Congress may lift penalty on older workers

Next week, Congress is going to take steps that may help contractor Tom Woods get his homes built.

A bill that would eliminate Social Security penalties that discourage people over 65 from working is speeding through the House. It has the support of both Democrats and Republicans and comes as unemployment rates have sunk to 30-year lows.

The Kansas City, Mo., builder - like employers all over America - is struggling to find skilled workers. The bill, which would end the retirement earnings test for working seniors ages 65 to 69, would give employers like Mr. Woods access to craftsmen with a lifetime of experience.

"It's a waste of skill and human capital [to penalize] people at 65 through 69 who are productive and want to work," says Gary Becker, an economist at the University of Chicago.

While the number of seniors likely to start filling out job applications is fairly small, the principle of allowing people to remain productive longer is a popular one - especially given the current labor shortage.

Under the proposed law, seniors could work full time and still be allowed to receive their Social Security benefits. The current law, which dates back to the Great Depression, takes away $1 in benefits for every $3 a senior earns over $17,000 a year.

Tapping seniors' skills

In testimony before Congress on behalf of the National Association of Home Builders, Woods said the earning restrictions force the best teachers out of the job market. Those workers "transfer craft skills to younger generations ... and a work ethic that sets standards for high productivity."

That transfer of knowledge is certainly not limited to the construction site. "It goes well beyond the construction trade to virtually every industry employing older workers," says Dr. Becker, who earned a Nobel Prize for his work examining the importance of human capital in the overall economy, including older workers.

Earlier this week, President Clinton said he would sign a bill eliminating the penalty as soon as it hits his desk, as long as it arrives free of other attached legislation.

The law penalizing older workers was created at a time of fewer jobs and more able-bodied workers to fill them. The goal was to keep seniors in retirement, allowing younger workers an opportunity to fill available job slots.

But with today's dearth of workers - which Federal Reserve Chairman Alan Greenspan has said is likely to worsen - policymakers are trying to eliminate that disincentive as older workers stay healthier and capable into their seventies and beyond.

"What we are hoping is the earnings test will be more than a political gesture. We need more people working," says a Senate Finance Committee source. "We hope it will begin to change the culture of retirement."

Courting senior vote

The legislation reflects a broader, election-year strategy on the part of congressional Republicans to send smaller, incremental bills that virtually everyone agrees on to the president. Both parties view the senior vote as crucial to their success in the November elections.

Ending the earnings test would cost $22.7 billion over 10 years. But the long-term effect on Treasury coffers would be mitigated, economists point out, as seniors pay back into the system not only with Social Security tax, but with income taxes as well.

Last year close to 800,000 workers "lost some or all of their benefits under the test as a result of their work at ages 65 to 69," according to Social Security Commissioner Kenneth Apfel's testimony to Congress.

The number of additional workers is likely to be fairly small initially - some economists put the number at well under 100,000. "The fact is it affects a relatively small number of people" points out Michael Tanner, a Social Security expert at the libertarian Cato Institute in Washington. "But almost nobody is going to line up against it."

But as baby boomers flood the 65-to-69 age bracket, the ranks of eligible seniors will swell.

"I think the question we should all have is: Is this a sensible way to spend $24 billion?" asks Robert Reischauer, president of The Urban Institute in Washington. "It's going to largely benefit upper-middle-income workers, who by and large have already done well."

While the measure is a virtual done deal in the House, its path through the Senate is less certain.

"When it comes to the Senate and taxes, nothing is uncomplicated," says a Senate source. If senators pass the bill without attaching other contentious legislation, the measure could be on Mr. Clinton's desk within a month.

(c) Copyright 2000. The Christian Science Publishing Society