Clinton, GOP Seek to End Penalty on Workers 65 to 69

President Clinton and key congressional Republicans agreed Monday to seek a major change in Social Security laws that would allow Americans 65 and older to earn unlimited wages or salary without losing any federal retirement benefits.

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.

House Republicans plan to begin moving legislation later this week to wipe out the earnings test. Although Republicans in Congress have promoted the idea for years, President Clinton endorsed it for the first time Monday, saying that he would be “thrilled” to sign such a bill.

“I like getting rid of the earnings limitation,” he said in an interview with Cable News Network. “It’s the right thing to do. Let’s just do it.”

For Clinton and the Democrats, the budget surplus makes it possible to pay for costs of the change in the law without cutting other federal programs.

Currently, older people are discouraged from working. Those ages 65 to 69 lose $1 in Social Security benefits for every $3 they earn at work above $17,000 a year.

The immediate beneficiaries of any change in the law would be the 800,000 people who are drawing benefits but will lose money this year because they will earn more than $17,000. An unknown additional number of people now quit working when they reach the annual ceiling, and others work “off the books,” receiving cash that is not recorded as income.

A person 65 or older could retire, get full Social Security benefits and return to work for his former employer, or go to work anywhere else--full time or part time--and earn a salary without suffering the financial penalty imposed under current law. He would pay Social Security taxes just as retirees who work now do.

But perhaps the biggest effect would be enjoyed in future years by members of the massive baby boom generation, who are surpassing their parents in appetites for both work and money. The oldest of them--the diverse cohort born in 1946 that includes 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 65 and the economy in coming years will have worker shortages, experts believe that millions of boomers will be eager to continue to work, even as they receive Social Security retirement checks each month.

The traditional earnings penalty is “absolutely outrageous,” said Rep. E. Clay Shaw Jr. (R-Fla.), chairman of the House Ways and Means subcommittee on Social Security, which will vote Wednesday on changing the law. “Seniors have been penalized long enough. Now is the time to bring fairness to the system,” Shaw said at a news conference Monday after introducing the bill, which has been put on a legislative fast track. The full Ways and Means Committee is expected to pass it the first week in March and send it to the full House. Senate approval also appears likely.

“I fought for freedom in two wars, and I believe that freedom included the freedom for seniors to work without being penalized,” said Rep. Sam Johnson (R-Texas), a veteran of the Korean and Vietnam wars and a co-sponsor of the measure.

The earnings ceiling for those ages 65 to 69 now is adjusted each year for inflation. There is no earnings restriction for those 70 or older.

The penalty on benefits for those who keep working is an artifact of the Great Depression. One of the key goals of Social Security--passed in 1935--was to get older people out of the work force, which was plagued by a 25% unemployment rate.

Today, the situation is different, with many people of retirement age in relatively good physical condition and eager to keep working.

Abolishing the earnings limit would have no impact on Social Security’s future solvency. The amount of additional benefits paid out is not significant in terms of the overall future needs of Social Security. And part of the money would be recouped as individuals work longer and pay additional Social Security taxes. If the earnings limit is repealed, Social Security’s trust fund would face the same date of exhaustion, 2034, when revenues will be sufficient to pay just 75% of promised benefits, according to a statement issued Monday by Social Security Administration actuaries.

Congress and Clinton could not agree on repeal of the earnings test in past years. They did agree on raising the earnings ceiling to $30,000 a year by 2002. Repeal of the ceiling would mean an increase in spending by the federal Treasury to pay additional benefits. Rules adopted because of the long-standing federal budget deficit would have required a corresponding cut in other federal outlays. Many Republicans favored an end to the earnings test, but Democrats, who controlled Congress then, balked at any changes that would have meant cuts in spending on other programs.

Now, Republicans are in the majority in Congress and the budget shows a surplus, so the change can be handled without affecting other spending programs. Repeal of the earnings test would cost the Treasury $20 billion over 10 years--but there is now enough money in the Social Security surplus to cover that change in the law. Because there is an overall budget surplus, Social Security surpluses have been reserved exclusively for Social Security’s own uses.

The earning penalty is unfair and unnecessary, Clinton said Monday. “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 said in his first live online interview, with the answers broadcast on CNN and transmitted via the Internet. “And 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 65 and older make up 14% of the U.S. population. By 2030, all the boomers--those born in the years 1946 through 1964--will have reached retirement age and 20% of Americans will be 65 and older. With such a large senior population, Clinton said, it will be “good for our society” to keep people working longer.

The age for collecting full retirement benefits, now 65, is increasing gradually at the rate of two months a year under current law and will reach age 67 for those born in 1960 or later.

Shaw said that Congress and the president may consider at a later time changing the earnings limit for those from 62 to 64, who now lose $1 in benefits for every $2 earned above $10,080 a year.

People now can retire as young as 62 and be eligible for a permanently reduced Social Security benefit, equal to 80% of what they would receive at 65. However, elimination of the ceiling on earnings might encourage many more people to begin taking Social Security benefits before 65.

The permanently lower benefit might eventually cause financial hardship for elderly people. When they reach their 80s, they will have stopped working. Many will have died, forcing surviving spouses to rely solely on Social Security.

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How Penalty Works

The proposal would stop the government from penalizing Social Security beneficiaries, ages 65 to 69, who still work. Here’s how the system currently works:

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Source: Times Washington Bureau