What Does "Means Testing" Mean to You?

An ABC News poll dated July 17th asks "adults" (not voters) what they think about the debt talks in Washington.  Question 20 asks: "In order to reduce the national debt, would you support or oppose [ITEM]?"  Items include raising taxes on hedge fund managers (64% approve); raising taxes on those earning over $250,000 a year (72%); cutting spending on Medicaid (26%); and raising Medicare premiums for wealthier retirees (61%).  This last item is referred to as "means-testing."

As the debt arguments have progressed, I have noticed a rise in the use of the phrase "means testing" (especially in relation to Social Security and Medicare.)  What I haven't heard or read is a clear explanation of how this "test" would be applied in "real life"?

For example, given how most IRA accounts and home values have been decimated by the economic recession, and how dicey the markets will be going forward, it seems unreasonable to assume that the average retiree could necessarily count on income other than Social Security from year-to-year.  So one assumption is that benefits would get paid to everyone and the "means test" would be part of the income tax returns process.  But I don't know if this is correct. 

Or does it mean we have to create a new reporting system -- that considers medical benefits as "income" -- even though other insurance pay-outs are tax-exempt?  Since most insurance pay-outs are the result of unforeseen circumstances (whether damage to one's home or car or body) why would Medicare (as health insurance) be taxed differently from other insurance?  And why is civilian insurance (Medicare) "means tested" while VA benefits are off limits?  Especially since all workers pay into the Medicare system, while members of the armed services don't.

Or one could change the funding of Social Security to include all taxable income (not just the current $109 K "wage base") so those in the upper 2-3% contribute more equitably to a system from which they derive basic income "security" should their situation change after retirement.  (See my earlier blog entry for more details.)   In the poll, 66% of those interviewed approve this option.

You can see that one can travel down a very circuitous road when dealing with the realities of what seems to be a simple and reasonable limitation to "entitlements."

So I ask for clarification:

What is meant by the term "means testing" and how would it be applied in "real life"?

I look forward to your thoughts on this topic.

Image information:
March 13, 2008, Blairsville, Georgia; AARP Tax-Aide program offers free one-on-one counseling.

Credit: Janice Boling, Writer/Photographer for the North Georgia News