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100 IRET Congressional Advisory 1 (2000)

handle is hein.taxfoundation/iretcgadv0097 and id is 1 raw text is: March 4, 2000 No. 100 REPEAL OF THE EARNINGS TEST: A GREAT FIRST STEP The House of Representatives has unanimously passed a proposal by Representative Sam Johnson (R-TX) to repeal the notorious Social Security earnings test for beneficiaries age 65 The bill is an through age 69. (The earnings toward renovi test does not apply to people to the finan age 70 or older.) The Senate should act at once to eliminate this punitive provision. If the Congress passes a clean bill, President Clinton has promised to sign it. The bill is an excellent first step toward removing a major obstacle to the financial well-being of seniors. As the good results from this initiative become apparent, it may also pave the way for additional steps that need to be taken. Repealing the earnings test for older seniors Under current law, seniors ages 65 through 69 who The earnings continue to work and have repealed for wage and salary income over In addition, $17,000 lose $1 in Social dtth Security retirement benefits for deaut t every $3 in wages over the enej threshold. The earnings test is an implicit 33-1/3% add-on tax rate on earnings over the threshold. These seniors also face a payroll tax rate of 15.3% and an income exce ng a cial test S fie yo somet e tax( its. tax rate of 15%, for a combined federal tax rate in excess of 60% on earnings from working. If they are also subject to income taxation of their Social Security benefits, triggered by earning additional wages, the implicit federal tax rate on the added wage income can range from 68% to nearly 91%. These provisions practically force seniors out of the work force, depriving the economy of their skills and output. Moreover, the Social Security earnings penalty reduces federal tax revenue on the lost earnings, offsetting most if not all of the trivial saving in lower Social Security benefits. The earnings threshold for this age group is already being boosted under provisions of the Senior Citizens' Right to Work Act of 1996 to $30,000 by 2002; it will then resume normal annual adjustment for average wage growth. But even the augmented $30,000 lient first step threshold for these seniors is major obstacle an unwarranted infringement well-being of on the freedom to work, and complete repeal is the right course. It could not come at a better time. Millions of jobs are going begging, and there is a serious shortage of the skills that older workers possess. Still to be done - ending the test for younger seniors and fixing taxation of benefits The House bill does not repeal the earnings test applied to younger seniors ages 62 through 64 (those below the Social Security normal retirement hould also be age). The younger seniors seface a steeper earnings test, mlosing $1 in benefits for every tin m be $2 in wages above a lower tthreshold, $10,800 in 2000. The threshold for these younger seniors was not given a boost in the 1996 Act, and only rises with average wages. For the younger seniors, the earnings test is a 50% add-on implicit Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, NWV., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 e Fax 202-463-6199 0 Internet www. iretorg

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