Another Social Security goodie is questioned

Staying Ahead

April 01, 1996|By Jane Bryant Quinn

WASHINGTON -- Congress appears to be getting ready to raise the amount that Social Security recipients can earn at a job and still collect their full pension.

Of course, this would increase benefits to today's elderly at a time when younger people worry that the system might go broke.

The Advisory Council on Social Security will report to the president this spring on how to keep Social Security perpetually solvent. It will recommend higher taxes of various kinds, and reductions in benefits.

Reductions, that is, for future retirees. Today's retirees would have their checks protected in full.

If the proposal passes, future generations will have to pay an even higher price.

At issue is what's called the "earnings test." Under age 70, you must retire to collect Social Security retirement benefits. You're allowed to earn a modest, supplementary amount. Otherwise, you haven't retired and don't qualify for benefits.

People 62 to 64 can earn up to $8,280 and still collect their full Social Security check. Their checks are reduced by $1 for every additional $2 they earn.

People 65 to 69 can earn $11,520 free and clear. After that, their checks are reduced by $1 for every extra $3 they earn. At 70 and up, they get their full benefit no matter how much they earn.

Congress has introduced various bills at various times, to adjust the earnings test. A proposal from Sen. John McCain, an Arizona Republican, would raise the permitted earnings by enough to let a majority of older people earn their paychecks free and clear.

Now Congress is taking up a bill to raise the debt ceiling of the United States. One popular rider to this bill involves the earnings test. As currently proposed, the rider makes no change for people 62 to 64. But at 65, they could earn up to $14,000 with no cut in their Social Security check. That amount would gradually rise to $30,000 in 2002, and then be indexed to wage inflation.

Around 10 percent of Social Security beneficiaries earn enough today to have their checks reduced, says spokesperson Tom Margenau. Changing the earnings test would cost an estimated $7 billion between now and 2002, and much more when the ranks of the elderly swell.

Benefits would have to be cut to make room for this increase, and "that's insane," says Teresa Ghilarducci, economics professor at the University of Notre Dame and a member of the Advisory Council on Social Security.

Here's how the rider's numbers work out, according to Social Security's Margenau. Retirees who earn less than $20,000 a year would get 2 percent of the additional benefits. Those with incomes of $55,000 or more would get 50 percent of the benefits.

Eugene Steuerle of the Urban Institute in Washington, D.C., is also a council member, and he supports the change. He says today's retirement test discourages older people from working, at a time when their labor is needed.

It's also administratively complex. When retirees work, their earnings often raise the basic benefit they're owed. Once a year, their benefits are recomputed and they get a check for any extra money due. This process, Steuerle says, lends itself to mistakes.

Compared with the $340 billion that Social Security paid out last year, the cost of changing the earnings test is pretty small. Steuerle says it could be funded with tiny changes in the benefit formula. For example, the growth rate in Social Security's maximum retirement benefit could be cut back a bit. Another proposal would fund the change by paring disability benefits.

But those are exactly the kinds of changes that will have to be made just to keep the present Social Security system going, Ghilarducci protests.

How ironic that Congress wants to raise benefits just when the advisory council is struggling to keep the system solvent.

Write to Jane Bryant Quinn at: Newsweek, 444 Madison Ave., 18th floor, New York, N.Y. 10022.

Pub Date: 4/01/96

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