Monday, November 22, 2004

Means Testing

What will happen if no reform of the Social Security system in the USA is undertaken?

Off the top of my head, there are four ways of dealing with the upcoming deficit: (1) Institute means testing; (2) Raise the current cap on the taxable amount of income from $87,900 to some higher figure; (3) Increase the rate of FICA taxation from the present 6.2%; (4) Raise the retirement age which is currently 65 and goes up from there depending on one’s age cohort.

(3) and (4) have obvious drawbacks, and (2) is unlikely to be implemented since it will be opposed strenuously by people with higher incomes and the political clout that money can buy. But what I want to comment on is (1), which is arguably the worst idea of the bunch.

Means testing is morally abhorrent for the simple reason that it punishes productive behavior. Suppose Jones has been forced to pay into the SS system all his life. His understanding all along has been that these monies are being set aside for his retirement. But Jones is cautious, self-reliant, responsible, and wishes to be no burden on others. He also appreciates the Ponzi-like characteristics of the SS system. So he funds various retirement vehicles (IRA’s, 401k’s and the like) to make sure that the old man he will turn into will be provided for. In doing this, he not only benefits his future self, he benefits others by aiding in capital formation, etc.

The government, however, seeing that Jones has lived responsibly and productively, and seeing that he does not need an SS check, decides to keep from him money that is rightfully his. That is plainly wrong. I don’t expect morally obtuse liberals to see the point here. But I’m not writing for them, but for people with moral sense.

It is as wrong for the government to penalize virtuous behavior as it is to promote vicious behavior.