From Richard Posner, the man who possibly inspired me to stay in econ:
Perhaps some politician will be bold enough to advocate that all
entitlements programs, including social security as well as Medicare,
be means-tested, as Medicaid is. There is no reason why people who can
afford to provide for their retirement should be subsidized by the
government, which is to say by the taxpayer. But such a reform does not
appear to be politically feasible.
More on means-testing here.
Apr 12 2011
I'm at the same APEE meetings in Nassau that Arnold's at and I saw another paper presented by Garett Jones. It was titled "A Political Coase Theorem for the Intelligent." It was on how high-IQ pairs in experimental games do significantly better on trust and cooperation. He then reasoned from that to higher IQ creati...
Apr 12 2011
I heard him give a talk yesterday. He commits what he calls the "Summers heresy" and suggests that there are important gender differences. On mathematical/spatial reasoning, men have a higher mean and, more important, a higher variance. So the upper tail of that distribution is predominantly male. Meanwhile, on con...
Apr 12 2011
From Richard Posner, the man who possibly inspired me to stay in econ:Perhaps some politician will be bold enough to advocate that all entitlements programs, including social security as well as Medicare, be means-tested, as Medicaid is. There is no reason why people who can afford to provide for their retirement shoul...
READER COMMENTS
MikeP
Apr 12 2011 at 6:09am
From a me-and-he comment thread about how to reform health care…
Me: 3. Phase out Medicare. Make the richest age cohort in the country buy their own damn health care. Give vouchers to those who can’t afford it based on poverty or preexisting condition.
He: 3. You still run into the problem of getting companies to provide insurance, at any cost, to uninsurable people.
Me: 3. If vouchers don’t work, then use outright welfare. The important thing here is not to destroy the health care market for the 75% of people who can afford health care in order to coddle the people who can’t into thinking they are not on welfare.
Pat
Apr 12 2011 at 6:29am
Means testing for a benefit as large as Medicare would result in really high marginal rates for a lot of people. They might not end up working enough to afford to pay for their retirement.
If the phase-out was very gradual to keep marginal rates stable, you’re not going to have enough people dropping out to make much difference in government spending.
MikeP
Apr 12 2011 at 6:52am
How is means testing Medicare different from means testing Medicaid?
Indeed, if you get rid of the payroll tax and pay the “benefits” out of general funds, Medicare becomes Medicaid. Then not only benefits but taxes are means tested rather than swiped from the first dollar an 18 year old earns.
The way I would see the “phase out” is a lump sum distribution to an HSA for everyone under 55 or so, with Medicare unchanged for those over 55.
In the end, there is no Medicare. Incidentally, Social Security should get the same treatment. It is beyond disgusting that the wealthiest and most politically active age cohort receives money taken from poorer and less politically active cohorts.
thomas boyle
Apr 12 2011 at 7:45am
Hold up a second. Social security is a contributory pension scheme, not a handout. To means test it is to take it from people who did, in fact, save the money (involuntarily, perhaps, but those are the rules under which the program was sold).
There is no apparent moral difference between means-testing social security, and the recent proposed seizure of private pension savings in Argentina.
Phil
Apr 12 2011 at 7:56am
I ain’t saving hundreds of thousands of dollars for old-age health care if the government will otherwise give it to me for free! I’m spending it on trips and cars and liquor and women while I’m still young.
James C
Apr 12 2011 at 8:07am
the only way means testing Social Security could possibly have a chance at being publicly accepted is if its a mean test of lifetime income. someone who made $3 million over their lifetime should get more than someone who made $4 million, regardless if the one who made $4 million is currently in a worse financial situation. without this, people will be discouraged to save for when theyre old enough for SS. i agree with MikeP in that theres something wrong with current situation, where millionaires collect SS checks paid out by taxing minimum wage earners.
as for Medicare, it should have been eliminated a long time ago. anyone over 65 who cant afford health insurance should go on Medicaid. i could care less about their loss of pride and dignity of being on welfare.
MikeP
Apr 12 2011 at 8:09am
There is no apparent moral difference between means-testing social security, and the recent proposed seizure of private pension savings in Argentina.
As with Medicare, I would phase out Social Security by putting distributions into IRAs to anyone under 55, phasing out the payroll tax, and otherwise not changing it for those over 55. We can debate whether government should force you to save 12% of your income for retirement into your own account. But if you retire without enough savings, you go on welfare.
This is, morally and actually, the exact opposite of seizing private pension savings.
thomas boyle
Apr 12 2011 at 8:31am
MikeP,
No objection to that, at all. But it’s not means-testing of social security. It’s privatization of pension savings. As you say, these are polar opposites.
Floccina
Apr 12 2011 at 8:55am
I think that rather than means test SS we should get rid of the SS tax and pay everyone the minimum benefit amount. That is a little more feasible. Step one is to get rid of the tax. The people who enacted this welfare program used the tax to disguise it as a retirement plan in order to make it politically difficult to get rid of it. So attack the tax first because it is weaker politically.
MikeP
Apr 12 2011 at 9:01am
thomas boyle,
Fair enough. I simply think that merely means testing entitlements is rearranging deck chairs.
Any honest appraisal of means testing has to lead to elimination of such universal entitlements. There is no point in taxing someone and then giving it back to him. Even discounting the potential for political or administrative mischief, the handling of so much money for so many people means that massive misallocation of societal wealth from more economically efficient uses is a near certainty.
Buzzcut
Apr 12 2011 at 9:06am
You know, we have a very progressive tax system. Social Security benefits are taxed, albeit not all of them.
What if you made 100% of Social Security AND Medicare benefits taxable income? Would that be enough means testing for this group?
Seth
Apr 12 2011 at 10:36am
“But such a reform does not appear to be politically feasible.”
No doubt. Changing what most view as a basic retirement plan (whether it is or not) into a welfare plan does not sit well with them.
Tom
Apr 12 2011 at 11:55am
Of course I’m going to get a check for the money I’ve paid into SS, right?
Lord
Apr 12 2011 at 1:29pm
Dean Baker’s papers are relevant. When Social Security is the majority of income for 2/3rds of the retired, and 85% is taxed for those who do have much income, and Medicare being essentially the same amount for everyone, there just isn’t much to be saved by means testing. Then people like to confuse wealth with income and try to tax the former at incredibly high levels to get it to work out and it still doesn’t save much.
MikeP
Apr 12 2011 at 1:45pm
…there just isn’t much to be saved by means testing.
What you save by means testing are any concept whatsoever of price signals and, consequently, the market.
Those allow you to save costs down the road and save innovation in the future.
Some may think this not much to be saved. I think it’s kind of important.
Adam
Apr 12 2011 at 3:18pm
Hey, worrying over work and investments is really getting to be a drag with today’s markets. Taxes are coming up on Monday and I’ve got to scrape up even more money to throw away after rent-seeking pols. Why all the stress and bother?
I should just cash in all the IRAs and blow it all on a multi-year holiday–no more worries about NYSE silver, diamonds, spys and other etfs. By the time the money’s spent, we’ll have vouchers and I’ll be in my late, very healthy 60s. I’ll get my vouchers for crib, meds, meals and wheels–oh yeah, don’t forget that I need one for an Ipad too.
Move over David, I’ll see you in Monterey later in the decade. Oh, those sunsets on the sea are beautiful–definitely worth the vouchers I’ll have to pay for them!
joecushing
Apr 13 2011 at 7:04am
I like the idea of means testing based on lifetime income/loss instead of based on income at age 65. That removes the disincentive to save.
Adam
Apr 13 2011 at 12:19pm
I’m not seeing the argument for an publicly financed retirement payment. Yes, a safety net for people unable to work is essential, but why divert tax money to pay able-minded, able-bodied people for choosing not to work, whatever their age?
Nick Bradley
Apr 13 2011 at 12:35pm
They already means-test for Social Security through a progressive benefit schedule.
The minimum qualifier gets an annualized return on contributions that is 12 or 13-fold higher than the person earning at the payroll salary cap.
The easiest way to solve the long-term medicare problem is doing the same thing, where higher-income earners pay a bigger premium. You could simply cap per beneficiary medicare cost growth at inflation and introduce a progressive premium schedule. Problem solved!
DWAnderson
Apr 14 2011 at 12:27am
Means testing always sounds great until you look at the implicit marginal rates it creates. The problem is even worse for means testing of the elderly much of whose income comes from savings because it creates disincentives to save earlier in life as well.
Means testing isn’t any more of a solution that raising taxes– beacuse they both have similar incentive effects. Not that it might not have some utility, but probably not very much– and certainly is not a sufficient solution in and of itself.
Comments are closed.