Commentary

Tapping the Senior Resource

By Stephen Moore
This article appeared in the Washington Times on October 22, 1999.
My father is now in his mid-70s and still works — though his schedule has slowed down a lot — and plays more golf than ever before. His father worked well into his late 60s before he retired.

They both continued to work past normal retirement age, not because they needed the money, but because work is virtuous. Work is also therapeutic (as is golf). Work keeps one’s mind active and provides a sense of purpose.

So why does Congress impose a financial penalty on people like my father and grandfather? I am speaking of the infamous Social Security earnings test. This tax on those who work past age 65 requires seniors to forfeit $1 of Social Security benefits for every $3 earned from working and applies to all income of more than $15,000 per year. It is anti-work, anti-seniorcitizen, and anti-tax fairness. It imposes punitive tax rates on seniors, thus driving them out of the labor force altogether, or reducing their hours worked.

This is blatant age discrimination by our government and should be ended now.

It is also incredibly economically muddle-headed federal policy. We all know our work force is aging. We all know Americans are living longer and healthier lives than ever before. Life expectancy is now about 76, but in the next century some health experts think we could get average lifespans up to 100 or more. So we should be encouraging seniors who want to continue to work past 65 to do so.

Instead Congress does the opposite. Through when combining the earnings test and the taxation of Social Security benefits, and adding them to federal income taxes, payroll taxes, and state income taxes, seniors can easily face tax rates that look like Mount Everest: 65 percent or more, according to a new study by the Institute for Policy Innovation. Not even Bill Gates faces tax rates that high. As a result of these special taxes on the elderly, many seniors quite reasonably ask: Why keep working if my distant Uncle Sam is going to snatch away most of the earnings?

The brainpower, historical knowledge, and lifetime talents of our seniors are a great natural resource that we are literally squandering as a nation. A mind is a terrible thing to waste. That’s true of all Americans - not just children. At the precise moment in time when the work force is graying, Congress is foolishly posting a “no seniors need apply” sign on the doors of our businesses. We are escorting more older Americans out of the work force through policies like the earnings test. At age 65, less than half of American men were retired in 1963, today, three-quarters of all men are retired.

The potential demographic train wreck ahead for America is frightening. The ratio of workers to retirees in America has dropped from 15 to 1 in 1950; to 3 to 1 today; and is expected to decline to to less than 2 to 1 by 2025. (See Table.) When the Baby Boomers start retiring, we won’t have the luxury of wasting the talents of Americans over the age of 65. The wagon will become too heavy for young workers to pull. But if we can entice more Baby Boomers to work past 65 and defer retirement, the demographic bubble begins to evaporate. We can create more taxpayers, and fewer tax consumers.

Some say we should reform the earnings test to make it less punitive. I say repeal it entirely. It is legalized discrimination against the elderly. The bean counters at the Congressional Budget Office warn this would cost $8 billion over five years in higher Social Security benefits. But without the earnings test, more retirees will work part or full time. When they work, they pay taxes. So the government may actually make more money getting rid of this outdated law than by keeping it.

What we need to give seniors is choice. Many seniors want to fully retire at 65 or earlier, and prefer more leisure over more work. That’s fine. But what about the people like my father - and millions of others like them who want to keep working or just partially retire? Is it fair to tax up to two-thirds of their earnings? Is it good federal policy for our government to discriminate against older Americans?

The very first earnings test was applied back during the Great Depression when unemployment reached 25 percent and Congress and President Franklin D. Roosevelt wanted to discourage seniors from working past retirement age. Washington wanted to free up these jobs for young workers. In fact, in order to push seniors into retirement, the very first income limit was set at $15 per year.

Back then we had a shortage of jobs. Now we have a shortage of smart and talented workers. This explains why President Clinton and the Republicans in Congress have both agreed that this 60-year-old law no longer makes sense. And for once, they are both right.

Stephen Moore is director of fiscal policy studies at the Cato Institute.