Distributional Effects of Means Testing Social Security: Income Versus Wealth

Alan Gustman (), Thomas Steinmeier and Nahid Tabatabai

No 22424, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper compares Social Security means tests that would reduce benefits for recipients who fall in the top quarter of the income distribution with means tests aimed at those in the top quarter of the wealth distribution. Both means tests would reduce the average benefits for the affected groups by about $5,000. The analysis is based on data from the Health and Retirement Study and covers individuals aged 69 to 79 in 2010. About 14.5 percent of retirees in this age group are both in the top quarter of income recipients and in the top quarter of wealth holders. Another 10.5 percent are top quarter income recipients, but not top quarter wealth holders; with an additional 10.5 percent top quarter wealth holders, but not top quarter income recipients. We find that a means test of Social Security based on income has substantially different distributional effects from a means test based on wealth. Moreover, there are substantial differences when a Social Security means test based on income is evaluated in terms of its effects on individuals arrayed by their wealth rather than their income. Similarly, a means test based on wealth will be evaluated quite differently by policy makers who believe that income is the appropriate basis for a means test than by those who believe that means tests should be based on wealth.

JEL-codes: D04 D31 D63 H55 I3 J14 J18 J32 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-age, nep-lab, nep-pbe and nep-pub
Note: AG LS PE
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Published as Alan L. Gustman, Thomas L. Steinmeier and Nahid Tabatabai, "Means Testing Social Security: Income Versus Wealth". National Tax Journal. March, 2017, 70(1): 111-132.

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Working Paper: Distributional Effects of Means Testing Social Security: Income Versus Wealth (2016)
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