Means Testing

Almost all welfare programs use some sort of means testing, with the result that citizens are treated differently based upon the amount of income or wealth they possess, an idea that is very different from the intentions of our founding fathers.

The obvious purpose to means testing is to reduce the distribution of benefits to only those in need, supposedly reducing the cost of the programs.

The disadvantages are several:

1. Means testing rewards a lack of responsibility. Why work and / or save if the government will take care of you even if you have not prepared for a particular contingency? Should not government programs promote responsibility? For example, why should those in need be required to be divorced, in order to apply for help?
2. Means testing requires a large number of government workers (some in enforcement capacities) to administer the program.
3. Means testing reduces privacy in that it requires citizens to disclose assets, income, and other personal information to the government.
4. Means testing reduces self esteem in that the use of those benefits tells the vendor that the customer is poor. Why should that be disclosed to the vendor at all?

Disadvantage number one is particularly costly for participants in several programs, in that an increase in income (responsibility) may affect multiple benefit programs, and the cumulative cost in lost benefits and taxes may approach, or even exceed that increase in income.

Are these disadvantages enough to outweigh the advantage? We wonder if the advantage is as much as is generally calculated, particularly since the calculations do not consider those whose decisions about income are influenced by their fear of losing benefits. We have had welfare recipients admit to us that they turned down a raise for fear of losing benefits.

If means testing were eliminated, greatly increasing the fairness of these programs and encouraging better decision making by the participants, we expect the improvement in economic activity to outweigh the “advantage” of means testing – or achieve the same goal, with fewer undesirable social problems. Flattening the income tax would further increase government revenues, which would make even more sense as an alternative to means testing, since the percent of increased income that is lost as the amount of earned income increases will be lower for welfare recipients at critical decision making stages, and remains the same for all citizens no matter what their income level.

For further information on the cost of means testing, see the study Marginal Net Taxation of Americans. The conclusion of this study agrees with our analysis. We believe that the current means tested programs should be eliminated. The only cost imposed by government of additional income should be a flat tax so that there are not special income ranges where the cost of increasing responsibility spikes. Those high "tax" ranges just discourage people from taking the steps necessary to dramatically improve their situation (and government income from the taxes on increased income).