Kerry May Support Means-Testing

August 19, 2003

Presidential candidate Sen. John F. Kerry's (D-Mass.) comments last week revealed a consideration of a means-testing computation method for Social Security benefits. Yet again, we are reminded that alternate reform plans that propose to "save" Social Security are costly, politically unacceptable, and economically dangerous. Glen Johnson, staff writer for the Boston Globe, writes of Kerry's plan for Social Security.

According to Johnson, Senator Kerry told a group of Hamilton county political activists that, "if elected president, he would consider some form of means-testing for rich Americans as part of a broader review of ideas to shore up the Social Security system."

Means-testing would be a disastrous approach to solving the Social Security crisis. First, for this method to provide sufficient revenue it would need to be imposed at a politically unacceptable income level. Furthermore, computing benefits depending on an individual's net worth essentially disregards any link between contributions and benefits, and discourages personal savings and earnings.

On another occasion, Kerry reveals that he is, in fact, ill informed about the Social Security benefit structure and economically feasible proposals. According to Johnson: "Another idea Kerry said he would consider is raising the cut-off point after which people no longer pay into the system. Americans pay Social Security taxes only on the first $86,000 they earn in a year. 'Maybe people ought to pay up to $100,000 or $120,000, I don't know,' the senator said.

"Kerry presented his ideas in response to an audience question. Aware of the potential political peril, he took pains to couch his remarks, both to the county Democrats and to a group of reporters who interviewed him after the appearance."

By disregarding the possibility to access greater returns from investments in private markets, Kerry's ideas essentially condemn the system to perpetual dependence on higher payroll taxes. According to Johnson, "the senator said his administration would not consider privatizing Social Security, as President Bush has advocated, which would allow individuals to invest a portion of their Social Security taxes in the stock market.

"Kerry also said he has decided against two ideas that have already generated protests: raising the full Social Security retirement age beyond 67 and reducing the payments made under the program.

"Kerry said: 'I'm just trying to say it's not as complicated as some people think it may be. I will not touch the [social] contract. The contract, in my judgment, is sacrosanct between generations.'"

Unfortunately, Kerry is mistaken. Unless they system is adjusted to prepare for decreasing revenues and increasing costs as the baby boomers retire, the social contract between generations will be breached.

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