A means test is a determination of whether an individual or family is eligible for help from the government.
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.
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.
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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 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.)" The bankruptcy means test is rather complex but quite generous and most debtors have no trouble meeting its requirements. Consumers can use a means test calculator to determine their eligibility. 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
It has been announced that means testing is one of the top three areas the Health Sector in Singapore would look at to further improve its subsidiary benefits. This will be done so according to income.
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:
- 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.
- 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:
- 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 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 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.
- ^ http://www.wcml.org.uk/contents/protests-politics-and-campaigning-for-change/unemployment/national-unemployed-workers-movement/
- ^ D'Arcy, Cliff (2009), The Financial Times Guide to Managing Your Money, Financial Times, pp. 159, ISBN 0273717030
- ^ 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?
- ^ Abanet.org
- ^ Means Testing for Medical Subsidies
- ^ a b The Bankruptcy Boys, February 20, 2010, Paul Krugman
- ^ The Deficit Commission Trap, Wall Street Journal, Dec 29, 2009
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means-test — ˈmeans test noun [countable] an official check in order to find out if someone is poor enough to receive welfare benefit S (= payments from the state when you are ill, without work etc): • He has made proposals for means tests for Social Security … Financial and business terms
means test — Added to the Code in 2005, the means test is intended to screen out those filing Chapter 7 who are supposedly able to repay some part of their debts. The test is found in Official Form B22a. Debtors who fail the means test may convert their case… … Glossary of Bankruptcy
means-test — means′ test v. t. 1) cvb to subject (a person or a specific benefit) to a means test: The government proposes to means test Medicare[/ex] 2) cvb to perform a means test: fair and responsible means testing[/ex] • Etymology: 1960–65 … From formal English to slang
means test — In bankruptcy, a formula that uses predefined income and expense categories to determine whether a debtor whose current monthly income is higher than the median family income for his or her state should be allowed to file for bankruptcy.… … Law dictionary
means-test — [mēnz′test′] vt. to subject to a means test means tested adj … English World dictionary
means test — UK US noun [C] GOVERNMENT, FINANCE ► a way of finding out how much income a person has in order to decide whether they should receive money from the government, for example towards medical care, education, or legal services: »People who pass a… … Financial and business terms
means test — means ,test noun count an examination of your income in order to find out whether you have the right to receive any extra money from the government ╾ means ,test verb intransitive or transitive … Usage of the words and phrases in modern English
means test — means tests N COUNT: usu sing A means test is a test in which your income is calculated in order to decide whether you qualify for a grant or benefit from the state … English dictionary
means test — n an official check in order to find out whether someone is poor enough to need money from the government >means tested adj ▪ means tested benefits … Dictionary of contemporary English
means test — means′ test n. an investigation into a person s finances to determine eligibility for public assistance • Etymology: 1925–30 … From formal English to slang
means test — n. an investigation of a person s financial resources, made to determine whether that person is eligible for welfare payments, low cost housing, etc … English World dictionary