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The New Independent Party Blog

This Blog is maintained by Mike Barron, Executive Director and Founder of the New Independent Party. The views expressed here are not necessarily those of the Party, its Board of Governors or its Members.

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Means testing of Social Security

The selection of Paul Ryan as the Vice Presidential candidate for the Republicans got me thinking about the issue of means testing Social Security. As I mentioned in my blog on Ryan's selection, Social Security is already means tested in the method of calculating the benefits and in the taxation of those benefits.

Means testing is often speciously defended by asserting that the likes of Buffet and Gates do not need Social Security benefits. While this is no doubt true, means testing Social Security to prevent it from going to the truly wealthy would not save enough money to be worth the bureaucratic trouble and cost. In order to get a worthwhile benefit from means testing it has to impact the middle class.

A significant middle class means test, whether based on assets or income or both, will be very difficult to design and implement equitably. For example, if IRA and 401K assets are to be counted then the market value of pensions must be counted too, if not, it will not only be inequitable, it will force a massive redirection of retirement programs toward classic defined benefits pensions. Including the market value of pension plans will require that the government develop and maintain a bureaucracy with the actuarial ability to asses the value a wide variety of pension plans.

If, as is more likely, the means testing is focused on income, including income from with drawls from IRA and 401K plans , it creates a powerful disincentive for work and savings and punishes individuals who responded to earlier government incentives to invest in these plans. This effect could be diluted by basing the indexing on cumulative life-time Social Security income, but this solution still creates a disincentive for work.

The New Independent Party's Platform avoids these disincentive, equity, and bureaucracy issues by attacking the real source of the problem: longer life expectancies. Gradually increasing the retirement age for Social Security deals with the underlying problem without creating any perverse incentives for work or investment or requiring any additional bureaucracy.

If the objective is to shift even more of the burden of supporting these programs to higher income groups, that can be done with far less bureaucratic fuss by increasing the cap for the Social Security payroll tax or by removing the cap entirely for some small percentage of that tax or by applying that tax to unearned income. This will still have a negative impact on incentives for work and investment but it will spare us from having to develop the necessary bureaucracy to administer a means test.

2 comments | Add a New Comment
1. Friend | October 06, 2013 at 12:04 AM EDT

You have not posted in awhile what is up?

2. Mike | May 30, 2014 at 03:31 PM EDT

I have been pulled away from this by some personal health issues and other things. I hope to begin posting on a regular basis again soon.

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