You deal with your government all the time. Part of your life is spent trying to get stuff from your government. When you approach this subject you definitively know that there will be bureaucracy involved. You also know that sooner or later for some reason and for some so-called "benefits" you will be asked to provide some sort of proof that you are below certain line of economic means. If you cannot prove this, you will be denied this "benefit" or it will be substantially reduced. This is what in the bureaucratic language is called "means testing" and it is supposed to be the "social" way of redistributing wealth from those who have to those who have not. Today were going to take a closer look at how this process works and why it is not only nonsense but a scam just like any other government so-called "service".
INTRO
Means testing simply means that if you're below a certain poverty line (which is, of course, determined by apparatchiks) then you get the full service (whatever that may mean). On the other hand if you are within a specific bracket of earnings then your so-called "benefits" are placed on sliding scale down, the idea being the more you earn the less you need. And lastly, if you are above yet another arbitrary line in terms of earnings, you get nothing. Again, the idea being, if you are so wealthy you don't actually need anything it would be unfair to give it to you. You can see this theoretical process represented in the picture below.
All this sounds very fair and just and very social and egalitarian but is it so?
THE HORRIBLE TRUTH
If you're poor
Let's begin by looking at the first bracket at the very bottom of the barrel (the ones in the "Poor" bracket in the picture below). Let's begin at zero.
Let's say that you are very poor and you can't make ends meet which essentially means that you cannot feed, clothe, and shelter your family. In those circumstances anything that comes from the government raises your minimum standard of living to a higher minimum which is more livable. You are the people who are dirt poor and even with government help you can't make it even close to the next bracket. Is it fair for this class to receive government gifts? It would seem so because this will substantially increase their standards of living and decrease their suffering. But we need to point out a major problem.
No matter what the government gives you, you will always want more. Who gets to decide what is this "minimum" support that you will receive? What objective measure can we use to determine such level? Answer? There isn't. Thus, this gift from the government is ultimately arbitrary and subjected to manipulation. And no, this is not a hypothetical scenario. Politicians have been playing with this "segment" of voters since welfare was first invented. The issue is not that you need means to increase your standards of living. This is utterly true. The issue is that nobody actually knows what you actually need because this need is individual and subjective and this is not "fair" neither to you nor to the people higher up in the income line. And yes, we are ignoring (for now) that you are dirt poor because we will return to this issue in a full circle. Bear with us.
Then (and still within the "Poor" class) there are people who live uncomfortably but they are okay. When those people receive stuff from the government their standards of living raise above the levels of the people in the following up bracket. This seems strange but true as now these people who are fully subsidized by the government live better than the people who are struggling but are at the next up bracket (i.e. the "Middle Class") and who will only receive a small portion of the government's giveaway. This is obviously unfair to the people in the this bracket because they are actually making a substantial effort not to fall under the lower arbitrary line.
At the upper "Poor" level you have an incentive to work up to the upper limit (i.e. "Middle Class"), but not beyond. Why? Because things get ugly at the next level; by staying at the "Poor" level you get more money with zero effort that the idiots killing themselves at the next upper leve. Therefore, you have a very strong incentive to receive government subsidies pretty much forever and become a professional welfare recipient.
Then, we have the problem that the lower arbitrary line is just that, arbitrary. It does not matter where you draw the line (and you will find wild variations between governments) the issue remains. It is not a matter of where the line is drawn, but a matter of the line actually existing. And that arbitrary line defines your status and who benefits and who gets screwed. Again, arbitrary apparatchik decision which is not based on actual needs but on an arbitrary and subjective definition of "Poor". Is this fair? No. Does this make sense? No.
If you are in the poor middle class.
If you belong to this group the gifts that you receive from the government are supposed to be related to your needs. As such, the more you earn the less you receive. This is supposed to be socially just and fair and equitable and at first glance it would seem to be so. Unfortunately, if we dig deeper (as you can see in the picture below) we find two problems:
The first one is that the more you earn the less you receive from the government. In other words, any differential effort that you generate is removed from what you receive from the government. What this means is that the harder you work the less stuff you get which is pretty much insane! Nobody in their right mind would work harder to get the same stuff yet, you are placed in this position by the sliding scale.
The second problem with this is that the more you earn the more taxes you pay. As a consequence of this you not only get less from the government but you end up paying more to the government with the end result that at the end of the day you have actually less to show for when compared to do nothing! Nobody in their right mind would do this.
The fact that the sliding scale exists it's a very strong incentive not to work above and beyond the bottom line because any extra effort that you put on top not only results in a no benefits but in a reduction of benefits! There is actually a very strong incentive to work less thus qualifying for a higher standard of living now that you are classified as "Poor"!
This can be seen in the picture below, for the class labeled "Middle Class".
But we can go a step further here. Many people believe that this problem originates in the fact that the bottom line exists but this is not so. If we remove this line altogether the only thing that we would be doing is actually pushing the line to zero. In other words, what's the point of doing any work at all if you can maximize government gifts precisely by not doing anything at all! And so, it is patently clear that if the intention is to help people to help themselves this is most definitively not the way to do it.
If you are rich
Obviously, if you have more than enough money to satisfy all your needs you don't need government gifts. But there are two problems with this thinking. The first one is who defines what does it mean to be "rich"? Obviously an apparatchik. However, you would be surprised what happens if you go around asking people if they consider themselves to be "rich". Why? Because most people which could be considered quite arbitrarily to be in the upper-middle-class, consider themselves not to be in the upper-middle-class and not even close to be "rich". In other words, most of us can always use some extra money. Why? Because our expenses are higher. Because our satisfaction level has gone up. We understand how cruel this sounds because it seems that we are comparing people that have good meals every day against people that are struggling to actually get a meal on the table. We fully acknowledge that. That is not the point. The point is at which point do you draw the line on who gets to decide where that point is going to be? Of course, apparatchiks. Because of this phenomenon, very few people will acknowledge that they are "rich". There is no magic statistical number that tells us who is rich and who isn't. If we look at this problem from a personal perspective any person from whom money is taken will always tell you that this thievery is unfair. Furthermore, they will also tell you that other people, but not them, receiving free gifts is patently unfair. So, even from a rich person's perspective this process of government's gifts it's unfair. But this is not everything. From the perspective of a rich person the only thing they see is paying taxes and getting nothing in return. In other words, the more they earn the less they get to keep. This is a very strong incentive to earn in a manner which is "tax efficient". What this means is that they are forced to invest their capital in such a way as to minimize taxes instead of in a way to maximize customer satisfaction and this behaviour inevitably leads to lower standards of living.
Think about this. We are not getting higher standards of living precisely because rich people (who would be the people with the necessary investment capital required to raise our standards of living) are too busy using convoluted schemes to make sure that governments steal as little as possible from them. What all this means is that governments are creating more poor people because they are taxing the rich ones. This is the final consequence or net effect of rich people not receiving any government gifts that would offset the taxes they pay.
This can be seen in the picture below, for the class labeled "Rich".
Note: please see the Glossary if you are unfamiliar with certain words.