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Distributional Effects of Means Testing Social Security: Income Versus Wealth

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Listed:
  • Alan Gustman
  • Thomas Steinmeier
  • Nahid Tabatabai

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.

Suggested Citation

  • Alan Gustman & Thomas Steinmeier & Nahid Tabatabai, 2016. "Distributional Effects of Means Testing Social Security: Income Versus Wealth," NBER Working Papers 22424, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22424
    Note: AG LS PE
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    References listed on IDEAS

    as
    1. Alan Gustman & Thomas Steinmeier & Nahid Tabatabai, 2014. "Distributional Effects of Means Testing Social Security: An Exploratory Analysis," Working Papers wp306, University of Michigan, Michigan Retirement Research Center.
    2. Gustman, Alan L. & Steinmeier, Thomas L. & Tabatabai, Nahid, 2014. "Mismeasurement of pensions before and after retirement: the mystery of the disappearing pensions with implications for the importance of Social Security as a source of retirement support," Journal of Pension Economics and Finance, Cambridge University Press, vol. 13(1), pages 1-26, January.
    3. Moffitt, Robert A. (ed.), 2016. "Economics of Means-Tested Transfer Programs in the United States, Volume I," National Bureau of Economic Research Books, University of Chicago Press, number 9780226370477, December.
    4. Christopher Wimer & Lucas Manfield, 2015. "Elderly Poverty in the United States in the 21st Century: Exploring the Role of Assets in the Supplemental Poverty Measure," Working Papers, Center for Retirement Research at Boston College wp2015-29, Center for Retirement Research.
    5. Moffitt, Robert A. (ed.), 2016. "Economics of Means-Tested Transfer Programs in the United States, Volume II," National Bureau of Economic Research Books, University of Chicago Press, number 9780226392493, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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