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103 IRET Congressional Advisory 1 (2000)

handle is hein.taxfoundation/iretcgadv0100 and id is 1 raw text is: April 4, 2000 No. 103 EARNINGS TEST REFORM ONLY PART OF WHAT'S NEEDED Congress is widely reported to have voted to repeal the Social Security earnings test for workers age 65 through 69, while leaving in place the even more onerous test for workers age 62 through 64. (Those over age 70 are not subject to the test.) In fact, Congress voted to repeal the test for workers at or above the normal retirement age. The normal retirement age is rising in stages to 66 and 67 (to age 66 at the rate of two months a year for people turning 62 between 2000 and 2005; to 67 for people reaching 62 between 2017 and 2022). Within a few years, people ages 65 and 66 will be subject to the earnings test again. If Congress meant to spare people age 65 and above from the earnings test, it should have specified repeal as of age 65, not as of age. The added benefit outlays would be small and would be largely offset by tax revenue as more people work. Static scoring, of course, doesn't take such offsets into account. In fact, as the retirement age rises under old law, future 65 and 66 year-olds will face a stricter earnings test than their predecessors. Under current law, workers at or above the normal retirement age lose $1 in benefits for every $3 over a fairly high earnings threshold ($17,000 in 2000), an implicit 33-1/3% add-on tax on wages. Beneficiaries age 62 up to the normal retirement age (currently, workers ages 62 through 64, soon to be 65, and eventually 66) lose $1 in benefits for every $2 in earnings over a lower threshold ($10,800 in 2000), an implicit 50% add-on tax. Therefore, as normal Congress is widely reported to have voted to repeal the Social Security earnings test for workers age 65 through 69, hile leaving in place the even more onerous testfor workers age 62 through 64.... In faict, Congress voted to repeal the test for workers at or above the normal retirement age' The normal retirement age is rising in stages to 66 and 67 ... Within a few years, people ages 65 and 66 ill be subject to the earnings test again. If Congress meant to spare people age 65 and above from the earnings test, it should have sp~ecified repeal as o f age 65, not as of normnal retirement age. normal retirement retirement age rises, 65 and 66 year-olds will face the more restrictive version of the test now applied to younger retirees. The test will remain an enormous disincentive to work. It should be scrapped for workers below normal retirement age too. Apologists for the earnings test claim that it doesn't discourage work because lost benefits are restored when the beneficiaries subsequently work less than the thresh- olds or reach the age at which the earnings test does not apply (age 70 now, normal retirement age under the bill). But that is true only if the beneficiaries live long enough. Lost benefits are restored over the beneficiaries' remaining average expected lifetimes. Affected workers who 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, N.W., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 e Fax 202-463-6199 0 Internet www. ret.org

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