Means testing and Social Security in the United States

Shantanu Bagchi

International Studies of Economics, 2024, vol. 19, issue 1, 68-91

Abstract: This paper uses a heterogeneous‐agent overlapping‐generations model to examine the fiscal and distributional consequences of introducing a means test in US Social Security. I find that a means test, that is, conditioning benefit payments on a household's earnings 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 of 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 average dollar benefits. In contrast, a fiscally comparable payroll tax cut leads to an across‐the‐board decline of 2% in the average dollar benefits, despite an increase in capital and labor. A fiscally comparable delay in the benefit eligibility age increases benefits for all, but negatively affects capital and labor. Finally, an asset‐based means test causes a decline of 1% in the average dollar benefits, but has a large negative effect on capital and the accidental bequests left behind by deceased households.

Date: 2024
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https://doi.org/10.1002/ise3.67

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Persistent link: https://EconPapers.repec.org/RePEc:wly:intsec:v:19:y:2024:i:1:p:68-91

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