Social Security earnings curb attacked

January 10, 1995|By Richard O'Mara | Richard O'Mara,Washington Bureau of The Sun

Washington -- Republicans and Democrats agreed yesterday that older Americans need relief from the Social Security provision that reduces benefits if their earnings go above a certain level.

But they fell out over how much relief is in order and how much it would cost.

The issue was aired before a House Ways and Means subcommittee on Social Security, which heard a passionate plea from a Maryland woman who said older Americans want to work without having their benefits reduced.

"We are your mothers and fathers, your aunts and uncles, your teachers and ministers," said Jean McCauley, 69, of Germantown. "We are part of that great middle class that everyone in Washington says they want to help. I am asking you to help us today."

The hearings were on legislation Republicans hope will help them redeem one of the promises in their "Contract with America." It would raise to $30,000 over the next five years the amount a person between 65 and 70 could earn before having benefits lowered.

The annual ceiling is now $11,280.

Mrs. McCauley told the subcommittee that she and her husband, a former Methodist minister four years her senior, have had to continue working because their pensions do not sustain them.

Both depend on Social Security benefits to make ends meet, she said, and fear the prospect of a reduction under the earnings test.

"At my current rate of pay, I will reach the Social Security earnings cap in June, and frankly don't know what I will do then," she said.

At that point, under existing law, she will lose $1 for every $3 she earns above the limit. "I want to keep working, but I can't afford to lose my benefits," she said.

The Social Security Administrator, Shirley S. Chater, said the Clinton administration favored "a moderate" increase in the exempt amount: about $1,000 over the next five years.

"I'm glad I know what 'moderate' means," the panel's chairman, Rep. Jim Bunning, a Kentucky Republican, said dryly.

"We very much support raising the limit, but we have to know how we would pay for it," said Ms. Chater.

The administration proposal, she said, would cost about $900 million. By contrast, she said, the Republican initiative carried a price tag of $6 billion to $7 billion over the next five years, $15 billion over 10 years.

This would be the money paid out of the trust funds to recipients under 70 who continued to work and earn above the ceiling; in effect, this is money now withheld.

Some proponents of the bill believe raising the earnings test level would bring more seniors back into the work force and that taxes on their earnings would help offset some of the costs of the payouts. But no one yet has produced firm figures to show that this would significantly offset the payouts.

Moreover, not even the Social Security Administration has estimates of how many non-working retired Americans would be drawn back into the labor force under a more liberal means test.

The earnings test has been a part of the Social Security law from its beginning in 1935.

"It was created in the Great Depression when people believed there would always be more workers than jobs," said Daniel Mitchell, a Heritage Foundation economist. "It was put there to drive people out of the work force."

Originally, no benefits were paid in any month in which a beneficiary had outside earnings. The first modification allowed $14.99 a month. The last increase, to $11,280 a year, took effect this year.

Over the years the age at which no earnings test is applied has been gradually lowered to 70.

At yesterday's hearing, Republicans and citizens who appeared before the panel stressed what they portrayed as the unfairness of the earnings test, insisting that it weighs most heavily on people with lower incomes.

"Seniors who are independently wealthy or have stashed away money for their retirement years are able to receive that income and also receive their Social Security benefits," said Illinois Republican J. Dennis Hastert, the bill's sponsor.

"But those who have not been able to save and invest over the years and must continue to work are severely penalized for doing so," he said. "We are, in effect, punishing them for not being rich."

Ms. Chater argued that most of the benefits would go to families on the upper half of the earnings scale. Those with earnings from $39,060 and up would take over 75 percent of the benefits.

Nearly all of those who testified yesterday favored raising the means test. They included representatives from large retailers, such as J.C. Penney, as well as the American Association of Retired Persons.

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