents. About 3.6 cents of that is “imputed rent,” an estimate of what homeowners would pay to rent their own homes. Imputed rent is not actually cash that people collect and is not what people typically think of as “capital income.”  (The national accounts also include the “current surplus of government enterprises,” which operate at a loss, and thus account for a small, negative value, which we exclude.)

Another 6.7 cents were the income of proprietorships and partnerships, a mix of pay for the owners’ work and return on their investment. If this is entirely attributed to return on investment, capital would still only earn 24 cents per dollar of gross income—far less than half.

Gross Income Overstates What Households Actually Receive

The remaining categories of “income” deserve a closer look, because they aren’t income that accrues to anyone.

Depreciation takes nearly 17 cents of every dollar. This is the cost of replacing worn-out buildings, equipment, and software; each year, this spending returns the capital stock to where it started, and it never makes its way to a paycheck or a brokerage account.

Taxes are collected before income ever reaches a household: 7.0 cents in taxes on production and imports (TOPI, including sales and property taxes, federal excise taxes, and customs duties net of subsidies) plus 2.8 cents in corporate income taxes.

Using a gross measure to attribute non-labor income to capital counts these categories as accruing to capital even though they never show up as capital income. That creates a particularly odd position for many commentators when it comes to tariffs. Every dollar of tariff revenue mechanically raises the “nonlabor” share of income and is thus categorized as “capital income.” Analysts’ interpretations of tariff incidence vary, but no common interpretation considers tariff revenue to be capital income.

 

Labor’s Share of Net Income Is Within Historical Levels

Removing depreciation and taxes leaves net income. In the second quarter of 2026, that leaves roughly $23.7 trillion of private sector income that was actually paid out to people.

A leading literature survey on the labor share distinguishes between income that unambiguously belongs to labor (employee compensation), income that unambiguously belongs to capital (profits, interest, and rent), and the ambiguous remainder (proprietors’ income, after excluding taxes). Tracking these three categories as shares of net income since 1947 tells a clean story and changes the picture substantially from the headlines.

 

Unambiguous labor income has made a round trip: it was about 69 percent of net income in the late 1940s, rose to about 75 percent in the 1970s, and is 68.3 percent today. Labor share, in other words, is not at a “never before seen” level.

Unambiguous capital income has risen from about 13 percent of net income in the late 1940s to 22.6 percent today. More than half of that rise has come since 2000, when it stood at 17 percent, with the largest jump coming during the pandemic years of 2020 and 2021 (before the release of AI tools).

The ambiguous proprietors’ slice fell from about 18 percent of net income in the 1940s to about 10 percent by 1970, driven largely by the decline in farming. It fell to a low of around 6.7 percent in 1982, then recovered to roughly 9 percent to 10 percent, most recently measuring 9.1 percent.

The nature of proprietors’ income is ambiguous. Assign it entirely to labor, and capital’s share stays at 22.6 percent of net income, the “unambiguous capital share” in the nearby chart. Or assign it all to capital, and capital’s share rises to 31.7 percent of net income—this is the approach we take to reach the highest capital share we can infer. The truth is somewhere in between, but recent research suggests proprietor income is mostly labor, so even our 31.7 percent estimate—still far below half—is likely too high.

Because proprietor income has been a relatively stable share since the late 1980s, no fixed (time-invariant) allocation of it between labor and capital can drive recent trends, although an allocation that itself changes over time can. A time-varying allocation is one of several drivers of the BLS trend, which we discuss next.

Estimating Labor Share and Assumptions Behind the BLS Approach

A labor share estimate requires dividing income into two categories: labor and capital.

In the corporate sector, the split is easy: wages on one line, profits on another. Indeed, some economists restrict their analysis to the corporate sector for this reason. For noncorporate businesses, it must be estimated, since their income is a mix of labor and capital. Government, nonprofits, farms, and the imputed rent on owner-occupied housing are often excluded.

Every published labor share estimate must make assumptions about noncorporate actors, and these assumptions can move the level and trend.

The BLS measure uses an imputation strategy to split the noncorporate business sector into labor and capital income, producing a time-varying allocation. It only covers the nonfarm business sector, or about three-quarters of the economy. This contrasts with using the national accounts, which keeps all income under one fixed convention.

Let’s start with the BLS split of proprietor income. BLS assumes proprietors “pay themselves” the average hourly compensation of employees in the sector times their hours, and treats whatever is left as capital income. Because hours per worker move slowly, this is essentially a comparison of two averages:

The result has shifted enormously; we estimate BLS’s inferred capital share of proprietors’ income rose from less than a fifth in 1990 to about half today, in line with trends documented by Elsby, Hobijn, and Şahin through 2012.

Then let’s look at the omissions. Government and nonprofits, roughly 15 percent of the economy, are excluded; including them, as BLS economists note, would increase BLS’s estimated labor share. Farms are also excluded; this matters little today but makes historical comparisons anachronistic, as farm proprietors’ income was 6 percent of the total in the late 1940s.  

Finally, the BLS ratio divides income-side compensation by product-side output, so the bookkeeping gap between GDP and GDI (the “statistical discrepancy”) can affect the trend. Our approach uses the income accounts throughout, so all components sum to total income by construction.

Correcting the Headlines

The description of the labor share as “unprecedented” or “record low,” the “close to 50-50 split,” and the commonly shared figure depicting a trend downward since the 1940s are all misleading. Labor earns about half of every dollar of gross income, but the remainder should not all be attributed to capital—much of what is counted in gross income does not accrue to anyone. A better measure uses net income, and the share of net income accruing to capital is between 22.6 percent and 31.7 percent, depending on how proprietors’ income is treated. The labor share is back to a historically precedented, not “never-before seen,” level. And the “downward trend throughout” needs to be replaced with “the labor share rose, then fell, over the postwar era.” It has made a round trip, rather than declining consistently from its starting level."

Welfare Digest | Welfare Reform's Success Holds Up 30 Years Later

Romina Boccia and Tyler Turman of Cato.

"Welfare Reform's Success Holds Up 30 Years Later. The positive effects of the 1996 welfare reforms on work and poverty still hold three decades later, argues AEI scholar Scott Winship. At a recent House Work & Welfare Subcommittee hearing, Chairman Darin LaHood (R-IL) noted that the law replaced “an open-ended 'no strings attached' cash entitlement” with a program that “included work requirements, time limits, enforced the principle of work in exchange for benefits, and capped federal funding for benefits.” In his testimony before the committee, Winship pointed out that child poverty fell by roughly half to more than three-quarters between 1996 to 2022. As Winship says, earnings among families with children since welfare reform have grown so large, that “if the entire safety net disappeared tomorrow, the child poverty rate would still be lower than in 1993.” Winship credits part of this to the employment gains after welfare reform, especially among single mothers, which rose so dramatically that they have “never returned to pre-[reform] levels. Even in the depths of the Great Recession, single mothers were more likely to be employed than they had ever been before 1995.” To read more about the impacts of welfare reform, including how states circumvented the law’s spending constraints by shifting beneficiaries off TANF and onto other, open-ended entitlements, read the statement we submitted for this hearing here." 

 

 

Labor's share of income

From Labor’s Share of GDP: Wrong Answers to a Wrong Question By Alan Reynolds. 

"Jason Furman and Peter Orszag found “the decline in the labor share of income is not due to an increase in the share of income going to productive capital—which has largely been stable—but instead is due to the increased share of income going to housing capital.” Depreciation and government, they noted, also gained an increased share (i.e., grew faster than labor income.)" 

Workers do not receive shares of GDP – they receive shares of personal or household income.  

Contrary to popular confusion, dividing employee compensation (wages and benefits) by GDP does not measure how a capitalist private economy (e.g., “superstar firms”) divides income between labor and capital. Most obviously, the government makes up a huge share of GDP, including nonmarket goods like defense and public schools. Nonprofits also account for a lot of GDP, with no obvious payout to labor or capital. Less obviously, depreciation makes up another huge share of GDP, including wear and tear on public highways and bridges as well as private equipment, homes, and buildings. The “imputed rent on owner-occupied homes” is another large piece of GDP. Asking if labor is getting a fair share of defense, depreciation and imputed rent is a truly foolish question. Net private factor income would be a better gauge than GDP, for the purpose at hand, but still flawed. The ratio of compensation to GDP uses the wrong numerator as well as an untenable denominator. Labor income must add the labor of self-employed proprietors.  

When people say “labor’s share is falling,” they surely mean income people receive from work has not kept up with income people (often the same people) receive from property: dividends, interest, and rent. But, that crude Piketty-Marx labor/capital dichotomy ignores another increasingly important source of personal income: namely, government transfer payments from taxpayers to those entitled to cash and in-kind benefits."

"labor’s share of household income is highest in deep recessions (77.5% in 1982, 76.2% in 2009) and lowest at cyclical peaks (70.6% in 2000, 68.3% in 2007). The higher labor share in recessions does not mean recessions are good for workers, of course, but that they are even worse for business and investors. Those who equate a higher labor share of income (e.g., during recessions) with higher real income for workers are making a basic and very large mistake." 

"labor’s somewhat smaller share of income is not because of any sustained rise of capital income or capital gains. It is because of a sustained rise in the share of income from transfer payments and a sustained fall in the labor force participation rate."

"Labor’s share of personal income fell mainly because the share devoted to government transfer payments rose. Labor’s share of GDP fell for other reasons (rising shares going to housing, government, and depreciation), but it is a fundamentally misconstrued statistic used to rationalize irresponsible remedies to an illusory problem of “monopolies.”"" 

From The Labor Share Fell. So What? by Alex Tabarrok.

"I have also plotted total compensation to labor (in real terms) in the graph above and far from shrinking it is higher than ever and growing. Moreover the right axis is logged so you can also see that outside of recessions the growth rate of labor compensation looks quite steady (similar slope over time). (Labor compensation per member of the labor force is noisier but looks similar)."

"In short, the data are consistent—not proof of, but consistent with—a story in which capital has become more productive, raising output. More productive capital also raises the demand for labor, so while more of the new output goes to capital in the first instance, the pie is growing and labor’s absolute compensation has grown with it."

Comment from Scott Sumner

"People often assume that if labor's share is falling then capital's share is rising. That is not always true, as GDI also includes depreciation and indirect business taxes, both of which have been rising as a share of GDI. So capital's share has risen by considerably less than labor's share has fallen.

Matt Rognlie showed that much of the rise in capital income has been the implicit rent on owner-occupied housing, which is not what most people think of when they hear "capital income". Another part of the rise is labor income being reclassified as capital income for tax purposes."

BLS Overstates Drop in Labor Share by David Henderson. 

"The underlying assumptions about "proprietor income" are biasing the labor share calculations. The calculation of labor share involve adding compensation received by employees to "proprietor income," which is the labor income received by those who run their own business. However, proprietor income is conceptually tough to measure, because someone who owns their own business can receive both "labor income," as if the person was an employee of their own business, and "capital income," as the owner of the business. In the real world, these two types of payments are jumbled together. To address this issue, the Bureau of Labor Statistics has assumed that the hourly labor compensation of proprietors is the same as that of employees. However, if the labor income of proprietors is actually rising over time, then this assumption means that the labor share is understated. One study finds that about one-third of the observed decline in labor share is due to this assumption that the hourly labor compensation of proprietors is the same as that of employees, rather than using an alternative method that tries to estimate the capital income of proprietors directly. (bold and italics in original)"

Labor’s share of income in the very long run is pretty stable by Scott Sumner.

"It seems silly to focus on gross domestic income, which includes depreciation and indirect taxes.  If we subtract them out we get the more conventional measure of national income, the way most people envision the concept.  And using that measure the labor’s share has been amazingly stable, rising from 68.0% in 1965 to 68.1% in 2015. Capital’s share fell from 32.0% to 31.9%.  No change in 50 years! Is that too good to be true?  Yes, for instance in 1990 labor’s share was 72.4%, so it’s just a coincidence. But it does suggest that labor’s share in the very long run is pretty stable."

Domestic Energy Shipments Are Breaking Records Under the Jones Act Waiver

By Colin Grabow of Cato.

"The Jones Act is a de facto tax on Americans trading with one another. By requiring domestic waterborne commerce to use vessels that cost far more to build and operate than their international counterparts, the law raises shipping costs. That’s a real burden given the significance of transportation in a country as vast as the United States and helps explain why relatively little freight moves by water.

Conversely, economic logic holds that lowering these costs will expand commerce, which is exactly what has happened since the Trump administration issued a Jones Act waiver for energy and fertilizer shipments in March. Freed from the law’s constraints, domestic fuel shipments have surged to unprecedented levels.

PADD 5 Receipts Nearly Set a Record in Five and a Half Months

One of the most dramatic examples of this increase has been to the West Coast, Alaska, and Hawaii, collectively known as PADD 5. According to a recent Energy Information Administration analysis, waterborne shipments of crude oil and petroleum products from the Gulf Coast to PADD 5 in April and May 2026 were more than four times their level in the same months of 2025. April’s volume was more than double the previous monthly record, and shipments remained elevated in May. 

That increase has been sustained. US Maritime Administration (MARAD) data show that in less than six months, waiver shipments have already exceeded the Jones Act fleet’s annual total in every year from 2000 through 2025, with one exception. Only 2024 remains narrowly ahead (by 2.2 percent), and it appears on the verge of being surpassed." 

Jet fuel: More jet fuel has been moved to PADD 5 under the waiver than in the preceding 35 years combined (1990–2025). 

Gasoline blend stock and alkylate: More gasoline blending components and alkylate have been moved into PADD 5 than the Jones Act fleet moved from 2010 through 2025 combined. 

Finished gasoline: The waiver has seen more finished gasoline moved to the West Coast than the Jones Act fleet has moved in the last eight years combined."

"East Coast-bound shipments topped 1.2 million barrels a day in April, which was the highest monthly figure on record and about 11 percent above anything seen pre-waiver."

"In 2017, the CEO of Overseas Shipholding Group, a major Jones Act tanker operator, admitted to the Financial Times that the law was suppressing domestic oil flows: “If there was not a Jones Act, then there probably would be more movements of crude oil from Texas to Philadelphia.”"