16. that it would cost to repeal the earnings test. This study provides further compelling evidence that retaining the test is costing society more in lost tax revenues and contributions to the GNP than it would cost to repeal it. - Another related study by the Urban Institute entitled "The Aging of America: A Portrait of the Elderly in 1990" reaches a similar conclusion. This study assumed certain changes in social security - namely, a small decrease in early retirement benefits, a future increase (from 3 to 5 percent) in the delayed retirement credit, a liberalization in the earnings limit (achieved by reducing the benefit reduction rate from 50 to 40 percent) expanding economy. - and a reasonably Based upon these assumptions, the authors suggest that social security costs and tax rates would be lower (despite the liberalization in the earnings test) than under present law. At the same time, projected income levels of the elderly would be 12 to 38 percent higher because of their increased earnings. The authors said, "The major conclusion of this study is that it may be possible to reduce the tax burden on the working population and increase the income going to the elderly, through changes in the retirement incentive structure to delay retirement." 17. Second, opponents contend that repeal of the retirement test would transform social security from a social insurance to an annuity program. They maintain that social security is designed to replace lost earnings because of three contingencies: retirement in old age, death or disability. Our Associations believe that this type of fundamental change in social security is absolutely essential in order to prevent it from being overwhelmed by obvious demographic, economic, labor force and other trends. Social security must respond to these trends and be transformed into a system that encourages and rewards work effort, especially on the part of older persons. Third, opponents maintain that removal of the earnings test would provide a windfall for affluent professionals. However, these people constitute a tiny fraction of the total number of beneficiaries who would benefit from removal of the test. Our Associations believe that it is illogical and unfair to retain a test which penalizes low- and moderate-income older Americans simply because some well-to-do people, who typically have paid the maximum into social security throughout their working lives, would also benefit from repeal of the earnings limitation. Work may provide the only means for LOW and moderate-income beneficiaries to supplement their social security. 18. Today, many low and moderate-income older Americans deliberately hold down their earnings or drop out of the labor a 50 percent market rather than suffer the harsh penalty - - that the present test tax on earnings above $5,000 a year imposes. Since these people do not actually have their social security benefits reduced, they are not counted as potential beneficiaries of eliminating the test. If they were, it would be even more apparent that low- and moderate-income older Americans are the real beneficiaries, and not a comparatively small wealthy elite. This Fourth, the retirement test is defended in some quarters as a means to promote employment for younger workers. is shortsighted, though, because the present number of jobs in our economy is not fixed. Our economy should have sufficient elasticity to accommodate more workers. The number of jobs in our economy depends, to a large degree, on fiscal and monetary policies. Surely a nation with a gross national product exceeding $2 trillion can manage its economy and be innovative enough to provide job opportunities for all Americans, whether they are young or old. Our nation is not so bankrupt in ideas that we cannot work to solve the employment problems of younger and older workers alike. Our economy has been able 19. to provide jobs for an increasing number of workers in the past, and it can do so in the future when proportionately more Americans will be older Americans. This capability was well illustrated during the past decade, when employment opportunities were created for millions of women who entered or reentered the labor force, as well as for the post World II "baby boom" generations. Our Associations favor repeal of the earnings test because: • It would, in fact, benefit large numbers of low- and moderate-income elderly persons by removing one of the major barriers for older Americans who want or need to work. • The existing limitation imposes a substantial cost on taxpayers through the loss of gross national product and tax revenues costs which can no longer be overlooked or ignored. - We consider elimination of the test to be an essential first step toward a comprehensive restructuring of the social security benefit structure so that it strongly encourages effort. At this time, we agree with the pending legislation which eliminates the test only for persons age 65 and over. This is an appropriate first step since repeal of the test for persons under age 65 could have the perverse effect of encouraging early retirement. In this same spirit of incrementalism, we recognize that the "cost" of removing the test may necessitate a phased-out approach. 20. One phase-out option could be to make ad hoc increases in the exempt amount beginning in 1983 for persons 65 to 70 years old. Under present law, the earnings ceilings for older social security beneficiaries - now $5,000 a year for is scheduled to increase by $500 a year until it reaches $6,000 in 1982. In addition, the upper age limit for the test will be reduced from 72 to Thereafter, the exempt amount will rise propor 70 in 1982. tionately in accordance with the average covered earnings under the program. Based on the most recent estimates, the exempt amount for beneficiaries 65 to 70 is projected to rise automatically after 1982 as follows: Under one possible option, the exempt amount could be phased out for older persons according to this plan: This would minimize the "cost" impact on the system, and that impact would be postponed until 1983. During this time the Congress will have an opportunity to strengthen 63-893 0 - 80 - 16 |