Award-winning Economists: Means Testing is a Dangerous Plan

January 10, 2013

Union folks shouldn’t be surprised when our adversaries play word games. Terms like “right-to-work” or “ownership society” sound, to many, as American as the Super Bowl until people find out that the first could cut their pay and benefits and the second would put benefits like Social Security and Medicare in the private hands of Wall Street.

Today, many politicians, Democrats and Republicans alike, are saying that the federal deficit is the main problem facing our nation. Some suggest that “means-testing” Medicare and Social Security—making higher-earning recipients pay more—is the answer to reining in “out-of-control spending” on “entitlements.”

A group of well-respected economists think that means-testing is a destructive idea. An article by Lynn Parramore,“6 Reasons Joseph Stiglitz and Other Top Economists Think Means-Testing Medicare and Social Security Is a Destructive Idea,” posted on AlterNet says:

In Washington-speak, ‘means-testing’ is a scheme to deny or reduce Medicare and Social Security benefits for people who are ‘too wealthy’ in the name of saving money. It’s a counterproductive, harmful idea, but one that well-intentioned liberals often get snookered into embracing.

Nobel Prize-winning economist Stiglitz told Parramore that  programs like Medicare and Social Security are important to social cohesion, where support comes from the fact that everybody is participating. Says Stiglitz:

We don’t means-test public education because we believe that we want people to have the same opportunities and we lose out on that with means-testing.

FDR: Program Not Meant as Handout

Another celebrated economist, James K. Galbreath, says that when President Franklin D. Roosevelt designed Social Security to be funded through a payroll tax, he was trying to ensure that the program would not be seen as a “handout” to the needy that could be marginalized, ridiculed or cut. Roosevelt stated that he wanted to make certain:

No damn politician can ever scrap my social security program.

Social Security Doesn’t Contribute to Debt

Right-wing Republicans always link Social Security costs to the federal deficit. But Robert Reich, former Secretary of Labor in the Clinton administration, in an article, “The Hoax of Entitlement Reform,” says the program doesn’t contribute to future budget deficits because it can only spend money from the Social Security trust fund which has been in surplus for many years.

Raising the Social Security retirement age, one of the solutions proposed by politicians, says Reich, would be unfair and dangerous to workers whose “bodies begin wearing out about the same age they did decades ago even though they live longer.”

While he differs with other economists who rule out means-testing Social Security recipients, Reich says that raising the ceiling on income subject to Social Security taxes (in 2013 that ceiling is $113, 700)  should also be looked at as a way to make up for any shortfalls that will develop as more baby boomers retire and the work force contributing to payroll taxes shrinks.

Means-Testing Won’t Stop at the Wealthy

Means-testing, say many experts, won’t stop at the wealthy. Wealthy Americans are a small minority of the population who don’t get richer Social Security or Medicare benefits than middle class wage earners. So, in order to produce significant savings, even people who make $60,000 a year and less could be forced into paying more for the benefits.

Could Raise, Not Lower Costs

Refuting phony populist claims of many on the right who support means-testing, some experts say rather than producing great savings, such a plan could actually raise costs for middle and lower income seniors who rely on Medicare and Social Security to stay out of poverty. Writes Parramore:

Means-testing will cause many high-income beneficiaries to view the programs as unfair, and they will opt out, purchasing their own insurance and retirement policies on the private market. Programs like Medicare and Social Security depend on spreading risk across a large pool of people. For example, the departure of higher-income beneficiaries from Medicare, who tend to be younger and healthier, would increase overall costs and diminish public support.

If means-testing isn’t the answer to reducing government debt, what is? Reich says:

The underlying problem is the soaring costs of health care—as evidenced by soaring premiums, co-payments, and deductibles that all of us are bearing—combined with the aging of the boomer generation. The solution isn’t to reduce Medicare benefits. It’s for the nation to contain overall healthcare costs and get more for its healthcare dollars. We’re already spending nearly 18 percent of our entire economy on health care, compared to an average of 9.6 percent in all other rich countries.

According to Reich, trimming deficits means focusing on three aspects that are not connected to Social Security or Medicare.  They include limiting overall healthcare costs, cutting our nation’s bloated military, and ending corporate welfare (tax breaks and subsidies targeted to particular firms and industries).

Photos used under a Creative Commons license from Flickr user DonkeyHotey