`Means Testing' Grows As Fiscal-Planning Tool

As budgets tighten across the nation, legislatures look for ways to limit entitlements for the well-off

FOR years the United States has limited entitlement programs such as food stamps to people of low income. Now, there are some new attempts to do means testing for the rich.

* Last week, the New York Legislature decided to provide a "means test" to ensure that wealthy New Yorkers could not continue to live in rent-controlled apartments.

* In Washington, the Senate Finance Committee recently passed a means test that would have made the children of wealthy parents ineligible for a federal immunization program. The full Senate eliminated the test, but congressional aides expect it to resurface when the legislation goes into conference this month.

* And recently Sen. David Boren (D) of Oklahoma and Sen. John Danforth (R) of Missouri tried to get a means test for certain Medicare benefits. Their proposal never became part of the budget package that was signed into law recently. The same fate happened to another indirect means test - a proposed increased tax on Social Security benefits on individuals making over $25,000 a year or couples making $32,000.

Such attempts at means testing are likely to continue as Congress and states grapple with budget and policy issues. "Means testing is becoming a popular concept because there is a feeling that our economy cannot sustain the level of benefits," says Evelyn Morton, a legislative representative for the American Association of Retired Persons (AARP). That group has generally battled against benefit cuts, but Ms. Morton notes that most discussions assume that higher taxes are not possible, "so you must look a t what must be eliminated."

John White, an economist at Harvard University's Kennedy School of Government, argues there is cause for policymakers to consider some form of means test. "You are more likely to get more [benefits] if you make $100,000 than if you make $10,000. We have working middle-class people subsidizing high income people who live in Sun City or Palm Desert, drive Town Cars, and play golf," he says.

Mr. White, who advised the Perot campaign, recalls a meeting with a wealthy individual who wondered why he was getting Social Security. A trade union official was at the meeting and replied, "We would object to you not getting Social Security."

AARP's Morton argues that Congress cannot means-test a program such as Social Security. "It would violate the earned right principle," she states. "You paid a cash payment, and you are entitled to a certain level of benefits," she explains.

However, some economists say that the level of benefits is disproportionate for the wealthy. Economist and historian Neil Howe has found that between 1980 and 1991 households with more than $200,000 in income saw their federal benefits double while households from $10,000 to $20,000 had no increase.

One of the fastest growing benefits used by the rich is Medicare. Under Medicare Part B, the elderly pay 25 percent of the cost of the program and the taxpayers pick up the rest.

Under the Boren-Danforth proposal, the cost would be paid on a sliding scale related to income with individuals making $75,000 paying half their costs and those making $150,000 or more picking up 100 percent. AARP opposed the measure since it felt the Boren-Danforth proposal as a whole was shifting deficit reduction from the oil companies to seniors.

The issue is likely to become more accute as the population ages. "There is a huge generation retiring, with a much smaller population working. If you think entitlements are growing now, just watch out in the future," warns Mr. Howe.

Politicans, however, realize that means testing can be a brutal political experience. Take the battle in Albany over the state's rent control and stabilization laws. The Republicans wanted to end rent control for wealthy individuals, while the Democrats were trying to prevent change. The wrangle lasted for weeks.

Landlords argued that wealthy individuals were benefiting from laws designed to protect the middle class. "We believe that rent regulations just any other public assistance program should provide for a means test just like food stamps," says Jack Freund, director of research at the Rent Stabilization Association, a landlord-sponsored lobbying organization.

The landlords pointed out that actress Mia Farrow pays a little over $2,000 a month for an 11-bedroom apartment overlooking Central Park. "She should be able to afford a market rent," says Mr. Freund.

Initially, the Albany Republicans had proposed a means test of $100,000. However, tenant groups argued that it is not hard for two income individuals to make that much money.

"A lot of people have good fortune one year, but not as good the next. To put them at risk would be a dumb idea," adds Anne Pasmanick, executive director of the City-Wide Tenants Rights, Community Training and Resource Center.

Tenants groups also argued that implementing a means test could raise privacy issues since landlord might seek access to income tax records. However, the landlords replied that 1 million New Yorkers already go through an income certification process to live in city-owned-or-built housing. "There is no violation of privacy," says Mr. Freund.

The Legislature ultimately agreed to set the means test at $250,000 per year for two consecutive years. In addition, it will apply only to apartments already renting for $2,000 a month or more. Thus, it will apply to very few New Yorkers.