With a nationwide labor shortage showing no signs of easing, Congress and the Clinton administration are considering additional law changes that could open up the potential labor pool of skilled workers. In recent years, lawmakers have adopted reforms that encourage welfare recipients and disabled persons to enter the workforce. Now they are targeting senior citizens.

"Welfare Reform and the new Ticket to Work law have cleared the path to work for millions of poor parents and disabled individuals," said House Ways and Means Committee member E. Clay Shaw, Jr. (R-Fla.). "Now we must remove the barrier that prevents seniors from working." To achieve that goal, Shaw introduced legislation (The Senior Citizens Freedom to Work Act of 2000) on February 14, 2000 that would allow seniors to earn more while collecting Social Security benefits.

Shaw, chairman of the Subcommittee on Social Security, said the latest version of the bill, co-sponsored by Ways and Means member Sam Johnson (R-Tex.), is on the legislative fast track for consideration in the House. It is slated for markup by the subcommittee on February 16, and it is expected the measure will go to the full committee for consideration the week of February 28. The subcommittee held hearings February 15 which focused on work disincentives in Social Security programs, including the current Social Security earnings penalty which is estimated to affect some 800,000 people each year.

While the 10-year cost to repeal the earnings limit for seniors between the ages of 65 and 69 is $22.7 billion, the 75-year cost is offset fully. Social Security actuaries have confirmed that the repeal of the earnings limit maintains the current projected solvency of the Social Security trust fund.

Social Security has included a retirement earnings test since the 1930s. Under this provision, working seniors with earnings above a certain threshold lose part or all of their Social Security benefits in the year of the earnings.

In calendar year 2000, recipients aged 65 (currently the normal retirement age) through 69 can earn up to $17,000 without penalty; seniors earning more than that amount lose $1 of benefits for every $3 of earnings above the limit. There is no limit for those 70 and older. A separate earnings test applies to beneficiaries under the age of 65, which reduces benefits by $1 for every $2 of earnings above $10,080 in 2000.

Social Security Administration statistics show that about 690,000 beneficiaries between 65 and 69 lose some or all of their benefits because of excess earnings resulting from their work. In addition, 103,000 dependent and spousal beneficiaries are affected by the limit.

Some people believe that this provision discourages work, especially among seniors who reach the normal retirement age. Supporters of reform believe a change would enable additional beneficiaries to work and supplement their Social Security without penalty, just as other recipients do with pensions and unearned income.

Prospects for Reform
At the subcommittee hearings held February 15, Social Security Commissioner Kenneth S. Apfel told lawmakers that eliminating the outdated Social Security retirement earnings test would probably lead to a modest increase of older workers in the workforce.

Some people would remain in the workforce or continue to work full-time because they would not face the same reduction in their current Social Security benefits. Also, some people "would choose to work less, making up for lower earnings with higher current Social Security benefits," Apfel said. He noted, however, that "there is only a limited amount of efficiency on the overall effect" of the test on labor supply.

The Clinton administration wants to preserve the Social Security system by passing a "straightforward bill to repeal the [retirement earnings test]," said Apfel, noting that President Clinton has said he would support legislation to repeal the earnings limit as long as it arrives on his desk as a clean bill that does not contain unrelated provisions. Apfel said the second step to saving Social Security is for Congress to pass and the president to sign a bill to extend the solvency of the system to about 2050. "The President has given Congress straightforward legislation that would simply ensure that we devote the interest savings earned by paying down the publicly-held debt to making Social Security stronger."

Meanwhile at the hearing, the American Association of Retired Persons (AARP) called for a bipartisan effort to raise or eliminate the earnings limit on Social Security beneficiaries ages 65 to 69 who want to work. Testifying before the subcommittee, AARP board member Jane Baumgarten, of North Bend, Oregon, said that with "labor shortages looming on the horizon, we ought not discourage older workers from remaining in the labor force." Beneficiaries should "be able to earn more without penalty in order to supplement their Social Security benefits," she said.

Eliminating the Social Security earnings test would enable skilled senior citizens to stay in the work force longer and help ease the severe labor shortage now occurring in the construction industry, the National Association of Home Builders (NAHB) told the subcommittee.

Testifying on behalf of NAHB, Missouri home builder Tom Woods said the earnings test prevents skilled seniors from working "on even a part-time basis after retirement." A recent survey of NAHB members found that 91 percent say the labor supply is a significant concern for them. The survey also ranked the labor shortage at the top of a list of the nation's top 20 critical issues facing homebuilders. "Clearly this crisis is affecting all construction trades and is compromising the ability of home builders to provide Americans with quality affordable housing," said the builder.

Woods urged Congress to lift the Social Security earnings test in order to help alleviate the home building industry's labor crunch and enable seniors to remain active members of the nation's work force for as long as they see fit.

Copyright 2000, CCH Incorporated. All Rights Reserved.