Means Test - Criticism

Criticism

Means-testing has been criticized on a number of grounds, the most fundamental of which is the distinction between a social program, which helps all equally or in proportion to their taxation, and a poverty program, which disproportionately helps the poor. For example, William Beveridge, in the Beveridge Report (blueprint for the UK's post-war social system) was opposed to means-testing, due to the poverty trap (below). Issues of a poverty program versus a social program include the following:

Stigma

A program benefiting only the poor may carry a stigma on its use and be demeaning; compare poverty food.

Political support

A program benefiting only the poor may lack broad-based political support, in contrast to programs that all share in. This can make it easier to reduce the benefits later.

Redistribution

Poverty programs transfer money from the rich to the poor, as they benefit the poor only but are paid for by the tax payers.

Further objections to means-testing include the following:

Poverty trap

Means tests, particularly sharp cut-offs, create high effective marginal tax rates and can serve to keep people in poverty, both by removing social support as the person tries to escape poverty, and by discouraging such attempts by high costs. For example, asset-based limits, such as requiring an individual to have little or no savings to qualify, not only discourage saving (because of the cost of being disqualified from such savings) but also require a person to become completely destitute to qualify, thus meaning that they do not have any much-needed savings when attempting to escape poverty.

Access

Means tests, particularly complicated ones and ones that differ between programs and between different levels of government, complicate access to programs: individuals cannot easily know if they qualify and may also qualify for some programs but not others. In the absence of centralized outreach, the added complication of means tests means that some, perhaps many people who qualify for programs do not benefit from them.

Administrative costs

Means tests increase administrative costs (overhead), due to the work of verifying that the tests are satisfied. Some argue that these costs can offset or more than offset the savings by reduced payouts under means-testing.

Entitlement/promises

If means-testing is implemented in an existing program, particularly for which people have paid taxes but not benefited, as in pensions or medical insurance, the reduction in benefits can be seen as a breach of promise and entitlement of the program.