Friday, June 23, 2006

A Man of Means by No Means

Incentives matter and ultimately Governments incentivize certain types of lifestyles, tacitly rewarding those lifestyles. This is a long winded way of making me rethink the concept of means testing (as it relates to such entitlement programs as Social Security and Medicare, not Medicaid) and the extent to which it fails to achieve horizontal equity.

My father is keen on telling people that my brother and I represent a perfect balance: he saves everything, I spend everything. My brother is famously cheap; he squeezes every penny till it screams. And, alas, I am a spendthrift. Fast forward to retirement age, in all likelihood, my bro’ will have a much more secure retirement unless knight ridder decides to buy the blog (even then, my contributions have to rank in the bottom quarter with our resident master of the proverbial wet bag of shit-‘dingo), even assuming equal earnings.

Means testing typically looks at one’s means or revenue or income—however you want to call it—in the period when a person is receiving the benefits. As one gets older, or more specifically, when one retires, their income is no longer labor income but rather capital or asset income (i.e. interest and drawdowns from your 401 k or IRA). If you reduce one’s benefits (that they were taxed for in the first place), due to significant asset accumulation, while maintaining the benefits for someone with equivalent lifetime earnings, you are effectively taxing thrift. Capital income at the time of one’s retirement should not be the basis for benefits, but rather lifetime earnings.

8 comments:

PiedPiper said...

Because I am in law school, and hence not in tune with the actual economics of economics, allow me to rephrase what I think you're saying, and then you can correct me if I'm wrong.

Essentially, assuming you and Kenrod achieve equal earnings, Ken's post-employment benefits should not be reduced in light of his asset accumulation because that is tax on his thrift. The primary basis for such benefits, then, should be earnings accumulated over one's lifetime.

So, my assumption is that the greater one's earnings over a lifetime, the less his benefits?

Mandingo said...

Hey, at least capitalize my name next time. I deserve that.

xtrachromosomeconservative said...

no, means testing as typically constructed, doesn't measure lifetime earnings, but rather savings. Naturally earnings are a big driver of savings but not the only factor. Thus, it is quite plausible that one have a lower lifetime earnings than another person, but save and have a bigger nest egg, and as a result have their benefits slashed.

Ilya said...

I'm curious, how does the proverb go about the wet bag of shit?

xtrachromosomeconservative said...

i'll have to revisit it but it is a very important proverb if I recall correctly.

PiedPiper said...

Ok...so after talking to some other esteemed members of this fine publication and thinking it over myself, I have to just ask the question: X, what the hell are you talking about? Could you clear up exactly what you have a problem with and what you propose would solve it? I think I have the basic idea, but it's not quite in the full comprehension category. It sounds interesting, though, which is why I'm pressing...

Anonymous said...

i will repost in english.

xtrachromosomeconservative said...

i will repost in english