Should we Punish Productive Seniors?

Commentary by Pete du Pont

An elderly gentleman from Wisconsin called the other day voicing a complaint. While he's doing all right in retirement, his mother recently entered a nursing home. Since nursing homes can cost about $40,000 a year for those who pay out of pocket, he decided to go to work to help pay for some of the costs.

That's when he learned that the government would only let him make $14,500 this year before it stepped in and hit him with a penalty known as the Social Security earnings limit.

He was justifiably outraged. Here he was simply trying to help his mother pay for her own nursing home care rather than turn to the government for help, yet that same government was going to penalize him for being a good son and responsible citizen.

Why was such a policy ever adopted, he wanted to know? Good question. Better yet, why do we still have it?

When Congress created the Social Security system in 1935, the country was in the midst of the Great Depression. In an effort to address the huge unemployment problem, Congress included in the legislation an earnings limit meant to encourage seniors who were beginning to draw Social Security to leave the workforce so that more jobs would be available for younger, unemployed workers. If seniors made more than the federally allowed amount, their Social Security benefits would be taken away.

That earnings limit is still in effect today. Currently, Social Security recipients age 65 through 69 lose $1 in Social Security benefits for every $3 they earn in excess of $14,500, and those age 62 through 64 lose $1 for every $2 they earn in excess of $9,120.

This work disincentive has had a predictable impact: the vast majority of seniors decline to work. Of those who do work, a majority only work part time.

In 1930, 54 percent of males continued working after reaching age 65, while only seven percent of senior women continued working, according to the Bureau of Labor Statistics (BLS). By 1997, only 18 percent of senior males continued to work, though nine percent of senior women remained in the workforce.

Of course, part of the reason for the decline in the male participation rate is that seniors today have more assets, more generous retirement benefits and better health insurance through Medicare than they did when Social Security was created, and so do not have to work to make ends meet.

But another demographic change is occurring: people are living longer and healthier lives, and many of them want to be productive in their retirement years, even though they may seek less demanding or part-time jobs.

At a time when the country has a labor shortage and Congress is considering expanding immigration limits so that more foreign workers can come to the country to fill empty jobs, doesn't it make sense to open up opportunities for the most experienced segment of the U.S. workforce? Especially since many of these seniors would be willing to take the rapidly growing but lower-paying, service sector jobs just to have something to do.

Fortunately, Rep. Sam Johnson (R-Texas) has introduced legislation to do something about this foolishness. And Speaker of the House Newt Gingrich (R-Ga.) has made removing the earnings limit one of his key tax cut ideas.

Rep. Johnson's bill (H.R. 3912) would eliminate the earnings limit so that seniors would not be penalized for working. As a result, more seniors would voluntarily remain in the workforce. That means more people paying taxes. It also means fewer Social Security errors. For example, the earnings limit's complexity is responsible for more than half of the program's overpayments. Eliminating the penalty would reduce administrative problems and costs.

But the key benefit is giving our seniors the opportunity to work and be productive, both now and in the future. A recent survey by the American Association of Retired Persons (AARP) found that 80 percent of baby boomers expect to work after age 65. The country needs their experience and their input. Penalizing seniors for working is the surest way to ensure we get neither.

Even if it was a reasonable argument in 1935 to encourage seniors to leave the workforce, it makes no sense today when unemployment is reaching record lows in some areas of the country. Employers need workers and many seniors would like to work more. Removing the earnings limit penalty would help solve both problems.