COLUMN RIGHT/ GARY M. GALLES : Remove the Hobbles on Senior Workers : The Senate has taken the first step in erasing an injustice against America’s older citizens.

The Social Security earnings test, in combination with other tax policies, has amounted to a virtual retirement mandate for many older workers. Not only has this resulted in America discarding much of its capital stock of knowledge, talents and energies, but recent evidence indicates that it has been picking the government’s budget pocket as well.

So the Senate’s action in voting to repeal the earnings test gives it some credibility in a year in which members of “the world’s greatest deliberative body” have hardly distinguished themselves. The repeal provision is part of a reauthorization of the Older Americans Act, sponsored by Sen. John McCain (R-Ariz.). The House could take up the matter as early as Tuesday.

The mechanics of the current earnings test are straightforward: Workers up to age 69 who are eligible for and drawing Social Security benefits must give up 33 cents of benefits for each dollar they earn over a limit that is easily exceeded with even part-time work. This is essentially a 33% tax on additional earnings, and it applies until benefits are exhausted.

By itself, the earnings test now subjects these older workers to the highest marginal tax rate in the nation. Add state and federal income taxes and social security deductions, and retirees can pay a marginal tax rate of up to 80%. Small wonder that so few older workers remain in the labor force if going fishing pays about as well as work.

The original rationale for the earnings test was to persuade older workers to retire, based on the fallacy that fewer jobs for older people meant more jobs for others. It persists today because without it, older workers who stay in the labor force would get more Social Security benefits (even though they are entitle to these benefits), leading to the belief that there would be less for those who do not work, or higher payroll taxes for everyone else. This, too, is a fallacy. A recent study by the National Center for Policy Analysis concluded that either raising the level at which the earnings test kicks in or even eliminating it altogether would generate more in federal revenues than it would cost in increased benefits. State and local government coffers would benefit as well.

Raising more government revenue by eliminating a tax seems counter-intuitive, but it works in the case of the earnings test because it so improves incentives and output that much more money is raised by the taxes that remain.

Workers between 62 and 69, given dramatically lower tax rates, would work more, generating added payroll and income tax revenue. The same holds for those 70 and over, because the earnings test would no longer induce earlier “forced retirement,” which erodes job skills and diminishes recent employment experience.

Eliminating this “forced retirement” deadline would also increase the market return from investing in job skills for older workers not yet retired, making both them and their employers more willing to make such investments (and eliminating a major incentive to discriminate against older workers).

McCain, in arguing for the measure, also made a case for competitiveness. “The earnings cap severely penalizes seniors for attempting to be productive citizens,” he said. “With impending shortages in the workplace, we need the skill and effort of these seniors.”

Finally, because eliminating the earnings test would generate additional income for these groups (including the elderly poor, who are hurt by the cap it puts on their ability to supplement benefits with earnings), it will generate more spending as well (people with higher incomes, whatever their age, spend more), increasing output, jobs and income for others, and taxes for governments at all levels.

The strength of both logic and evidence against the earnings test is compelling. Since ending the Social Security earnings test would improve the economy and government’s fiscal position as well as the well-being of productive older workers, there is no reason to keep taxing them into retirement. They can teach us a few things with what they know and what they can do. Let’s hope Congress lets them.