WASHINGTON (Feb. 14, 2000) – Responding to the announcement by Reps. Clay Shaw (R-FL) and Sam Johnson (R-TX) of their plans to propose a repeal of the earnings test for Social Security benefits, National Center for Policy Analysis Senior Fellow and former Treasury official Bruce Bartlett, issued the following statement:
"The earnings test is unfair for two reasons. First, it does not apply to so-called unearned income, such as interest and dividends, but only to wages and salaries. Second, it makes a mockery of the notion that people have earned their Social Security benefits in the same way workers earn private pensions. In effect, it turns Social Security into a welfare program, where benefits are conditioned on need rather received as a right.
"The earnings test was originally imposed to get workers out of the labor force and help create jobs for younger workers during the Great Depression. This reason is no longer valid. Today the nation faces a shortage of skilled workers, not a surplus. Moreover, improved health and life expectancy mean that older workers can still be highly productive past age 65.
"The earnings test is like a 33 percent implicit tax rate on top of federal, state and local taxes. For some workers, this total tax can approach 100 percent. This confiscatory tax burden is a key reason why the labor forced participation rate for men over age 65 fell to 16.9 percent last year from 47 percent 50 years ago. Recent research suggests that elimination of the earnings test would have a significant impact on labor supply.
"Elimination of the earnings test would not cost the government any revenue in the long-run. That is because workers who delay retirement or lose benefits due to the earnings test get a Delayed Retirement Credit that raises their future benefits. Thus in theory a worker should get the same lifetime benefits regardless of whether he or she retires at 65 or 70. If that is the case, then higher short-run payments for Social Security benefits due to elimination of the earnings test will be exactly offset by lower future benefits due to the DRC."
Bartlett, who is scheduled to testify Tuesday on the earnings test before the House Ways & Means Subcommittee on Social Security, is a former deputy assistant secretary for economic policy at the U.S. Treasury Department. In 1987 and 1988 he served as a senior policy analyst in the Office of Policy Development at the White House.