Means-Testing Social Security: Breaking Faith with American Workers

According to the Social Security Trustees, the Social Security Trust Fund will be able to pay full benefits until 2036, and incoming payroll taxes will be sufficient to pay about 77 percent of benefits thereafter. Some are using this modest gap in long-term funding as a pretext to justify proposals for large cuts in Social Security benefits destined to reduce the federal deficit. One option being discussed would eliminate Social Security benefits for higher-income individuals - that is, means-testing Social Security.

Social Security was created as an earned right whose benefits upon retirement are determined by the contributions made during a person's working career. The relationship between earnings and benefits is a fundamental feature of the program that distinguishes it from welfare programs and other non-earned entitlements. Means-testing Social Security would break this historic relationship and convert the program into a welfare program.

Those who would means-test Social Security argue that eliminating Social Security benefits for extremely wealthy Americans is an appropriate option for reducing the program's costs. Of course wealthy Americans can go without Social Security, and in fact there is no law that forces anyone to claim their benefits. However, the wealthy only make up an extremely small portion of the American population. Disqualifying them from receiving Social Security will not have any noticeable impact either on Social Security's solvency or the deficit. It will also take away a benefit they have paid for and earned during their working lives, the same as all other workers.

To make a significant change in Social Security's finances, it would be necessary to begin phasing out benefits for people earning $60,000-$70,000 annually - hardly wealthy in anyone's book. In fact, a means-test proposal included in the recommendations of last year's Deficit Commission would reduce Social Security benefits for people with average earnings of only $43,000.

Social Security is a progressive benefit, which means that higher-income workers already receive proportionately lower benefits for their contributions than those who have lower lifetime earnings. In addition, workers earning over $25,000 annually pay taxes on a portion of their Social Security benefits. This additional tax was originally intended only to affect the wealthiest beneficiaries, much like the argument currently made for means-testing the program.

Americans understand that Social Security is their money, not the government's, and they hold that view irrespective of their financial situation at retirement. Means-testing Social Security would break faith with the American worker, would be unfair and would undermine public support for the program.

Conclusion

While it is easy to say that wealthier individuals should not receive Social Security because they do not need the income in retirement, means-testing the program is much more complicated and could result in a fundamental transformation of Social Security as we know it. It would no longer be an earned right, and the benefit would no longer be related to contributions.

Despite the impression left by some, the average Social Security retirement benefit today is modest - only $13,800 per year overall with an average of only $11,800 per year for women. Cutting these benefits, no matter how it is accomplished, should be the last place Congress looks for budget savings.

Government Relations and Policy, June 2011