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January 24, 2014 11:44 AM The Case for Greater Means-Testing of Retirement Programs

By Ed Kilgore

In the latest installment of the forum on entitlements being cosponsored by the American Prospect and The Democratic Strategist, Bill Galston of the Brookings Institution makes the case that modestly curtailing Social Security and Medicare benefits for Americans who don’t actually need them could prove essential to maintaining both public investments and economic growth.

Two measures would increase the progressivity of Social Security while reducing financial pressures on the system. For low-income beneficiaries, we should institute a minimum benefit such that no one qualifying for benefits would receive annual payments amounting to less than 125 percent of the poverty line. And for beneficiaries above the median of earnings, we should change the current formula for calculating initial benefits to reflect, on a sliding scale, consumer prices as well as wages. This would mean that initial benefits for workers in the 30th percentile would continue to be based entirely on wage inflation; for workers in the 60th percentile, mainly on wage inflation; for those in the 90th percentile, mainly on price inflation….
I can think of no reason why individuals who earn much less should be asked to subsidize high earners’ health care in retirement. For those at the top, the benefit of Medicare should be guaranteed issue—period. When they sign up for Part B and Part D, the government should calculate the investment value of the payroll tax contributions they made during their working lives, and then set premium levels to close the gap between those contributions and the actuarial value of the benefits they are expected to receive during their retirement.

Galston’s proposals for enhanced means-testing of Social Security and Medicare benefits won’t be very popular among progressives. But I’d submit that just touting the political value of universal programs—you know, intoning “programs for poor people are poor programs” as though that represents some sort of ultimate and unchallengeable wisdom—isn’t enough to automatically offset the fiscal and social justice considerations supporting better tailoring of benefits to need. These programs, moreover, are already means-tested to some extent, so there’s nothing inherently magical about leaving them exactly the way they are. But I feel quite sure that future participants in the Prospect/Strategist forum such as Dean Baker will have a robust response to Galston.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

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