Means Testing and Social Security in the U.S

Shantanu Bagchi ()
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Shantanu Bagchi: Department of Economics, Towson University

No 2023-01, Working Papers from Towson University, Department of Economics

Abstract: This paper uses a heterogeneous-agent overlapping-generations model to examine the fiscal and distributional consequences of introducing a means test in U.S. Social Security. I find that a means test, i.e. conditioning benefit payments on a household's earnings and/or assets, leads to a higher implicit tax on old-age resources, but has desirable distributional effects. A 75% cut in the benefits to households with earnings more than 200% of the median leads to a 2.3% reduction in the overall size of Social Security, but has almost no effect on the average benefit level. A fiscally comparable payroll tax cut, on the other hand, leads to an across-the-board decline of 2% decline in the benefits. Finally, an asset-based means test causes a decline of 1% in average benefits, but has a large negative effect on the accidental bequests left behind by deceased households.

Keywords: Health risk; Social Security; benefit-earnings rule; consumption smoothing; general equilibrium. (search for similar items in EconPapers)
JEL-codes: E21 E62 H55 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2023-03, Revised 2023-03
New Economics Papers: this item is included in nep-dge, nep-pbe and nep-pub
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