On Means Testing
My piece on Marco Rubio’s plan to reform Social Security yesterday drew a reaction from some on the left, in particular with regards to means testing. Rubio proposes increasing the growth rate of benefits for poor seniors and decreasing it for rich ones. It isn’t a direct form of means testing, but it does change the program in a similar manner. In the article, I argued that it would strengthen Social Security and that means testing would do so as well. (When I use means test here, I’m referring to using different benefit levels, not a cutoff test as is often proposed.) There are two parts to this debate: policy and politics—and they impact each other.
The first question is whether you would means test Social Security benefits in a perfect world. In other words, if you could set up the federal government to your exact specifications, would it include means testing? I think it would. I believe the federal government should marshal its resources to help those at the bottom of the income distribution. It does not need to do anything for those at the top. There are certainly situations where government policies will benefit those at the top in order to correct market failures, but our tax and transfer system should focus on those at the bottom. If I’m given the option of giving the rich unnecessary retirement funds or not doing so (regardless of how those funds could be used—slightly lower taxes or increased spending on the poor), I would choose against it.
There are also some labor effects. If we began means testing Social Security, the rich will alter their work decisions. Some may choose to work more to make up for the lost benefits, others less since they will collect more in benefits as their income drops. It’s unclear which of those effects dominates, but I’m not particularly concerned that it will cause a sharp drop in labor force participation.
Of course, means testing wouldn’t happen in my theoretical policy world. It would happen in the real world where politics play a big role. Jesse Myerson put the liberal fear succinctly on Twitter: “Means-testing programs make them politically vulnerable, thereby *weakening* them.” I generally agree with that statement. Paul Ryan’s Hammock Theory of Poverty would have much less support if we had a universal basic income. But my inclination is that this political fear does not exist with Social Security for a couple of reasons.
First, I don’t really buy the Matt Yglesias theory that elites hate Social Security because they want everyone working. It’s impossible to prove this one way or another—if elites do hold that belief, they aren’t going to come out and say it. But I believe the right to a comfortable, non-impoverished retirement is almost universally held in America. Even elites have grandparents and even they see that, at some point, their grandparents deserve to retire.
Secondly, seniors are a hugely important voting block for Republicans. The GOP won’t even propose using chained-CPI to change the inflation adjustment for Social Security benefits. Not that I support doing so, but the Republican refusal to do so shows their hesitance to support cuts to Social Security of any kind. Even Rubio doesn’t propose full means testing, just a change to the growth formula. In order for Republicans to apply the same “moochers vs. makers” framework to Social Security benefits, they would have to openly argue that they want seniors working more. It’s hard to imagine any situation where that’s a smart political position.
Thirdly, while Social Security’s funding problem is based an arbitrary accounting distinction, it’s a real political problem. Policymakers are going to try to find a way to close that funding gap and the larger that gap is, the more likely benefit cuts will be on the table (such as through chained-CPI). The longer that the Social Security trust fund stays solvent, the lower the chance that policymakers settle on some type of benefit cuts that also hurt low-income seniors. In that sense, means testing does strengthen the program by increasing the time until the trust fund runs out of money.
Finally, if we did means test Social Security, Republicans would have to give their assurances that they have no intent to cut the benefits for poor Americans. They will have to promise to continue treating Social Security as an entitlement program, and not as welfare. That may be a false promise, but that will also be a tough political position for Republicans to take.
For all those reasons, I have trouble seeing how means testing Social Security actually makes it politically vulnerable. Now, I wouldn’t just propose it either. It’s something Republicans want and can be used as a bargaining chip. But it’s also a smart policy idea. If Democrats could trade it for an increase in the EITC or using CPI-E to adjust Social Security benefits (once the BLS perfects it), that would be a win-win.