'Means Testing' Social Security Is A Bad Idea

"....almost every plan for "fixing" it forwarded thus far will ultimately weaken it.

That includes the idea of means testing, or reducing or eliminating benefits for wealthy individuals. On the face of it, it sounds almost progressive. Why should the well-off get the same benefits as everyone else? They don't need them, why shouldn't that money be redistributed to those who need it more?

The simplest answer is that it's their money, too. They paid into the system and, in doing so, bought into the same promise as the rest of us. Which gives them the same incentive to support the program as the rest of us. In their 1999 book, Social Security: The Phony Crisis, Dean Baker and Mark Weisbrot address this.

The justification for denying benefits to people who have paid taxes into the system is also questionable. We do not deny interest payments to wealthy owners of U.S. Treasury bonds, for example, and it is difficult to see how the payment of Social Security benefits to rich senior citizens is any less appropriate. Indeed, why single out senior citizens as a group for special treatment in this regard? If we think that the rich are getting too much of the economic pie, then they should be taxed more--not just the ones who happen to be over 65.

It's important to recognize, though, that there is already a progressive earnings test built into the system, in that higher income retirees pay income tax on a portion of their benefits, and lower-wage earners get a higher return on contributions. In that sense, income fairness exists already in the program.

Exchanging that basic fairness for means testing Social Security would take away that "legal, moral, and political right" of all Americans to collect their pensions. It turns Social Security from what is essentially an insurance program into welfare. Which in turn would deeply erode political support for the program. The constituency for any aid program is far less powerful than the constituency for Social Security--the whole of the American workforce, and those with money are the most powerful.

There are other, simply practical reasons, to reject the idea of a means test. Primarily, there just aren't enough wealthy seniors to achieve significant savings by reducing their benefits. Use the cut-off level of $250,000 for the definition of wealthy. With roughly two percent of all tax filers in the US claiming that level of income, the percentage of seniors in that bracket is insignificant.

In fact, the administrative costs for the Social Security Administration (SSA) in trying to make income determinations, measuring need, and policing the system would be significant--potentially outweighing any savings in benefits. Take the example of Medicaid, which is means tested. Significant administrative resources have to be devoted to determining assets, and policing would-be recipients trying to hide those assets in order to qualify.

There's a compelling argument that means testing would also serve as a disincentive for retirement saving. AARP's executive vice president for policy make this argument:

Imposing new limits for the well-off could backfire in various ways. A means test could adversely affect retirement planning and lower the personal savings rate if people concluded the program would penalize them for having higher retirement incomes or larger nest eggs. It would discourage older persons from continuing to work beyond eligibility age, depriving them—and the economy—of additional money. It would create incentives for people to take lump-sum distributions from pension plans, strategies that could prove shortsighted and harmful.

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http://www.dailykos.com/story/2011/02/20/947639/-The-case-against-means-testing-Social-Security