Seniors’ Earning Test Has Got To Go

When House Republicans presented their “Contract With America” in the last campaign, they made an offer that many seniors didn’t refuse. Nor, I think, will the rest of Congress or President Clinton in 1995:

I boldly predict that this Congress will pass the item in the contract that starts to clean up the ridiculous - and unjust - Social Security earnings test. Though it won’t repeal the limit outright, it will raise the earnings limit to an eventual $30,000 per year, a large step in the right direction.

Your swami here further predicts that the proposed Senior Citizens Equity Act will get Clinton’s signature. Older voters gave him 50 percent of their vote - a fact he probably has given some thought to as 1996 nears.

The earnings test penalizes people on Social Security between 65 and 69 who earn more than $11,280 a year. The over-65 group must give up $1 for every $3 over that. For the early retiree, the bite is $1 for every $2. And that, mind you, is in addition to the usual federal income tax, Social Security tax and all the other deductions paid by every other worker. Which is why some sixtysomethings still working are paying a marginal tax rate that is roughly double - up to 80 percent - what Ross Perot and other multimillionaires pay.

The original, not-too-subtle idea of the penalty was to discourage older folks from staying in the work force when Depression unemployment ran up to 25 percent. It may have made sense then to nudge seniors out and give younger workers with families the jobs.

But now, when many poorer seniors or seniors with skills highly desired by employers need and want to work, the earnings penalty makes no sense at all.

Indeed, bills to repeal the penalty or boost the earnings limit have won huge majorities of supporters in Congress. Yet until now, a small handful of powerful Democratic chairmen of committees and subcommittees - sometimes referred to as “the Gang of 31” - have prevented the bills from getting to the floor for a vote. That blocking action took place behind the scenes, thus dodging a backlash from older workers being hurt by the penalty.

But that gang is gone. The longtime champion of repealing the penalty is Rep. Dennis Hastert. The Illinois Republican this year is part of a House majority publicly pledged to do something about the earnings penalty. And the Senate majority no doubt will stay in step. Both Republicans and Democrats know a couple of facts of political life: (1) Seniors are the one minority present in decisive numbers in every district, and (2) their turnout is always the highest of all voters.

I have three friends who illustrate the actual effect of the old penalty. Charlie is a scientist whose unique talents have kept him on at high consultant rates at the firm from which he retired at 65. Because of the penalty, he just skipped Social Security until he reached 70 - it is a needless nuisance for both worker and government to keep up with the paperwork. The feds spend $75 million just policing the test. And at 70, the older worker can make $1 million a day with no penalty. Go figure.

Bill, in his 60s, is an engineer with skills and experience that bring him offers of consultant assignments around the world. But the combination of those sky-high marginal tax rates (thanks to the penalty) and “the principle of the thing” makes him complain that after he has paid his taxes and work expenses, he is putting up with the hassle for “not much more than minimum wage.” It is a disincentive.

Pat is a widow whose husband retired at 62 with what they figured was a comfortable nest egg. The expenses of cancer wiped out those savings. So my friend is now working a six-day week for low wages. Her late husband’s election of early retirement means she now pays that $1-for-$2 penalty over the limit, plus all the other taxes and deductions that younger co-workers pay. For Pat, the penalty is more than a nuisance or a disincentive, it is a real pain in the living standard.

That is how the present penalty affects most workers in the real world. Which is why experts like Dorcas Hardy, commissioner of the Social Security Administration in the Reagan administration, want it repealed.

When Hardy testified in support of the Senior Citizens Equity Act earlier this month, she addressed the most frequently raised argument against relief for working seniors - that it would increase the deficit. She quoted an authoritative study by Gary and Aldona Robbins of the National Center for Policy Analysis, here in Dallas:

While the federal government, without the penalty, would pay more out in benefits, it would take in nearly as much in new Social Security taxes from the seniors working. Add to that the other taxes the seniors would pay, and “the net result would be a $140 million increase in federal revenue.”

So the new bill would bring black ink, not more red ink, to the feds’ balance sheet. Which it sorely needs. After all, $140 million here, $140 million there, you soon are talking about real money.