John Rother is executive vice president for policy and strategy for AARP, which lobbies for people 50 and older.
Imposing a means test could destroy the most successful social program in our country's history. Social Security does need moderate changes to restore its long-term fiscal health. The sooner we make those changes, the more modest they can be. But Social Security does not need a change that would alter its fundamental character, create incentives against saving for retirement, and undermine its popular support. A means test would do just that.
Social Security's enduring popularity reflects the insurance nature of the program: Recipients have an earned right to their retirement benefits. Everyone who pays into the program is entitled to benefits. If you work long enough in covered employment, you qualify, no matter where you stand on the income ladder. Almost everyone with a job has a personal stake in keeping the program strong. And let's not forget the matter of fairness. Everyone who contributes through the payroll tax—including the affluent—deserves a fair return on his or her contributions. This expectation is not an exaggerated sense of entitlement. It's reasonable.
The notion that the benefits are an earned right separates Social Security from means-tested income-support programs. Social Security can help everyone. Means testing is a feature of taxpayer-funded welfare programs designed to help the poor. A means test would inevitably erode the universal and contributory nature of Social Security and some of the popular support that has sustained it for nearly 75 years.
We also should remember that Social Security already makes distinctions based on income. Lower-wage earners get a higher return on their contributions. Higher-income retirees pay income tax on a portion of their benefits. Given these progressive features, it's not logical to add a means test. In fact, Social Security is far more progressive than any other retirement program.
Preserving the traditional character of Social Security is also good for democracy. It is a popular and inclusive part of the American social contract at a time when the economic gulf between haves and have-nots is growing wider.
Imposing new limits for the well-off could backfire in various ways. A means test could adversely affect retirement planning and lower the personal savings rate if people concluded the program would penalize them for having higher retirement incomes or larger nest eggs. It would discourage older persons from continuing to work beyond eligibility age, depriving them—and the economy—of additional money. It would create incentives for people to take lump-sum distributions from pension plans, strategies that could prove shortsighted and harmful.
Too often, people who should know better speak as if Social Security faces doom unless radical changes are imposed. The reality is that it does not require a drastic solution to shore up its sustainability. According to the Social Security trustees, adjustments equal to only 2 percent of payroll would ensure solvency. A balanced package of revenue and benefit measures would do the job, and there are ways to achieve this. If we want the program to become even more progressive, it is possible to adjust the benefit formula, while still giving better-off beneficiaries a fair deal.
When this much-needed debate finally occurs, AARP will work with members of both parties to find reasonable modifications that put the program on a sound footing. Whatever the ultimate fix, it must be done in a way that preserves fairness for all contributors, protects incentives to work and save, and maintains public support.
Social Security is the largest source of income for roughly two thirds of retirees, and it helps millions live with the dignity that comes from financial independence. Just think how much our current economic travails would be magnified if Social Security were not there to fill the void left by empty savings accounts, battered 401(k) plans, and vanishing private pensions.