Means-Testing

by Ed Sawicki - March 6, 2021

Easy way or hard way

What do you think when politicians say we need “means-testing” for social programs?

If you're like most people, it resonates with you. We have a huge social inequality problem in the United States. You don't want the wealthy getting more advantage than they already have. What you may not realize is that means-testing requires building and managing complex systems to deal with it.

The cost of such systems (over the long haul) is likely higher than the amount of money you might be saving. The segment of society most in need will be burdened with more complexity – more hoops to jump through – more delays.

Is there a better way?

Yes, there is. Let's use the existing system that already does means-testing. It's existed since August 15, 1861. It's the federal income tax, where the tax rate varies according to income (means). The organization and infrastructure already exists. Nothing new needs to be created.

The hard way

With means-testing for social programs, the means test criteria must be decided on for each social program. Then a system needs to be designed to implement it. These are costly. If they need to interact with other government (federal, 50 states, and several territories) computer systems, the cost can be huge. All because you want to be sure a rich family isn't gaming the system.

Means-testing the silly way

News flash! The systems are already being gamed. One reason is that complex systems are easier to game, less secure, and more expensive than simpler ones. Reduce a system's complexity and it's less likely that any abuse is undetected for long. Monitoring and enforcement are more robust.

The easy way

We already do means-testing when taxes are collected. Why do it again when we spend money on social programs? Forget the means-testing for social programs and make the system more efficient and less expensive.

Means-testing the smart way

Why be afraid that the wealthy may game the system when they're paying for social programs through their taxes as well?

If their taxes don't cover the cost of the benefits they receive, raise the tax rate for the upper margins.

 

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