MICHAEL STERN, Staff Director, Statement on: Adverse Effects of Eliminating Monthly Exception to Annual Retirement Test My wife and I are classed as self-employed because we own a small business. We are retired and receiving Social Security pensions. Since my business (Dry Cleaning) involves a substantial amount of equipment subject to breakdown at any time leading to the probability of expensive repairs or replacement it is essential to carry a reasonable reserve of cash as a safety factor. If not, we could at any time be forced to borrow at prohibitive interest rates, or, depending on the state of the business might even be refused a loan which would probably put us out of business. Due to sales fluctuations alone I have been forced at times to withdraw from business savings, bringing my reserve down to a dangerously low level with no guarantee that the next few months will allow me to build it up nor that no serious emergency will occur. This places my business in a risky and unhealthy economic position. Our 1979 Net Income from business was $12,375. Months in which earnings were below $665: August (loss). September Amount of earnings (605) 449 643 Obviously not all financial obligations could be met (leaving us something to live on) without depleting our safety stock of cash. Moreover, our business is seasonal and likely to be at a low ebb during summer and early fall. During these months last year I received no Social Security benefits. A net income of $12,000 plus Social Secuirty benefits based on exempt amounts is probably sufficient for a homeowner living in an average middle class neighborhood if and only if the $12,000 annual income is guaranteed. Ours is not; we are reasonably safe from financial ruin only if we are able to maintain a sufficient savings account for business emergencies. In effect we feel that no consideration has been given to the risks we take in operating a small business and incidentally giving steady employment to others in our community. JOHN W. CHERNOFF. [Whereupon, at 4:40 p.m. the subcommittee recessed, to reconvene at the call of the Chair.] [By direction of the chairman the following communications were made a part of the hearing record:] APRIL 9, 1980. STATEMENT OF SENATOR RICHARD (DICK) STONE BEFORE THE SENATE LIMITATIONS ON EARNED INCOME MEAN MR. CHAIRMAN, I'VE WAITED A LONG TIME FOR THIS OPPORTUNITY TO TESTIFY IN SUPPORT OF ELIMINATING THE EARNINGS CEILING ON SOCIAL SECURITY BENEFICIARIES. I THANK YOU FOR SCHEDULING THESE HEARINGS, AND FOR MAKING SOME TIME AVAILABLE FOR ME TO COMMENT. MY TESTIMONY, MR. CHAIRMAN, CONCERNS A GLARING INEQUITY IN THE BASIC FINANCIAL SOCIAL SECURITY PROGRAM WHICH PENALIZES OLDER AMERICANS WHO EITHER NEED, OR WISH, TO CONTINUE WORKING AFTER THE AGE OF 65. UNDER PRESENT LAW, THE SOCIAL SECURITY RECIPIENT WHO IS BETWEEN 65 AND 72 YEARS OF AGE IS DENIED $1 FOR EVERY $2 EARNED OVER THE EARNINGS LIMITATION, WHICH IS NOW $5,000. THIS MEANS THAT A SOCIAL SECURITY BENEFICIARY WHO RECEIVES THE AVERAGE MONTHLY PAYMENT OF $294.00 LOSES IT ENTIRELY AS SOON AS HE OR SHE EARNS APPROXIMATELY $11,000 A YEAR. DURING THESE TIMES OF INFLATION, SOCIAL SECURITY BENEFITS ALONE ARE NOT SUFFICIENT TO PROVIDE A DECENT STANDARD OF LIVING. MANY ELDERLY PERSONS MUST WORK TO SUPPLEMENT THEIR MEAGER RETIREMENT INCOME. AND YET IT IS THESE VERY INDIVIDUALS, WHO DO NOT HAVE INDEPENDENT SOURCES OF INCOME, WHO ARE PENALIZED MOST UNDER THE PRESENT SOCIAL SECURITY SYSTEM. Now, UNEARNED INCOME IS NOT SUBJECT TO ANY LIMITATION. THUS, AN INDIVIDUAL MAY RECEIVE ANY AMOUNT OF INCOME FROM PRIVATE INSURANCE, INVESTMENT DIVIDENDS AND OTHER SOURCES OF NONWORKING INCOME WITHOUT EXPERIENCING ANY REDUCTION IN BENEFITS. BUT THE INDIVIDUAL WHO CONTINUES TO WORK AFTER AGE 65 MUST SACRIFICE ALL OR PART OF HIS OR HER SOCIAL SEUCRITY BENEFITS. IN ADDITION TO INTRODUCING MY OWN BILL FOR EASING THIS BLATANT FORM OF DISCRIMINATION AGAINST MORE THAN 11 MILLION OF OUR CITIZENS WHO ARE BETWEEN THE AGE OF 65 AND 72, I ALSO JOINED SENATOR GOLDWATER IN COSPONSORING S. 1287, A BILL THAT WOULD REPEAL THE EARNINGS LIMITATION FOR ALL PERSONS AGE 65 AND OLDER BEGINNING IN JANUARY OF 1983. ASIDE FROM NEEDING TO COPE WITH THE HIGH COST OF LIVING, THE ELDERLY LIVE LONGER AND HAPPIER LIVES WHEN THEY ARE GAINFULLY EMPLOYED. ACCORDING TO THE AMERICAN MEDICAL ASSOCIATION OLDER PERSONS SUFFER GREAT PHYSICAL AND MENTAL HARM BY BEING FORCED TO RETIRE SOONER THAN THEY WISH. THE SOCIAL SECURITY ADMINISTRAITON HAS ACCESS TO STUDIES WHICH SHOW THAT ONLY 16% OF RETIRED MEN AGE 65 ACTUALLY WANT TO RETIRE. THAT SAME 1974 STUDY, (THE) "EFFECT OF THE ELIMINATION OF THE RETIREMENT TEST OR OASDI REVENUES", BY P. CAGEN, INDICATES THAT ONLY 14% OF ALL MEN AGE 65 HAD LEFT WORK AS RESULT OF HEALTH REASONS. ANOTHER STUDY PUBLISHED BY SOCIAL SECURITY (IN 1971) BY V. RENO CLAIMS THAT 36% OF MEN AGED 65 GAVE COMPULSORY RETIREMENT POLICIES AS THE REASON THEY DISCONTINUED THEIR EMPLOYMENT. WE NO LONGER HAVE A MANDATORY RETIREMENT AGE, BUT THERE IS EVIDENCE THAT THE SOCIAL SECURITY EARNINGS LIMITATION TEST IS AN EFFECTIVE DETERRENT TO CONTINUED GAINFUL EMPLOYMENT AFTER AGE 65. RETIREMENT DATA RESEARCH BY PROFESSOR MICHAEL BOSKIN OF STANFORD UNIVERSITY, PRINTED IN, "SOCIAL SECURITY AND RETIREMENT DECISIONS", ECONOMIC INQUIRY, VOL 15 (JANUARY 1977) AT PAGE 13, SHOW THAT THE EARNINGS TEST "DRAMATICALLY INCREASES THE PROBABILITY OF RETIREMENT." PROFESSOR BOSKIN ALSO FOUND THAT A REDUCTION "OF THE EARNINGS TAX FROM 1/2 TO 1/3 CUTS THE PROBABILITY OF RETIREMENT IN HALF FOR TYPICAL WORKERS." IF A 50% REDUCTION IN THE EARNINGS LIMITATION WOULD KEEP ABOUT 50% OF OUR RETIREES WORKING, IMAGINE THE BENEFIT OF ELIMINATING THE TAX ALTOGETHER! LEAVING LITTLE TO THE IMAGINATION, PROFESSOR MARSHALL COLBERG OF ONE OF MY FAVORITE UNIVERSITIES, FLORIDA STATE IN TALLAHASSEE, FLORIDA HAS GIVEN FIVE BIG COST SAVINGS : (A) EXPANSION OF THE LABOR FORCE WOULD RESULT IN ADDED INCOME TAX COLLECTIONS; (B) PAYROLL TAX COLLECTIONS WOULD INCREASE AS RESULT OF THE ADDED EMPLOYEES, THEIR (E) THERE'LL BE REDUCTION IN ADMINISTRATION COST FOR THE SOCIAL SECURITY ADMINISTRATION PROFESSOR COLBERG HAS ESTIMATED AND ADDED FEDERAL TAX COLLECTION OF $454 MILLION A YEAR OF THE EARNINGS LIMITATION IS REPEAL. I REALIZE, MR. CHAIRMAN, THAT MANY OF THESE CONCLUSIONS ARE NECESSARILY BASED ON UNTESTED ASSUMPTIONS AND HYPOTHETICALS. HOWEVER OUR SYSTEM OF GOVERNMENT WAS ALSO BASED ON CERTAIN UNTESTED ASSUMPTIONS ABOUT HUMAN NATURE. OUR FOREFATHERS BELIEVED THAT UNDER A GOVERNMENT THAT ALLOWED MAXIMUM FREEDOM FOR THE INDIVIDUALS, THE MAJORITY WOULD EXERT MAXIMUM EFFORT IN BEHALF OF THEIR OWN SELF INTEREST. THE ASSUMPTIONS OF OUR FOREFATHERS ARE NO LONGER UNTESTED. THE RESULTS OF THE ECONOMIC DYNAMO UNLEASHED IS ALL AROUND US. I, BELIEVE, MR. CHAIRMAN THAT IF WE UNLEASH THE EARNINGS |