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Lynn Parramore: 6 Reasons Joseph Stiglitz and Other Top Economists Think Means-Testing Medicare & Social Security Is a Destructive Idea

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By Lynn Parramore, a senior editor at Alternet. Cross posted from Alternet

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.

It’s 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.

Conservatives 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 TV!)

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 Medicare.

1. Means-Testing Undermines Progressive Values

At 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.

When I 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 old age.

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.”

Means-testing 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 program.”

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:

“There 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.”

By 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. 

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.

As Dean 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

Make 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.

But 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 to be.

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.

Economist 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 the right.”

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. 

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.

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 to run.

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 blogosphere backtracking, 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 pay-for-fee 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

Conservatives 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 means-testing.

5. Creeping Means-Testing Is Already Happening

Medicare 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.

Means-testing 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

How 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 your investments?

In her book, When I'm Sixty-Four: The Plot against Pensions and the Plan to Save Them, economist Teresa Ghilarducci has sounded an alarm about the crisis looming for Baby Boomers and anyone else who hopes to retire down the road.

The 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.

The 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.

Congress 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 means-testing.

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68 comments

  1. Shecky R

    These are absolutely crappy, shallow, fear-mongering reasons for opposing means testing… by the same distorted, type of reasoning I assume Lynn must also oppose the progressive income tax and support instead a 15% across-the-board ‘fair’ flat tax…

        1. Yves Smith Post author

          Please don’t feed the trolls even indirectly. This is a troll (I’ve checked him and Hargraves below, who is also a troll) and it would be preferable to delete the comments of obvious trolls, since they are out in force on the Great Betrayal/Social Security/Medicare issue. But it messes up the way WP nests comments if I do that on an early comment.

          Their whole raison d’etre is to hijack the thread. The best medicine is to IGNORE THEM and offer your own thoughts, demonstrating complete and utter lack of interest in their bumper sticker talking points.

          Now that isn’t to say that negative comments are necessarily lacking in substance. Some offer legitimate criticism or bring up complicating factors. But the ones that have a lot of noise and little to no signal are better ignored.

          1. Aquifer

            Rats – I was gonna repond – “Hey, that’s a great idea – let’s have a progressive FICA tax! Thanx for the suggestion!” But i guess i can’t do that now, can I? :)

            It always seemed to me a good way to handle a “troll”, if so that’s what it be, was not to fight with it but to stand it on its head … I always thought neutering it was better than ignoring it, but that’s the contrarian in me ….

            But i still would like to see what folks think if that idea …

          2. Eric

            Yves, your comment is well taken, except for one thing: rather than attack a dissenter here (or censor them out, such as you suggest, which is even worse), one should offer constructive criticism of that person’s statement, such as, in the present instance, by pointing out that means-testing can more efficiently be achieved and even replaced by merely eliminating, for the next year, any SS benefit for the coming year for any taxpayer whose latest tax-year showed a pre-tax AGI above $100,000 inflation-adjusted in, say, 2013 dollars. This change would effectively remove from SS rolls households making about twice or more the average income. With a system like that in place, it would be easier for Democrats then to argue that Social Security has never really been an investment plan as Republicans argue. It was always an insurance plan, and Republicans treating it as if it had been an investment plan were always lying. This argument would strengthen public support for SS as what it is and always actually was: an insurance plan, not an investment plan.

            Thus, even a remark from a “troll” can be utilized in a way to advance progressive values.

          3. Susan the other

            And as Dean Baker pointed out, if means testing is a good idea then let’s apply it across the board and require means testing for interest rates, progressive interest rates on bonds, so Pete can’t get a good interest rate because he is too rich. Or let’s means test flood insurance.

          4. Ano

            With appreciation for your point about encouraging trolls, I was also preoccupied with the progressive taxation issue and the broader question of equitable access to public resources. So granting the article’s points on the politics of the issue, I’m not really persuaded on the economics.

            I’m thoroughly comfortable with progressive taxation, even if I think some rates could be tweaked (20% for sub $500,000, 50% for $500,000+ if I had my druthers). I’m also comfortable with asset/income thresholds for a variety programs: TANF, estate taxes, farm subsidies, and so on. It also seems baldly apparent to me that selective invocation of first principles isn’t really the best basis for any argument.
            Maybe if the article disentangled Medicare from Social Security, it would have been more persuasive. For example, the best point on the superiority of Medicare to individually procured healthcare is its efficiency with respect to overhead. The analagous argument for Social Security is that individual asset managers are far more expensive and inconsistent in their output. While true, it’s an argument greatly vitiated by Vanguard’s indices.

            Right now I’m comfortable saying that means testing is one of the worst options with respect to resolving entitlements long term. It’s not THE worst option, though, and it has be considered fairly in comparison with the alternatives. When, unfortunately, the alternatives are halting the military machine and misappropriations via healthcare billing, I guess I’m tripped up considering what has a greater chance of coming to pass, as well. To put a bow on it, if it came to it, which is worse, the same dollar quantity in means testing or reduced benefits?

  2. Hargraves

    “Medicare and Social Security are not handouts to the needy. They are not even intended to be a safety net…They are fundamental rights that every working American who has contributed productively to the economy can expect to enjoy.”

    Right, along with every politically correct “refugee” from the Soviet Union, Middle East and Africa that gets a taxpayer subsidized flight into the U.S., along with housing assistance, food stamps, small business loans and all the other perks that working Americans wait in line for.

  3. Lady Liberty

    The programs are already means tested SS means testing happened under Reagan and as a result..

    Since President Reagan tweaked the program a single individual earning $25,000 or a married couple earning $32,000 or more have to pay taxes on the income received from Social Security again.

    http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/493/session/L3RpbWUvMTM1NjQ3MzY3MS9zaWQvX2hQaUNGZWw%3D

    You pay taxes on the money earned that you contribute in the first place.

    Q2: Which political party eliminated the income tax deduction for Social Security (FICA) withholding?

    A2: There was never any provision of law making the Social Security taxes paid by employees deductible for income tax purposes. In fact, the 1935 law expressly forbid this idea, in Section 803 of Title VIII.

    http://www.ssa.gov/history/InternetMyths2.html

    In other words double taxation!

    Means testing of SS is THEFT plain and simple. But there is the other ulterior motive of companies wanting to get rid of their private pension plans.

    1. 6502

      I AM VERY IMPRESSED BY THIS ARTICLE.

      I used to support means testing for Medicare and such, but after reading this article, I realize that I was completely wrong.

      It turns out that our PROGRESSIVE TAX SYSTEM ALREADY HANDLES THE MEANS ISSUE.

      I now get it: I was a working class person pay maybe 30% in taxes. A poor person pays 0%, let’s say. A rich person pays 50%.

      At the end:
      * We all get to go to the same public schools.
      * We all get to share the same roads.
      * Receive the same Medicare benefit.

      Now the punch:

      * The poor person paid 0% in taxes, and gets the benefit.
      * I paid 30% in taxes, and I get the same benefit.
      * The rich person paid 50% in taxes, and gets the benefit.

      The means check happens not out the receipt of benefits (the output), but at the taxation (the input).

      If I may paraphrase a quote:

      “To those with greater means goes an commensurate level of responsibility.”

      It makes complete sense to me now!

      All we have to do is focus ONLY on fixing the tax system (the inputs… make rich people pay more than 0%) and the rest takes care of itself.

      Great article!
      I’m forwarding it!

      1. Aquifer

        Well, not exactly – unfortunately we don’t all get to go to the same schools – education is “means tested”, after a fashion, at a neighborhood level – you live in a poor school district, you go to poor schools :(

        1. Nathanael

          That’s because schools have all these little “districts”. This has been declared in violation of the state constitution in many, many states including California (where it was declared unconstitutional back in the ’70s).

          As soon as you fund schools out of the state budget, the “district problem” of schools goes away.

      2. LucyLulu

        And the rich person (those who contribute more) gets a bigger check from Social Security than the poor person.

  4. Laocoon

    SS and Medicare work well because there isn’t means testing for benefits. They are simple programs, uniformly applied, with low administrative overhead. Means testing benefits will only serve to make the programs more complicated for beneficiaries and create new schemes for getting around the means testing requirements. There is nothing wrong with taxing a little more, especially on the wealthier, and just paying it back to them and all the other beneficiaries without means testing.

  5. run75441

    Hmmm:

    A nice summation by Lynn especially this part: “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 pay-for-fee 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.”

    I would add to this; it isn’t necessarily unnecessary services or procedures as much as services which do not provide for better outcomes. A emphasis on primary care over specialist care may achieve better results using tried and proven methodology.

    Another reason why means testing may be the flavor of the day, Congress would not have to pay back what has been taken with Payroll Withholding.

    1. Aquifer

      I think she might better use the term “fee for service” instead of “pay for fee” (I couldn’t quite place that term when i saw it) – it is the conventional term and conveys the point of incentivizing additional services, whether useful or not ….

  6. Minor Heretic

    The other reason means testing is useless is that it eliminates so few beneficiaries. They are the 1%, after all. Even if it pushed down into the 5% it still would be only….5% savings. Plus some administrative costs.

    1. Susan the other

      Your point raises the questions: Are the Pete Petersons dumb? (N0.), and alternatively, Do they have a hidden agenda? Probably yes. The money skimmed by means testing the 1% is enough to pay the bankster-managers on Wall Street, who are determined to get control of the SS Fund, very nice salaries and bonuses. The money “saved” will never be put back into the fund. Never if those guys get their hands on it.

  7. Tom

    All the talk revolves around paying for the benefits through payroll – adding more years before collecting or trimming benefits through CPI or taxing benefits is absurd. The system is solvent and should not be in any debates about debt ceilings etal. Just raise the cut-off for contribution from whatever it is now to something higher – problem solved with a little actuarial work – big deal.
    I think the economic culture has distorted our perceptions of reality for such a long time that our collective minds can no-longer think in logical strings or human terms. We seem to be transfixed on our own manufactured complications that, the obvious is out of reach.

    1. Aquifer

      Tom – Methinks it is clear to all parties involved what one could easily do IF the point was to actually “fix” the system, if it indeed needed “fixing” – e.g. do as you suggest …

      What these goons are doing ONLY makes sense if one wants to destroy it …

      1. different clue

        Exactly. When I first saw this post’s title my first thought was: ” well of COURSE means testing is destructive.
        The whole POINT of means testing is to deSTROY SS and Mcare.”

        I remember someone trying the thin edge of that argument out on me several years ago. “Certainly Bill Gates doesn’t need Social Security and shouldn’t get it”. I said at the time and say again today: “If Bill Gates paid FICA taxes, Bill Gates should get the SS he is legally entitled to get thanks to his having paid his FICA taxes for it. If he thinks otherwise, he can give his SS money away after he gets it.”

        The idea of means testing is designed to destroy SS from two angles of attack. First by destroying whatever social consensus it has now. After all, why should people who will be cheated out of the SS they paid for their whole working lives because they have “too much means” be expected to support paying any FICA taxes in the meantime?
        Second, if the “means testing” conspirators get the “means testing” concept accepted by offering “Bill Gates doesn’t need it” as bait, they will then switch to defining “testable means” downward. They will end up by saying that if I have a house and a car upon retirement, I have too much means and I have to sell the house and live in the car and spend all the money I got from selling the house before I can get the social security I prepayed for (as per the Straight-Up Two-Step Con Great Rescue of 1983).
        So of course I reject the whole means testing concept.

        1. dkmich

          Once it is for “low-income only”, they will immediately set about demonizing the new “welfare queens”. This country desperately needs a third party.

          1. different clue

            And in the meantime it also needs purging the BS Catfood Obamacrats out of the Democratic Party.

  8. Calgacus

    They are benefits that people pay for as they work.
    Yes – but it needs to be made clearer. “People” pay for their (right to receive future) SS benefits as they work, by their work. NOT by their SS tax payments. The SS tax payments just serve to disinflate the dollars paid to those retirees receiving SS income when the “people” are working (and any other dollar holder/receiver). They have nothing to do with the “people”‘s own future SS payments, as FDR knew perfectly well.

    I’m glad to see Lynn quote and link to that FDR-Gulick conversation, which I’ve been posting everywhere for years. But read the whole conversation again and again until you understand SS and MMT as well as FDR & Gulick did.

    1. Aquifer

      Well yes – but if FDR understood the system as well as you say, why did he bother with the payroll tax at all?

      1. different clue

        FDR believed that people who spent their whole joblives paying FICA taxes for their SS would not let any “damned politicians” take their SS away from them.

        Though what FDR did or didn’t know about MMT is of zero concern to me until SS is held harmless for sure and for good. Once that is achieved, then I can risk spending scarce brain-energy on amusingly diverting thoughts about MMT.

      2. Calgacus

        For the reason Lynn quotes – “so no damn politician can ever scrap my social security program.” But this reason doesn’t hold for all tax rates. SS taxation of 100% is nuts, as is 90% etc.

        SS taxes for 50 years were at pay-as-you-go. This is the highest reasonable, sustainable tax rate, not the lowest one. We’ve had pay-more-than-you-go for 30 years. This is nuts and works out to welfare for the rich. Like means-testing, it is a plan to destroy the program under the guise of saving it. If we’d stayed on pay-as-you-go, ordinary people and the nation in general would be wealthier, with more savings, less unemployment and wealth more equally distributed.

        The scare tactic back then was that SS tax rates would be going up around now. Really, so what? Still would be better than the Greenscam mess. Pay-as-you-go is macroeconomically neutral. And it is a lot easier for the rich, a richer populace, a richer country to pay for the rather predictable costs of retirement, than the poor, those with less savings, and a poorer country.

        I’m not saying that it would be preferable or optimal. A pay-as-you go with a rebate during recessions, effectively a pay-less-than-you go might be better. People understanding economics might be best. But I’m taking the extreme conservative position here – don’t fix what ain’t really broke. Instead, the US advised foreign nations to get rid of their old FDR style retirement programs, and replace it with a Greenscam. Some (I think most) heeded this idiocy, some wisely rejected it.

        1. different clue

          But since we have already prepayed several trillion dollars to our own future benefit, are we going to let President Obama succeed in finalizing the upper class ripoff of all that money without some kind of obstructive counter-action?

        2. Aquifer

          And it was a damn good reason, IME, and just as relevant today, which is why i part company with the MMT folks who condemn FICA taxes altogether ….

  9. American Slave

    Well here we go again, our elected dictators are changing things again and not letting us vote or even asking us what we think about it but hey some people will say that this is a republic they represent us and this and that and its worse in other countries and at least we don’t live in a village next to an erupting volcano so I guess we really do have it pretty damn good here and its absolutely impossible for it to get even a tiny bit better so GOD bless our politicians and the superb job they do of keeping erupting volcanoes and Mars invaders away.

    http://systemicdisorder.wordpress.com/2012/11/07/self-directed-workers-as-a-cure-for-capitalism/

  10. American Slave

    “Medicare and Social Security are not welfare programs.”

    I pay taxes for welfare too so if I run into trouble am I not entitled to welfare. With the way people are talking and thinking nowadays im afraid we will soon wind up with work camps like the ones that existed when Stalin was around.

    1. LucyLulu

      That depends on a variety of things, including what you consider “welfare”, your age, what state you live in, if you are disabled, if you have children, etc. For example, in most states, adults below a certain income level are eligible to receive food stamps and Medicaid but unless they are elderly or disabled would not be eligible to receive monthly income checks (SSI – Supplemental Security Income, not to be confused with SSDI, aka SS Disability Income). And the average waiting period is two years after initial application for either SSI or SSDI checks to begin, both are administered through the SS Administration and require a disability determination, during which time most beneficiaries are not eligible for any funding.

    2. Nathanael

      Thanks to Clinton and the Republicans in Congress under Clinton, we already *have* the equivalent of work camps.

      In most states, the “workfare” states, you can’t get welfare without doing underpaid work in exchange. Which means it isn’t really welfare, is it?

  11. Michael

    I support a very stringent means-testing program to eliminate only the very, very wealthy.

    All those disallowed benefits would be immediately referred to the Federal Department of the Guillotine. Estate taxes would be set to 100%, with the proceeds going to the public. Children and other heirs would be allowed to file a claim for their fair share. In order to do so they would have to show up for a public meeting at the FDG where they can argue their case and it will be voted on by the public.

    1. different clue

      I reject even that. If the Very Very Wealthy paid a FICA tax, then the Very Very Wealthy are legally enTITled to recieve the SS which they PAID for.

      I caution you against falling for the means testers’ rhetorical little trick there. I promise you that if Means Testing is ever enacted and signed . . . that Testable Means will be defined all the way down to having a house and a car. If you have a house AND a car, you will be told you are Too Very Very Wealthy to get Social Security. You will be told that if you want to get Social Security, you will have to give up the house and live in the car. That is the endgame endpoint of Means Testing.

    2. Nathanael

      Never means-test benefits. The 0.1% should get exactly the same meager benefits as the rest of us.

      On the other hand, a 100% estate tax for estates over (say) $10 million? That would certainly be worthwhile. It’s a Pigovian tax, to prevent the bad effects of large inheritances.

  12. Ishmaelia

    Technocratic minutia is the last refuge of a failing third-world pismire, whether it’s a broke banana republic crawling for the IMF or a degenerate superpower trying to bullshit its enraged population. Pros and cons of social service programs are diversionary noise. The way to put it to your government parasites is this: How do you stack up in ECOSOC review? You do not understand? You do not know the basic obligations of a sovereign state? How is that possible? You do not know where the duties of this state are written down? …You don’t know what the CESCR is? Oh, you are not willing to be held to its minimal standards of performance? And you think you are entitled to support, or respect, or deference as a government official? Fuck off, Omar Bongo, go back to Bongoville. Your tribal fly whisk has no magic powers here.

    http://www2.ohchr.org/english/law/cescr.htm

    1. American Slave

      “(c) The right of trade unions to function freely subject to no limitations other than those prescribed by law and which are necessary in a democratic society in the interests of national security or public order or for the protection of the rights and freedoms of others”

      As far as CESCR goes that one kinda cancels itself out, What is one to do when they close down a factory to move it elseware write a letter? What a joke

    2. american massa

      Unlike say, the tits-up long gone Wagner Act, those limitations are precisely circumscribed, and, critically, applied by independent observers, instead of senile party hacks who kissed enough ass to get a judge job. Ask yaself – if labor rights are really just a joke, how come your betters have that giant shitfit every time someone says ILO, much less 87 or 98? You can’t feel the pressure and suasion because you’re stuck inside the hermit kingdom. That’s how they keep you nice and passive.

      1. American Slave

        What I meant when I wrote that response is that it basically says they can make laws against union activity in order to keep public order which means were left with nothing but to hold up sighns and posters someware if even that, which we know does absoulutly nothing. And im sure factory occupations are against national security too so in the end theres nothing to do but sit on our hands and watch our country turn into Grece.

    3. unamerican neither

      Well, yeah, that’s the way it works in bullshit america, but that’s not the way it works in the civilized world. If americans got out more, they’d be amazed. The purpose of all the USA USA WE’RE #1 shit is to prevent people from exposing themselves to the very various arrangements of the wider world, which frequently suck less, and to the specific world standards of governance that the USA fails to meet. If everybody sees our state is bullshit, game over. That’s what made the Stasi disappear.

  13. Hannibal

    Means testing is the right way to go. Wealthy people dont “need” social safety nets untill or unless they became just as broke and destitute as rest of us “peasants”.

    1. NotTimothyGeithner

      Me thinks you neglected to read the actual article and have a bizarre notion about how Social Security works and pays out.

  14. JDM

    There’s a reason the Canadian rightwing has tried for years to introduce means testing on their national healthcare, which is far too popular to just do away with openly and honestly.

    1. Maximilien

      Hate to bust your balloon but Canadian healthcare is already means-tested in Canada. Here are the British Columbia monthly premium rates for a family of three or more:

      Net income under $22,000……….$0, rising in five $25 increments to…
      Net income over $30,000…………$133

      BC Pharmacare (for prescription drugs) is also means-tested as is homecare for the elderly.

      But then, part of the reason Canadian healthcare coverage is so cheap is that we pay more taxes in many areas, some of which find their way into the healthcare system. For instance, income taxes:

      Canada: Family of four, taxable income $200,000, take-home $110,000
      New York: Family of four, taxable income $200,000, take-home $160,000

      So it seems Americans want to have it all ways: low income taxes AND no means-testing. As an outsider looking in, I say it ain’t gonna work.

        1. Maximilien

          You’re welcome. As a West Coast Canadian, I am usually an NC late-night lurker. You might not have suspected (quite reasonably so) that there’d be one. ;)

  15. FrankB

    “It’s insurance, not charity.”

    The supreme court has said FICA is a tax. You are owed nothing as you would be with paid up insurance premiums.

    1. LucyLulu

      Unless and until Congress changes the laws found in the Social Security Act, Congress is legally and ethically bound to provide a pension upon retirement. Becoming a “fully insured individual” under (1) below requires having worked a minimum number of quarters, i.e. paid FICA taxes a minimum length of time, or being married to somebody who has. The exception, from the case I believe you cite, involves SS not being a contractual right, e.g. can be terminated if one is deported for being a member of the communist party.

      “Sec. 202. [42 U.S.C. 402] (a) Every individual who—

      (1) is a fully insured individual (as defined in section 214(a)),

      (2) has attained age 62, and

      (3) has filed application for old-age insurance benefits or was entitled to disability insurance benefits for the month preceding the month in which he attained retirement age (as defined in section 216(l)),

      shall be entitled to an old-age insurance benefit for each month, beginning with—……….”

      So….. yes, benefits can be changed or terminated by Congress, but they must explicitly be done so with new legislation. Telling citizens, who have spent their life paying for a pension, that they aren’t entitled to that pension, would be political suicide for our legislators. I don’t see it happening anytime this century.

  16. Hugh

    In the traditional view of taxes paying for benefits, means testing is not really necessary if a cap is put on benefits and the cap is taken off income, all income, from whatever source.

    From my own personal perspective, Social Security and Medicare represent social commitments that we make to each others in order to create the society we want to live in. In this sense, they are not entitlements or insurance, but insofar as they provide an old age without fear or want, basic rights.

  17. Mary Bess

    Admirable sentiments, but neither program provides “an old age without fear or want.”

    Has anyone figured out how much money (plus interest) has been diverted from the SS Trust to support other government expenses, like bank bailouts, tax cuts for the 1%, wars that undermine our national security?

    It would probably provide for” an old age without fear or want” for everyone.

    We need to beware of Social Security and Medicare’s “defenders.” Not only are they pushing means testing, but a continued cut in the Payroll Tax, which will be used to show that these programs are “unsustainable” By law, SS can only be paid out of the SS Trust (Payroll Taxes), not general revenues.

    1. LucyLulu

      The payroll tax reduction has ended as of Jan 1. Also the reduction was replaced from general revenues into the SS trust fund, so the trust fund did not see a drop in revenues. Nor has any money been diverted from FICA to pay for bank bailouts or other general gov. expenses. Surplus funds have been loaned to Treasury but the funds were replaced with interest bearing bonds. Last I heard the SS trust fund held $2.8 trillion of these bonds.

      1. E.F.McHenry

        LucyLulu you are correct but please keep in mind, if politicians restructure social security & medicare in a way in which less is paid to beneficiaries they will default on ever settling those bonds and they will continue to spend FICA revenue for their big govt. And they will keep trying to do this in perpetuity. The only way to prevent this is to force them out of a unified budget process in favor of a trust fund way of running the govt. This should apply to all aspects of govt and for all forms of taxes wether it be a road tax or whatever.
        Better yet let’s get the lock-box back in the conversation. Otherwise, yes they will make those programs pay out less so they can spend it on the general side to fund federal income tax stuff. And they federal reserve will keep interest low so the 2.8trillion in bonds will not generate much interest.
        Republicans can never say paying back, settling, cashing in, or reconverting those bonds to cash, however you want to phrase it, is contributing to the debt. THAT WOULD BE AKIN TO SAYING THE LENDER IS CONTRIBUTING TO THE DEBT OF THE BORROWER IN THE CONTEXT OF THE BORROWER HAVING NO OBLIGATION TO EVER PAY BACK THE LENDER. THAT’S THEFT.
        IF YOU DON’T WANT TO PAY FOR A MASSIVE MILITARY AND GOVT Bureaucracy YOU CAN’T HAVE IT!!

        Also why is it nobody is talking about the cap? Republicans don’t want to talk about the original Reagan/Greenspan fix that called for the fica tax to hit 90% of all wages. It is currently around 80%. To honor the Reagan fix the cap you hit the first $180,000 instead of $108,000.

        Read Robert Reich article:
        Budget Baloney: Why Social Security Isn’t a Problem for 26 Years, and the Best Way to Fix It Permanently
        Take care

  18. Paul Tioxon

    Means testing is another form of political repression. As with voter suppression techniques, there is still no taxation without representation, BUT you need a passport, a gun license or drivers license or something to qualify to contribute your consent, WHICH YOU HAVE TO PURCHASE. Similarly, since almost everybody works, we seem to find unemployment above 8% the political death warrant for politicians, so by their own admission, the power elite gets a pretty high percentage of participation in economy by the populace. Grass, gas or ass, nobody rides for free! So, get a hair cut and get a job! Only, with wages a couple of bucks an hour in agriculture and food service, you don’t get much of a chance to contribute to FICA. And the generally low minimum wage leaves most shit jobs, aka WalMart, with too little to really contribute in terms of cash.

    But, without everyone’s underpaid, or paid under the table LABOR, the economy would grind to halt. So, the universal nature of Social Security and Medicare, paid for directly by people who work, at the very least creates a lawfully binding social relationship between the individual, at any wage rate, and the society sustained and the nation state sustained, by a lifetime of toil and labor, or at the very least, a lifetime of sitting in a cubicle doing something with paper and a keyboard.

    To denigrate the social relationship, is to diminish not only the benefit, but also the humanity of the people who work to keep the social order operating. Our humanity was reinforced by our rights as a citizen, in a democratically controlled republic. Means testing is turning citizenship into a commodity, best measured by the rules of the marketplace. If you make too much money, you shouldn’t get something, is the marketplace sorting things out, just like if you don’t make enough money, you don’t get something. Again, commodity pricing is the rule being insinuated into a fundamental right that comes with our humanity. When we slice and dice our humanity up into so many tranches like a Wall Street derivative, with only the most meager of rights left to our name, if we can prove citizenship, if we can prove our identity and address to vote, if we can prove our place in the income stratification rankings, then, we can obtain what is supposed to be inalienable? Was that a legal inalien?

    Means testing is another quantitative norm from capitalism, which seeks to reduce us all to prices and manageable numbers of the the mystified market society. Instead of treating us as individuals, we have to be processed, and approved, even after living a life for 65 years and working from the moment we are able to enter the workforce. If we really want to see the rich get on board, then REMOVE THE GOD DAMN INCOME CAP ON SOCIAL SECURITY AND TAX THE WHOLE INCOME, NOT JUST THE FIRST $113K!

  19. LAS

    Because back in the 1980′s our FICA taxes were increased – ostensibly to pre-pay for our social security retirement benefits, while income taxes were cut for the wealthy – it is obvious the FICA tax increase has been permanently diverted from the purpose we were told it was to serve. The only real question was which kind of fig leaf (economic justification) would stick to cover the nakedness of the deception.

    Just about every justification has been trotted out and every shade of lipstick applied to the pig. The biggest nonsense is the “job-maker” stuff and the idea that markets are better than government at meeting human needs. As if Bankers, traders and corporations make jobs; they do not; they shed jobs or ship them overseas to take advantage of the differential oppression between populations; they make money betting on human disasters without lifting a hand to alleviate or prevent them; sometimes they expedit disaster.

    Little consumers in great numbers make jobs by buying goods and services, and they remain squelched for the most part. Democratic governments that are not too corrupt are the only way to distribute healthcare and education and fundamental economic equity.

  20. michael

    “Programs like Medicare and Social Security… are matters of political economy. They are important to social cohesion, where support comes from the fact that everybody is participating.”

    The problem is, nearly half the country does not want any social cohesion. They want to decide how to spend their own money, thank you very much. And they don’t trust the system.

    The answer, to me, would be to allow such people to opt out. No refunds could be issued, obviously. But they could at their option just quit, and become ineligible for benefits. The loss of revenue would be balanced by the savings in benefits– and the program would not suffer.

    We who like belonging to the SS insurance program would be just as happy without their constant bickering. Membership in the Old Age and Survivors’ Insurance Program would become voluntary.

  21. E.F.McHenry

    I agree 100% with this article. However I’d like to offer another observation that i believe is going unnoticed. It is a observation that must be brought into the light since over the course of the next two months arguments will be made to raise the debt limit and prevent military sequestration in favor of entitlement cuts instead. This is my case:

    1.)The federal income tax funds the military and all the federal govt agencies. Another words everything in the federal govt except social security & medicare. THIS IS BASIC FACT!
    2.)Social Security & Medicare are funded by the payroll tax(FICA).
    Another fact!

    3.)Republicans and corporate blue dog democrats like those in these gangs of 6&8(ie Dick Durbin, Mark Warner, Kent Conrad, and many others)want to:
    a.)cut entitlements(SS&Medicare) so less is paid out to beneficiaries.
    b.)this does two things: 1st it causes the program to run surpluses. 2nd running a surplus does another two things at once: #1 it allows the general side of the govt to default on ever settling bonds in the trust fund of those programs and #2 surplus money ends up getting spent on general revenue stuff.

    Ok so these creepy right-wing corporate fascist and their phony democrat accomplice want to cut the federal income tax that is paid more by the wealthy and use payroll tax surpluses that is paid more by the middle class and bottom half to make up for the difference. My final take
    The rich use the military as a instrument of globalization and nation building and massive private contractor contracts that Bill Mar has called the biggest example of corporate welfare.
    The rich use huge federal government agencies like to tweek so-called free-markets in favor of massive wall street corporations by passing rules, regulations, codes, policies, and standards that have theforce of law and hurt their competitors.
    The rich use more of the infrastructure from roads to bridges to communication system banking system, courts, etc etc.
    They benefit from the UN and World Bank and as i said the stability of doing business abroad brought to you by our finest military so they capitalize on cheap labor.

    And guess what?????
    You’re gonna Pay for it all. THAT’S RIGHT! You middle class is financing the off shoring of your jobs in perpetuity.
    How nice! WAKE UP PEOPLE!!!

  22. JTFaraday

    I stopped reading this after #1 so riddled is it with white lies and half truths, that I simply can’t go on.

    While I am not interested in cutting, eliminating or privatizing Social Security, what I would appreciate more is an honest assessment of Social Security as public policy, historically and at present.

    I’ll just take one or two sentences, and talk off the top of my head, albeit accurately:

    “Programs like Medicare and Social Security, he (Stiglitz) explained, are matters of political economy. They are important to social cohesion, where support comes from the fact that everybody is participating.”

    Obviously, not everyone participates in Social Security, and when former participants were laid off in mass numbers in 2008+ due to the crisis, they saw (again, in mass numbers) their benefits reduced every year they were unemployed. This was no doubt a wake up call for some, which exposed SSN’s true nature as a program that has nothing to do with citizenship or “rights,” human or otherwise, but one that compels and rewards labor. So, obviously, we have to call BS on this statement as well:

    “our belief that everyone deserves a dignified retirement and adequate medical care in old age.”

    We have no such belief. Benefits temporarily gained from labor are no right and they are being taken away right now, with no reference to the fiscal cliff whatsoever, but on the terms of SSN policy itself.

    These people probably are looking for a “poverty prevention” program right now, as a fix for Social Security’s obvious flaws as a social safety net and handy club for the self righteously employed to beat them with.

    Second, and I’ll stop here, the self employed and small businesspeople never ever “participate” in the same way that employees do, because they pay in not only their “payroll” portion of the SSN tax but the “employee” portion as well, making participation in the program doubly expensive.

    From this, even without historical knowledge of the policy debates of the era, it should be apparent to all that SSN was a program cooked up to encourage/compel people into working for the era’s industrial giants as employees as opposed to being small business people and shopkeepers, farmers, etc, who were effectively penalized.

    This had benefits for a large portion of people in its day as it continues to do to an extent, but today we also stand on the other side of the industrial model of employment, and it’s not the case at present that we are railroading mass number of people into corporate employment on particularly beneficial terms. It might be worth revisiting the policy with the aim of making it more usable to the kinds of work situations people find themselves in today.

    But “progressives” never do this, on any popular economic issue whatsoever. Putatively progressive policy makers only lamely counter the onslaught of the conservatives, while accepting the conservative framework that beats on the unemployed and the poor.

    There is a lot of that going on in this article, and there is a lot of that going on in these so-called “defenses” of Social Security.

    I refuse to finish reading this article and I refuse to participate in that kind of defense, not only because it irritates me but because you cannot win by uncritically adopting their terms and reinforcing their divisions.

    It is interesting to me that people who can detect scapegoating of the economically disenfranchised when it benefited mortgage and securities fraud cannot see it when they themselves do it in what they think is “their own defense.”

    1. JTFaraday

      “Second, and I’ll stop here, the self employed and small businesspeople never ever “participate” in the same way that employees do, because they pay in not only their “payroll” portion of the SSN tax but the “employee” portion as well, making participation in the program doubly expensive.”

      Sorry, for the self righteously employed who never self-employed themselves even one year of their lives, I’ll correct my typo and clarify:

      The self employed pay the usual employee tax and the employer’s portion of the tax.

      This doesn’t necessarily make the self employed fall in love with Social Security at tax time.

  23. Gaston

    It must take someone who is fringe herself to not recognize how fringe Paul Krugman has become.

    1. Jack Parsons

      You forgot the 7th: the current SS funding system pays into a trust fund. If you paid into it but are kicked out for means-testing or any other reason, that is confiscation, no?

  24. MayDay

    Full retirement age was already raised from 65 to 66, which this article doesn’t mention. It’s a slap in the face for those who paid into SS their whole, agonizingly long working lives. For some of us, that was 50 years – not Blankfein’s 25.

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