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Congress, President Aim to Eliminate the Social Security Earnings Test
President Clinton and the Republican Congress are poised to make the biggest change in Social Security policy in decades: They want to allow Americans age 65 and older to earn unlimited wages or salaries without giving up any of their retirement benefits. A bill eliminating the earnings test under Social Security is on the fast track in Congress, and the President has said he would be "thrilled" to sign such a bill.
The change, if it becomes law, could encourage millions of people at retirement age to stay on the job longer and provide the red-hot economy with an expanded pool of workers. Currently, older people are discouraged from working: About 800,000 U.S. taxpayers between ages 65 and 69 lose $1 in Social Security benefits for every $3 they earn from work, above $17,000 a year. An unknown additional number of people now quit when they reach the annual ceiling, and others work "off the books" to earn cash that isn't officially recorded as income.
BIGGEST IMPACT ON BOOMERS
Perhaps the biggest impact will be enjoyed in future years by members of the massive boomer generation, who surpass their parents in appetites for both work and money. The oldest of them--the cohort born in 1946 that includes such celebrities as President Clinton, Cher, Reggie Jackson, Donald Trump and Pat Sajak, among 3 million others--will be eligible to collect full Social Security benefits in just a dozen years.
Because boomers are likely to be healthier than their parents were at age 65, and because the economy in coming years will have a scarcity of workers, experts believe millions of boomers will be eager to keep working even as they receive Social Security retirement checks each month. The penalty on benefits for those who keep working is an artifact of the Great Depression. One of the key goals of Social Security when it was passed in 1935 was to get older people out of the U.S. workforce, which was plagued by a 25% unemployment rate.
The traditional earnings penalty is "absolutely outrageous," said Rep. Clay Shaw, R-Fla., who chairs the Social Security Subcommittee of the House Ways and Means Committee. "Seniors have been penalized long enough. Now is the time to bring fairness to the system," he said.
"I fought for freedom in two wars, and I believe that freedom included the freedom for seniors to work without being penalized," Rep. Sam Johnson, R-Tex., a veteran of World War II and Korea, and a cosponsor of the legislation, said at a news conference where he and Shaw unveiled the bill.
Clinton, meanwhile, said that he is eager to see Congress pass the legislation. "I like getting rid of the earnings limitation," he said in an interview with CNN. "It's the right thing to do. Let's just do it." The earnings ceiling for those between ages 65 and 69 is adjusted each year for inflation. There is no earnings restriction for people once they turn age 70.
Repeal of the earnings test was resisted in past years because there was a federal budget deficit. Elimination would have meant more spending by the federal Treasury, and budget rules would have required a corresponding cut in other federal outlays. Many Republicans favored an end to the earnings test, but the Democrats, who controlled Congress until 1994, balked at more than modest changes that could have cut spending elsewhere.
Now, because of the federal budget surplus, the change can be handled without affecting other spending. Repeal of the earnings test would cost the Treasury $22 billion over 10 years and additional benefit payments to people who are still working.
CLINTON: 'WE SHOULDN'T PENALIZE THEM'
The penalty on earnings is unfair, according to President Clinton. "If you're 65 today in America, your life expectancy is 83, and you want to be alert, you want to be physically strong," he told CNN. "We know as people stay more active, they're going to live better, not just longer. So I don't think we should penalize them."
Today, people age 65 or older constitute 13% of the U.S. population. By 2030 the proportion will reach 20%. With such a large elderly population, Clinton, said, it will be "good for our society" to keep people working longer.
Clinton and the Congressional Republicans have been unable to agree on a general plan to assure the solvency of the Social Security system, which faces fiscal problems in 2034, when payroll taxes will be sufficient to pay only 77% of benefits promised under current law. However, Clinton said he would sign a "clean bill" containing only the change in the earnings limit. Shaw pledged that Congress will deliver such a bill to the White House.
Shaw also noted that Congress and the President may consider at a later time changing the earnings limit for those between 62 and 65, who now lose $1 in benefits for every $2 earned from working above $10,080. (See "Social Security Earnings Test Put to Test By Experts," Aging Today, January/February 2000, accessible at www.asaging.org.) People now can retire as young as age 62, but doing so permanently reduces their Social Security benefit each year to 80% of what it would have been had they waited until age 65. Lifting the ceiling on earnings might encourage many more people to begin taking Social Security benefits before age 65. The permanently lower benefit "could create problems down the road," said Evelyn Morton, Social Security analyst for AARP (formerly American Association of Retired Persons). In particular, she added, elderly survivors of deceased spouses, such as women in their 80s, may face financial hardship and need the foregone 20% to meet their needs. [At presstime the House had passed a measure by 4220 lifting the earnings limit.]
Robert A. Rosenblatt, Washington economics correspondent for the Los Angeles Times, contributes "Potomac Sources" to Aging Today.
American Society on Aging
71 Stevenson St., Suite 1450
San Francisco, CA 94105-2938
www.asaging.org
info@asa.asaging.org