Social Security Is Already Means-tested

Many of the experts in the Social Security debate include means-testing as part of proposals to fix Social Security. What their proposals do not include is the fact that Social Security is already means-tested, and has been since 1984.

The consequence of this point is that to be effective, the means-test has to apply to more people or to increase the impact on benefits. The means-test applied today reached up to 1/3rd of retirees, and collected roughly $24 billion in 2011.  That is a lot of people, and not much savings.

The means test on Social Security benefits is applied on your income taxes.  What appears to be a tax is actually a clawback of benefits which is returned to the Social Security system.  If a person’s total income rises above a certain level, a portion of Social Security benefits become 'taxable'. If you have substantial outside means, your benefits today are reduced. Today, the IRS collects a clawback of benefits for people with outside means.

“It is also important to note that funds raised under this provision do not go into the General Fund of the Treasury but into the Social Security Trust Funds.” ~ Social Security Administration’s website

We write elsewhere about the drawbacks of means-testing.  The point here is honesty in the debate. Any proposal which includes means-testing provisions should state that it plans to expand existing means-testing rather than implementing a means-test. The other point is that proposal should acknowledge the fact that the savings may not be very much. To collect more, the government would have to increase the number of people affected or increase the size of the clawback.