Butler: “It's time to end Social Security for the rich.”

The Brookings Institution’s Stuart Butler argues that Social Security should be means-tested to focus benefit on those who need them the most:

What if we were to recast regular Social Security as true insurance? Insurance is something that pays out only when things go wrong. If you don’t have a car crash, or your house doesn’t burn down, you don’t get your premiums back later in life. What you do get is protection and peace of mind.

So imagine Social Security as insurance protection against being financially insecure in retirement. If it were that, it would be very different from today.

For one thing, we would want the lowest-income retirees to get the largest regular check – assuming they had dutifully paid their payroll tax “premiums” when working – and also enough to keep them comfortably out of poverty without having to rely on SSI. Some retirees with a modest income from, say, an IRA, might still need a small Social Security “insurance payout” to maintain a reasonable standard of living.

In a true insurance model like this, retired Americans with healthy income from assets would get no Social Security check at all, rather than getting the largest checks as they do today. If Social Security is seen as insurance against financial insecurity then Warren Buffet clearly doesn’t need a check. Nor do other older Americans for whom a monthly Social Security check is just a little bit more icing on an already rich cake.

I’m not a fan of means-testing, though I do agree with Butler that Social Security needs to be refocused as a base benefit to insure against poverty rather than a middle- and upper-income substitute for personal saving. But others will disagree. Either way, Butler’s piece is well worth reading.