Means testing is a marginal tax increase

So says Modeled Behavior, citing also Paul Krugman.  All true, but the need to point this out to people suggests it is not widely understood.  Which suggests the tax, at least right now, brings a relatively low deadweight loss. A lot of people don’t really see that it is a tax at all.  Admittedly, that state of affairs may not last forever.

There is also hyperbolic discounting, namely that the marginal extra loss from earning more income may be coming many years in the future.  Even if you’re sixty-two years old, the reduction in subsequent Medicare benefits may last through your eighties or longer.  That also makes it a less distorting tax.

Because it tricks people in this manner, it may well be a less fair tax.  But still it is a more efficient tax, at least if it can be enforced.


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