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December 31, 2012 |
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.
easy to see why. Economic inequality has exploded to dangerous levels,
and the argument for means-testing seems to appeal to a powerful sense
that the rich are getting more than their fair share at the expense of
everyone else. Combine this with the deficit hysteria promoted by
conservatives, and the trap is set.
Don’t fall into it. The truth
is that means-testing is a sneak attack on vital programs meant to
weaken and eventually destroy them. There’s a reason why an
ultra-conservative like Paul Ryan pushed means-testing during the
presidential campaign. And there’s a reason why private equity
billionaire Pete Peterson, enemy of Social Security and Medicare who
served in Richard Nixon's cabinet, makes a special point of bringing up means-testing
when he is talking to liberals.
push means-testing because it’s a highly effective political strategy
for getting liberals and progressives to act against their own values
and interests -- so effective that some economists billing themselves as
liberal, such as Jared Bernstein, a former adviser to the Obama
administration, sometimes talk about means-testing as if it’s a
reasonable idea. Bernstein recently went on CNBC
and said that means-testing “sounded like a good idea” and characterized people opposed to it as “fringe.”
Bernstein’s assertion that means-testing opponents are “fringe” is nonsense. Does that include Paul Krugman of the New York Times
, who describes
means-testing as "an even worse idea, on pure policy grounds, than even
most liberals realize"? In researching this article, I communicated
with several highly respected economists, including Nobel Prize-winner
Joseph Stiglitz, James K. Galbraith, Dean Baker, and Thomas Ferguson.
All of them expressed their concerns about means-testing and provided a
variety of sound arguments against it. (Bernstein, after being roundly
criticized, backtracked in a blog
and admitted that means-testing is a bad policy idea and a questionable
way to address income inequality. He just forgot that when he was on
Here are six reasons why you should be on high alert any time
you hear the phrase "means-testing" -- whether it comes from
government-hating conservatives or liberals who wish to appear
“moderate.” The truth is that there is nothing moderate or reasonable
about means-testing – or any other plan to weaken Social Security and
1. Means-Testing Undermines Progressive Values
their heart, programs like Medicare and Social Security are about
fairness, equality and shared citizenship, values that progressive
Americans hold dear.
Medicare and Social Security are not welfare
programs. They are benefits that people pay for as they work. They are
also smart social insurance programs that spread risk across society in
order to protect everyone at rates no private insurance scheme, with its
much smaller risk pool, could touch.
spoke to Joseph Stiglitz, he discussed the idea that “means-testing is
mean.” Programs like Medicare and Social Security, he explained, are
matters of political economy. They are important to social cohesion,
where support comes from the fact that everybody is participating. “We
don’t means-test public education,” explained Stiglitz, “because we
believe that we want people to have the same opportunities and we lose
out on that with means-testing.” The same is true of our belief that
everyone deserves a dignified retirement and adequate medical care in
Medicare and Social Security are not handouts to the
needy. They are not even intended to be a safety net. In their design,
they promote the fundamental notion that dignity and good health in old
age are not special privileges that can be bestowed or taken away. They
are fundamental rights that every working American who has contributed
productively to the economy can expect to enjoy. As James K. Galbraith
told me in an email, “It’s insurance, not charity.”
runs against this fundamental idea by turning Medicare and Social
Security into welfare programs that become bargaining chips for
politicians. The programs become provisional rather than fundamental. President Franklin Roosevelt understood this point well
which is why he designed Social Security to be attached to a payroll
tax so that “no damn politician can ever scrap my social security
Conservatives have dedicated themselves to making
Americans feel as though benefits they have earned are undeserved.
Consider Mitt Romney’s infamous comments at a 2012 fundraiser:
are 47 percent of the people…who are…dependent upon government, who
believe that they are victims, who believe the government has a
responsibility to care for them, who believe that they are entitled to
healthcare, to food, to housing, to you-name-it -- that that's an
entitlement. And the government should give it to them.”
turning Medicare and Social Security into welfare, means-testing feeds
right into the Romney view of the world, an us-against-them mentality
that pits the self-righteous wealthy against ordinary people.
Means-testing would divide the population and further emphasize the
difference between the haves and the have-nots by transferring a sense
of receiving handouts to those getting Social Security and Medicare.
director of the Center for Retirement Research at Boston College, has explained
that programs like Social Security represent "the payoff of a lifetime
of premiums." Contrary to what Romney would have you believe, she points
out that "the government writes the check, but in most cases
individuals have paid for the benefits."
Today, when Grandma goes
to the mailbox to find her Social Security check, she can be proud that
the millionaire on the next block receives his check, too. They are
bound together as Americans, as fellow citizens who have a stake in the
economy and in a society that functions well for everyone.
Baker explained in an email, “People paid for these benefits. It's true
that a few people like Peter Peterson may not need them, but these
people probably also don't need the interest they get on government
bonds. No one talks about means-testing that, or to take another
example, federal flood insurance.”
2. Means-Testing Won’t Stop at the Wealthy
no mistake: If means-testing on the wealthy is allowed, conservatives
will keep pushing until that same means-testing is applied to the middle
class, who increasingly must rely on Social Security and Medicare in
times of economic uncertainty and job insecurity.
Don’t think so?
Think back to 1983, when the Greenspan Commission backed by Ronald
Reagan made changes to Social Security, including raising the retirement
age to 67 for people born after 1960. “We’ll never do it again!” they
said. “Just this once!” The full increase in the retirement age has not
yet affected retirees -- that dicey experiment is waiting for those
under 52 – and so we don’t even know yet how hard the hit will be.
those same people who said “never again” are asking to raise the
retirement age today. So when you hear politicians and pundits talk
about means-testing with promises of “We’ll only do means testing on the
very rich,” or “Just this once,” remember how empty such promises tend
As Jared Bernstein himself noted in 2011
“the history of social policy leads me to worry [that] once you shift a
program from universal coverage to means testing, it’s increasingly
vulnerable to deeper means-testing until it eventually becomes a poverty
program which everyone wants to get rid of.” Exactly.
Dean Baker further notes that you don't save any money on programs like
Social Security and Medicare unless you hit very modest income people.
“There just are not very many wealthy elderly,” wrote Baker in an email.
“While you can get a lot of money from taxing the rich, Peter
Peterson's Social Security check won't be that much bigger than mine and
his Medicare benefits won't be any bigger. To get any money you will
have to be hitting people with incomes around $60k. These are people we
would not ordinarily think of as rich.”
As political economist
Thomas Ferguson told me: “The truth is that means-testing is a device to
destroy political support for what are still the most popular of all
government programs – programs that have survived decades of attacks by
3. Means-Testing Doesn’t Make Economic Sense
Proponents of means-testing will tell you it’s a great way to save money. But that’s not really true. In fact, it will likely raise
costs for middle- and lower-income seniors who rely on Medicare and Social Security to live decently in retirement.
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.
Means-testing impacts costs in several
other ways. For one thing, it would turn Medicare and Social Security
into what economist James K. Galbraith referred to in an email as “an
administrative horror show” that will make the programs more expensive
It’s interesting how conservatives constantly argue that
raising tax rates distorts the economy and produces disincentives to
work. Joseph Stiglitz pointed out to me that means-testing has just the
effect conservatives say they are against: “The phase-out is an
effective increase in the marginal tax rate. So if your income goes up
and you lose benefits, that’s a disincentive for working. Every
means-testing has that adverse effect.” Dean Baker further pointed out
that very high effective marginal tax rates give people enormous
incentives to game the system.
But what can we do about rising
healthcare costs? In his blog, Jared Bernstein cites growing healthcare
costs as a reason for means-testing. Healthcare costs are certainly
growing, but not because of the benefits received by the elderly. They
are growing because of monopolistic conditions in the insurance
industry, insanely high prices for drugs charged by pharmaceutical
companies, and a fee-for-service system that encourages doctors to
charge for expensive and unnecessary services. If you want to deal with
rising healthcare costs, you deal with those issues.
People who want to means-test Social Security come up with all sorts of baloney
to convince you that the program is in crisis when it isn’t. In fact,
it is solvent, prudently managed, cost-effective, and carefully
monitored. Social Security is indisputably America’s most successful
program to date, which is why people love it. A 2011 poll
shows that despite all the political posturing and fabrications,
most Americans still have not bought the lie that the program is in
crisis. In fact, most of them would like to see benefits increased!
4. Means-Testing Plays into Conservative Deficit Hysteria
promote deficit hysteria because they have a fundamental hatred of
government and wish to destroy the New Deal programs that have
benefitted the middle class and the poor. If they were really concerned
about deficits and spending, they would not support costly and
unnecessary wars, monopolistic conditions, and extremely low taxes for
the wealthy and large corporations.
By falsely asserting that the
benefits of Medicare and Social Security are major drivers of the
deficit, conservatives try to divert attention from the wasteful things
that actually drive deficits.
Social Security does not contribute
to the deficit. It is a well-managed program in fine fiscal condition,
and there is no justification for tampering with it now. The Trustees
Report shows that the program will be able to meet all of its
obligations at least until 2033. If there is a tweak needed down the
road, that can be handled very simply by raising the cap, which stands
now at just over $100,000. If you are truly concerned about income
inequality, raising the cap is a much better way to address it than
5. Creeping Means-Testing Is Already Happening
already has some means-tested features and politicians have gradually
added more, including income-tested premiums. Medicare was started in
1965 to provide health insurance to people 65 and older regardless of
their medical history or income. Since then, 75 percent of the program’s
Supplementary Medical Insurance (SMI), the part that goes to pay
doctors, has been financed by general revenues, the largest chunk of
which comes from personal income taxes. The personal income tax is
progressive, which means that upper-income people pay a larger share of
their income in taxes for SMI.
Since 2007, specific means-testing features have been added
For example, beneficiaries with incomes over $85,000 have been required
to pay higher SMI premiums. Beginning in 2013, the 2.9 percent hospital
insurance tax will continue to apply to the first $200,000 of income
for individuals or $250,000 for couples filing jointly, but it will rise
to 3.9 percent on income in excess of those amounts.
tends to erode political support for programs, which is why
conservatives will continue to push these incremental changes. We’ve
gone far enough in this direction already and there is no good reason to
continue – other than giving greedy one percenters and financiers
exactly what they want.
6. The Coming Old Age Crisis
exactly are you going to survive in retirement? Do you have a pension?
Do you have a secure job? Is the stock market paying great returns on
In her book, When I'm Sixty-Four: The Plot against Pensions and the Plan to Save Them,
Teresa Ghilarducci has sounded an alarm about the crisis looming for
Baby Boomers and anyone else who hopes to retire down the road.
United States is a rich country, and a dignified retirement for our
elderly should be one of our proudest achievements. And yet Social
Security and Medicare are under near-constant attack. Pensions are
vanishing, and despite 401(k)s and other voluntary retirement plans,
workers still can’t save nearly enough to retire securely. Ghilarducci
warns that the economic structure of retirement in America is falling
apart. She exposes the Wall Street financiers who want to privatize
Social Security, the risk of 401(k) plans, do-it-yourself retirement
schemes, and companies like Enron that have left employees high and dry.
financial stability of Americans is further shaken by rising medical
costs. A single-payer system would be the most sensible way to address
this crisis, and Medicare is the closest thing we have now to
single-payer. Means-testing would harm seniors who already have paltry
incomes. Proposals to increase premiums for 25 percent of beneficiaries,
for example, could hit American seniors who make as little as $47,000, according to the nonpartisan Kaiser Family Foundation
can do many things to help the economy recover from a Wall
Street-driven financial disaster and to address income inequality, like
asking the one percent to pay their fair share in taxes. But we must
come together as Americans to expose the subterfuges and lies and reject
any proposals that harm Social Security and Medicare, including
Lynn Parramore is an
AlterNet senior editor. She is cofounder of Recessionwire, founding
editor of New Deal 2.0, and author of 'Reading the Sphinx: Ancient Egypt
in Nineteenth-Century Literary Culture.' She received her Ph.d in
English and Cultural Theory from NYU, where she has taught essay writing
and semiotics. She is the Director of AlterNet's New Economic Dialogue
Project. Follow her on Twitter @LynnParramore.
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