Keeping Skill on the Job
Bipartisan agreement finally has been reached to eliminate the so-called Social Security earnings test, which foolishly penalizes many who work beyond their 65th birthday by reducing their monthly Social Security benefit. A House ways and means subcommittee is expected to vote today to eliminate the earnings limit, the first step toward a goal embraced by Republicans and Democrats, including President Clinton. Hundreds of thousands of Americans who have been losing benefits by remaining in the work force will stand to gain, as will the economy.
The earnings test dates from Social Security’s origin in the mid-1930s. Its intent was to encourage older workers to retire to make room for younger people who were without jobs during the Great Depression. That disincentive has long since outlived its purpose. What worries employers now isn’t a labor surplus but a labor shortage, especially when it comes to special skills. One of the ironies of business downsizing in the 1990s is that many companies quickly found they had to rehire retired or laid-off older workers as part-timers or consultants because their talents couldn’t be easily replaced.
There is no earnings penalty for those who work beyond the age of 70. But men and women between 65 and 70 who continue to work have one-third of their Social Security benefit withheld if they earn more than $17,000 a year. (Under current law, that amount is scheduled to rise to $30,000 by 2002.)
There’s no telling how many older workers would choose to go on working once the earnings penalty is eliminated. Increasing numbers of people have been opting to retire at 62, when they can begin drawing reduced Social Security benefits. But the prospect of longer and healthier life spans--those reaching 65 can expect, on average, to live another 17 or 18 years--seems likely to encourage many older workers to remain in the labor force for at least some years past normal retirement age.
The Congressional Budget Office estimates that eliminating the earnings test would cost about $20 billion over 10 years as higher benefits are paid out over the short term, an amount Social Security surpluses can readily accommodate. Meanwhile, older workers who continued to earn would continue paying into the Social Security system. This is a good deal all around. Congress and the president should act quickly to make it law.
