Congress moves toward ending Social Security earnings penalty

Recipients who work after 65 lose benefits if pay tops $17,000

February 16, 2000|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON -- A bipartisan election year consensus seems to be building to finally repeal a Depression-era penalty on Social Security recipients who keep working after age 65.

President Clinton has already agreed to sign a bill scheduled to begin moving through the House today that would remove the penalty affecting about 700,000 older Americans who still want, and perhaps need, to work.

If enacted, the measure would take effect as of Jan. 1 this year, saving workers ages 65 to 69 hundreds, perhaps thousands of dollars this year. Now, if those workers earn more than $17,000 a year, they are penalized, losing $1 in benefits for every $3 in additional earnings.

Withheld benefits are gradually released after the worker turns 70, but many don't live long enough to collect them.

The earnings penalty is "unfair outdated and bad for the economy. Its time has long since come and gone," said Texas Rep. Sam Johnson, a Republican who is chief sponsor of the measure.

"In the 1930s, the earnings limit was used to force seniors out of the work force," Johnson said, referring to Social Security's birth during the high unemployment of the Depression. "Today, with unemployment at record lows, seniors are needed in the work force."

The earnings penalty has been eased many times over the decades, most recently in 1996. As a result of changes made that year by Clinton and the GOP Congress, the limit for workers ages 65 to 69 was set at $17,000 for this year, $25,000 in 2001 and $30,000 in 2002.

With lawmakers of both parties scrambling to do away with a practice that many feel discriminates against a politically potent group, the major threat to enactment of the bill might be that the Senate insists on going further.

No Senate action has been taken on the issue, but some senators favor eliminating the earnings penalty on early retirees who begin collecting Social Security benefits at age 62. Retirees 62 to 64 lose $1 for every $2 they make over the limit of $10,080.

House members, who did not eliminate that limit in their measure, fear that step would prompt more workers to take early retirement, permanently reducing their Social Security benefits and perhaps driving additional elderly widows into poverty. Now, about 60 percent of workers claim their benefits at 62, according to Kenneth S. Apfel, the Social Security commissioner.

"Sixty-two is a problem," acknowledged Rep. E. Clay Shaw Jr., a Florida Republican and chairman of the Ways and Means subcommittee that is set to approve the bill today. Floor action is expected early next month.

Any tax legislation faces a turbulent trip through the Senate because leaders can't protect it there as they can in the House from unrelated measures being tacked on. Clinton said Monday that his promise to sign the bill is conditioned on the assumption that it comes to him without unwelcome riders.

"I'd say House approval looks like a slam-dunk," observed Robert Greenstein, director of the liberal-leaning Center on Budget and Policy Priorities. "The Senate raises some questions."

Even so, repeal of the earnings limit seems to be getting off to a more promising start than the bill to repeal the "marriage penalty" on two-income couples, another GOP election year goal that Democrats support.

That's largely because repealing the earnings limit would cost $23 billion over 10 years, compared with $182 billion for the House-passed bill to repeal the marriage penalty that Clinton threatens to veto. With the budget surplus, the cost of scrapping the earnings limit can be easily absorbed.

"We've always been for the bill in this form," said Rep. Robert T. Matsui, a California Democrat on the Ways and Means committee. "It has no affect on the future solvency of Social Security."

Besides appealing to workers now eligible for Social Security benefits, repeal of the earnings test should be prove popular with baby boomers -- those born from 1946 to 1964 -- who will begin reaching retirement age within a dozen years.

Generally in better health than their parents at the same age, baby boomers are expected to stay in the work force in greater numbers. With the labor market so tight, they are needed.

Representatives of the homebuilding and restaurant industries told lawmakers at a hearing yesterday that they fear running short of experienced manpower because boomers don't want to see their benefits diminished.

Clinton and many of the lawmakers had hoped to include repeal of the earnings limit in a broad overhaul of the Social Security system. But neither side has the political will to undertake such a huge and difficult task in a presidential election year.

"The reality is it ain't going to get done this year," said Rep. Rob Portman, an Ohio Republican. "So we ought to go in and clean up what we can."

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