A Break for Pensioners

People between the ages of 65 and 69 who draw Social Security retirement benefits are penalized if they remain too productive. That penalty provision dates from the Social Security system's origins during the job-scarce Great Depression, when it was seen as sound good social policy to push older workers out of the labor force so that younger ones could take their places. Today good social policy, and good economic policy as well, points to retaining the practical experiences and productive skills of older workers. Penalizing those who want to continue working more than a few days a week isn't the way to do that.

Currently retirees between 65 and 69 may earn up to only $8,400 a year without losing Social Security benefits. Beyond that amount their benefits are cut by $1 for every $2 that they make. This isn't just a disincentive to work but a form of grossly unfair taxation amounting to a marginal tax rate of 50%, the highest rate levied on any group of Americans.

The present law abounds in other rules that are neither equitable nor reasonable. There is no earnings restriction for people 70 and older. At the same time, no ceiling is set on unearned income for any retirees. A retiree with pension and investment income of $50,000 or $100,000 a year can draw full Social Security benefits. But another retiree who can supplement her benefits only by working is penalized if she is deemed by the law to work and earn too much.

The nation can't afford to continue an anachronistic policy that discourages valued workers from remaining in the active labor force if that's what they want. The labor surplus that existed when Social Security was born has today become a labor deficit, the result of the 54% drop in the U.S. birthrate between 1957 and 1974. A growing bipartisan congressional consensus favors eliminating or radically raising the ceiling on allowable earned income. Dr. Otis R. Bowen, the secretary of health and human services, and Dorcas R. Hardy, the Social Security administrator, both privately support repealing the earnings limit.

But Reagan Administration policy-makers don't. They worry because removing the earnings penalty would boost Social Security outlays--and, on paper, the budget deficit--by billions of dollars a year. But, as more older workers earned more, some offsets would be produced in the form of increased Social Security revenues, larger personal income-tax payments and reduced demand for Medicare and other federal programs. The economy as a whole would gain as the disposable income of older Americans grew. Lifting the earnings ceiling is an idea that has been talked about for years. The next Congress should decide that the time has come not to talk but to act.

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