Retirees Now Likely to Be Spared a Punishing 'Tax' ; A Bill Hurtling toward Approval Would End the Earnings Cap for the Social Security Set

Article excerpt

On one issue, Congress, President Clinton, Democrats, and Republicans sang together like a barbershop quartet last week,

Their tune: End Social Security's retirement-earnings limit.

The unusual nonpartisan harmony in Washington makes it most likely that 65- to 69-year-olds will be able to earn as much as they like this year without losing any Social Security benefits.

Prospects for a bill eliminating the limit are "golden," says Trent Duffy, a House Ways and Means Committee spokesman. It sailed through a subcommittee markup unanimously in 47 seconds last Wednesday.

"It was like the Kentucky Derby," recalls Mr. Duffy. A bang of the gavel by the chairman of the Social Security subcommittee, E. Clay Shaw Jr. of Florida, and it was approved.

The Republican legislator turned to the ranking Democrat, Robert Matsui of California, and said: "You are a much better friend than you are an enemy."

Under present law, Social Security benefits are reduced by $1 for every $3 earned above $17,000. That rule cost about 800,000 recipients all or some of their benefits last year, Social Security Commissioner Kenneth Apfel told House lawmakers last week.

To some of these seniors, the benefit loss feels like a 33 percent tax on top of the income and payroll taxes they already pay on their wages. The total burden could reach 65 percent for higher- paid seniors.

Yet, in the long run, the earnings limit provides Uncle Sam with virtually no added revenue. That's because those who lose some benefits get them back as an increased Social Security retirement benefit if and when they reach 70.

Ending the limit means seniors won't have to play "the life- expectancy lottery," says Duffy.

The restriction is a "perverse policy," says Leora Friedberg, an economist at the University of California, San Diego. They distort the retirement/work choice of seniors. Many older people decide to work only until they reach the $17,000 earnings level, or not work at all.

If the bill passes, the Social Security Administration will pay an additional $22.7 billion in benefits over the next 10 years. Ultimately, that amount will be offset by lower benefits thereafter since those getting more benefits now won't be entitled to delayed- retirement credits later.

It means part of the Social Security revenue surplus will be used to pay extra benefits - and not cover federal deficits caused by spending on highways or other federal programs, as has been the case for years. …