A means test is a determination of whether an individual or family is eligible for help from the government, based upon whether the individual or family possesses the means to do without that help.
In Canada means tests are used for student finance (for post-secondary education), and "welfare" (direct transfer payments to individuals to combat poverty). They are not generally used for primary education and secondary education which are tax-funded. Means tests for public health insurance were once common but are now illegal, as the Canada Health Act of 1984 requires that all the provinces provide universal healthcare coverage to be eligible for subsidies from the federal government. Nor are means tests used for pensions and seniors' benefits, although there is a claw-back of Old Age Security payments for people making over $69,562 (in 2012).
Resentment over a means test was among the factors giving rise to the National Unemployed Workers' Movement in the United Kingdom. Today, several benefit payments (including Pension Credit) by the government are means-tested, meaning that the entitlement to it is affected by the amount of income and savings. October 2006 saw the introduction of means testing as part of the determination of legal aid in the Magistrates Court. Similar ideas have been made by the Ministry of Justice for the higher Crown Court in November 2008 with a consultation paper proposing the introduction of Crown Court means-tested legal aid. As of 29 January 2009 the consultation is closed and awaiting a decision.
|Bankruptcy in the
|Bankruptcy in the United States|
|Aspects of bankruptcy law|
Means testing "refers generally to the eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts." The means test is perhaps best recognized in the United States as the test used by courts to determine eligibility for Title 11 of the United States Code Chapter 7 or Chapter 13 bankruptcy.
During the Great Depression, the test was used to screen applicants for such programs as Home Relief in the United States, and starting in the 1960s, for benefits such as those provided by Medicaid and the Food Stamp Program.
In 1992, third-party Presidential candidate Ross Perot proposed that future Social Security benefits be subjected to a means test; though this was hailed by some as a potential solution to an impending crisis in funding the program, few other political candidates since Perot have publicly made the same suggestion, which would require costly investigations and might associate accepting those benefits with social stigma.
In 2005, the United States substantially changed its bankruptcy laws, adding a means test to prevent wealthy debtors from filing for Chapter 7 Bankruptcy. The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C. § 707(b). The amendments effectively subject most debtors who make an income, as calculated by the Code, above the median income of the debtor's state to an income-based test. This test is referred to as the "means test." The means test provides for a finding of abuse if the debtor's income is higher than a specified portion of their debts. If a presumption of abuse is found under the means test, it may only be rebutted in the case of "special circumstances."
Debtors whose income is below the state's median income are not subject to the means test. Notably, the Code-calculated income may be higher or lower than the debtor's actual income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code's "current monthly income" as "presumed income." If the debtor's debt is not primarily consumer debt, then the means test is inapplicable.
Thus, the means test is "a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. (These filers may use Chapter 13 bankruptcy to repay a portion of their debts, but may not use Chapter 7 to wipe out their debts altogether.)" Many think the bankruptcy means test is complex but generous and most debtors seem to have no trouble meeting its requirements, while others[who?] have suggested that the means test is not all that fair or equitable, and have somewhat cynically pointed out that the reference to consumer protection in the bankruptcy act is ironic at best, since those with primarily consumer debt are required to pass a means test while businesses are not. What is undeniable is that it is complex, and the terms that govern many parts of it - including those terms that control whether it applies at all - are of unsettled definition.
Other international examples
Means-testing has been criticized on a number of grounds, the most fundamental of which is the distinction between a social program, which helps all equally or in proportion to their taxation, and a poverty program, which disproportionately helps the poor. For example, William Beveridge, in the Beveridge Report (blueprint for the UK's post-war social system) was opposed to means-testing, due to the poverty trap (below). Issues of a poverty program versus a social program include the following:
- A program benefiting only the poor may carry a stigma on its use and be demeaning; compare poverty food.
- Political support
- A program benefiting only the poor may lack broad-based political support, in contrast to programs that all share in. This can make it easier to reduce the benefits later.
- Poverty programs transfer money from the rich to the poor, as they benefit the poor only but are paid for by the tax payers.
Further objections to means-testing include the following:
- Poverty trap
- Means tests, particularly sharp cut-offs, create high effective marginal tax rates and can serve to keep people in poverty, both by removing social support as the person tries to escape poverty, and by discouraging such attempts by high costs. For example, asset-based limits, such as requiring an individual to have little or no savings to qualify, not only discourage saving (because of the cost of being disqualified from such savings) but also require a person to become completely destitute to qualify, thus meaning that they do not have any much-needed savings when attempting to escape poverty.
- Means tests, particularly complicated ones and ones that differ between programs and between different levels of government, complicate access to programs: individuals cannot easily know if they qualify and may also qualify for some programs but not others. In the absence of centralized outreach, the added complication of means tests means that some, perhaps many people who qualify for programs do not benefit from them.
- Administrative costs
- Means tests increase administrative costs (overhead), due to the work of verifying that the tests are satisfied. Some argue that these costs can offset or more than offset the savings by reduced payouts under means-testing.
- If means-testing is implemented in an existing program, particularly for which people have paid taxes but not benefited, as in pensions or medical insurance, the reduction in benefits can be seen as a breach of promise and entitlement of the program.
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- D'Arcy, Cliff (2009), The Financial Times Guide to Managing Your Money, Financial Times, p. 159, ISBN 0-273-71703-0
- Consultation Paper CP27/08
- Understanding Bankruptcy. Second Edition. Jeff Ferriell and Edward J. Janger. LexisNexis. 2007. p. 28.
- 11 U.S.C. § 707(b)(2)(B)
- The Bankruptcy Means Test: Is Your Income Low Enough for Chapter 7 Bankruptcy?
- Means Testing for Medical Subsidies
- New Fear For State Pensions, October 30,2010, Alison Little