they ought to be encouraged to do so, and they could make a greater contribution than some people historically have thought. But there is just one problem. Can we be sure that we have your agreement that if it costs more money we will adjust for it by taking it from the general fund or that we will levy the tax to do it?

Senator JEPSEN. Mr. Chairman, may I make one other brief statement? I want to make sure that the record shows that Senator Roger Jepsen is absolutely 100 percent in support of reaffirming, reinforcing, and making social security even better than it is.

Any statements that be twisted and misconstrued, that I said I have been in the insurance business for a quarter of a century with a little company called Connecticut General Life Insurance Co. I think maybe you have participation or something on the board. The fact is that social security, as it has been administered by the Government, still has not made use of the double-duty dollars or the same factors that have been used in the insurance industry over the years.

I agree with you, Mr. Chairman. You are correct, essentially, that you put money in sort of a holding bank and the young people put it in on the top side and you pull on the bottom side and give it to those who retire.

But social security has had so many different things that instead of taking that money and making it work, the double-duty dollars that will be good for the economy and a lot of other things, they do not do this, and that is not as the private sector has done and it should use that expertise.

Until such time as they do, we will continue to go on to have social security be shaky, underfunded, and it is unfortunate that many young people today are saying, and questioning. They will have what they are putting in.

You have heard it and I have, a lot of times. That is unfortunate. Senator NELSON. You are correct. People do say that. I think it is unfortunate.

But I think that social security will be the last insurance fund in this country to go under. The privates will all go under first. Senator Dole, I did not expect to see you on my left. Why do you not come over on the right someplace?

Senator DOLE. It depends which way you are facing. The voters are out there.

Senator NELSON. I do not think that is going to help any. I do not see anybody who looks like they came from Kansas.

Senator DOLE. There may be others waiting to move. There used to be a story, if you put every economist end to end, you would have something-but I cannot remember what the punchline was. Mr. PELLECHIO. You could not reach a conclusion. Senator NELSON. They all point in different directions.

Senator DOLE. It indicates, as Senator Nelson points out, the difficulty. As a cosponsor of the efforts of Senator Goldwater in the 1977 amendment to do away with the earnings test, I am biased and prejudiced, just as Senator Nelson is, to figure out some way to do it. If it can be done fairly. This question may have been answered before I came in. Maybe Mr. Pellechio could answer it. How

many workers and retired persons would benefit from repeal of the test?

Maybe Senator Goldwater has firm numbers.

Senator GOLDWATER. Yes, I think I could answer your question. According to the Social Security Administration researchers, almost 3 million older persons would benefit by repeal of the earnings test. These persons include 2,300,000 age 65 to 69 who have had all or some of their benefits denied because of age or because of the test; and 161,400 workers now clustered at or near the ceiling who deliberately hold their earnings down.

Senator NELSON. What was that last number?

Senator GOLDWATER. 161,400 are now clustered at or near the ceiling who deliberately hold their earnings down in order to collect full benefits.

Senator NELSON. This is a group who, when they reach the maximum each additional dollar of earned income results in a 50percent reduction in their social security benefits. That is the group?

Senator GOLDWATER. Yes.

Senator NELSON. I did not know they were able to identify and determine the number of people in this group.

Senator GOLDWATER. The Social Security Administration seems to have it.

Senator NELSON. I did not realize that.

Senator GOLDWATER. They have some remarkable figures, also there are 299,000 people who have withdrawn from work entirely becuase of the earnings ceiling, but who would return to work as soon as the penalty is repealed.

I personally believe that 4 million people 65 to 69 will directly benefit from repeal.

I might add that probably I am the oldest guy around here. I do not believe in retirement, not one damn bit. If a guy can work until he's 100, pay him.

I do not see any reason to set up mandatory ages to quit work. I am trying to prove it this year.

Senator DOLE. There are others doing the same thing, you know, some are older than you are. But this proposal assumes that there will be enough jobs. I guess that is the question we are talking about. Increasing unemployment.

Will this have any impact, Mr. Pellechio?

Mr. PELLECHIO. I want to make a couple of points in response to your question. One is that the data that I used comes from the Social Security Administration. I am not using something that comes from elsewhere.

One thing I did not point out in my verbal testimony but is in the written testimony is that I also constructed the same earnings distributions for workers aged 72 and over not subject to the retirement test.

Now, if the story I am telling is true, we should not see any concentration of workers at the exempt amount, as Senator Goldwater just pointed out. Sure enough, when you look at the last table, you do not see any cluster at the exempt amount in the years for which I did the distributions. There is also considerable

overlap between the samples so you are observing behavior of the same people.

So once the retirement test is lifted because they turn age 72, they are able to work more. They no longer hold their earnings down.

The very rigid, institutional story about the labor market which says that these people could not go on to earn more if the exempt amount were raised I do not think is substantiated in the full written testimony. They are able to continue to work beyond the old exempt amount, up to the new one.

Also, I guess I should point out, I only look to workers. I make no assumptions about people coming back to work. It is entirely possible that people will decide not only to receive their full benefits but not to work at all because the exempt amount hardly pays for bus fare to go to work to earn the exempt amount.

My estimates, albeit bringing in the new dimension, the behavioral response dimension, are still nonetheless conservative. The estimates made by the social security Administration are even more conservative than that.

That is why I think, in agreement with the Senators, that it is the revenue-generating change.

On that point you just cannot do any better, and honest people will disagree.

Senator DOLE. It is suggested by some that maybe you could tax half the benefits. Maybe that could be put in.

A proposal by the advisory council is to put the tax revenues in the general fund. Maybe it could be put into the social security trust fund, if anybody favored taxing benefits. I have seen few volunteers, including the one making the noise.

Does anybody else have anything?

Senator GOLDWATER. I just would like to make a comment. Arizona, I believe, is the second highest per capita retirement State in the Union, only exceeded by Florida. That is because people have been exposed to Florida much longer. That will change.

The area where I really see this benefiting is in the skilled level. This country is running out of skilled labor. This country is becoming a service nation and we are losing men and women who are skilled with machines, with their hands.

I will give you one. I will cite you one example that I know you have heard of.

One of our retirement communities have an organization-I forget what they call it, but it is made up of men past the retirement age who were very skilled at plumbing, electrical work, particularly carpentry, and if you want something done, they are there.

They do not charge below union scale, but they do the best work that you can get, and yet they are all retired.

This is where I see the benefit coming back into our industrial levels where so help me God, you cannot find good work anymore. Senator DECONCINI. Senator Dole, let me add that I agree with my colleague, Senator Goldwater, but there is a humanistic point here. I am not putting someone out to pasture, and being from the fine State you are from, you understand the pasture and nobody

wants to go there. It is really very detrimental and we have witnessed that in Arizona.

Many retirees who have to retire and come to Arizona, and in fact they do not find happiness. Not because they do not like Arizona-that is the good side of life-but the fact that they cannot do something because of this limitation or they feel that economically it is detrimental to them and I think that is very important, that we not create a second-class retired citizen as we have.

I do not think it was anybody's intention to do so, but in fact that is what has happened, particularly in a State like Arizona. Senator JEPSEN. Mr. Chairman, because of the demographic changes in population, one of the greatest problems facing our economy in the 1980's and beyond will be a shortage, serious shortage of labor, especially of skilled labor, that Senator Goldwater commented on.

Unfortunately, because of our social security laws that incorporate the old, what they call lump of labor fellows, they were unnecessarily denying ourselves services and well-created abilities of many highly skilled and experienced workers.

Throughout history, mankind has revered the repository of wisdom, experience, and skills possessed by the aged and in the United States today, this tradition has been undermined on a national scale.

Built into the social security system is a major deterrent in the retirement test. It has been said several times today that most people remain able to work at the age 65 and beyond. A number of these would like to augment their retirement incomes.

Output, income, growth in the general level of economic wellbeing are all reduced by the fact that this desire to work is substantially frustrated. So we can ill-afford such a dissipation of a unique, national resource.

While our wealth may be great, gratuitous waste is intolerable and I think it is pernicious to effectively deny society access to the skills and abilities of its aged members.

Moreover, it is transparently unjust to require the elderly to work under confiscatory taxes. Ironically, the provisions that reduce social security benefits of the 65 to 72 age group as earnings rise is an onerous tax on the very group the system is supposed to help.

I think the retirement test, in addition to being uneconomical, is immoral.

Senator DOLE. We appreciate very much your testimony. All your statements will be made a part of the record as though given in full. Thank you very much.

Senator JEPSEN. Thank you.

Senator GOLDWATER. Thank you, sir.

[The prepared statements of the preceding panel follow. Oral testimony continues on p. 116.]

Statement of Senator Barry Goldwater

Before the Senate Subcommittee on Social Security

Repeal This Robbery of Older Persons

April 21, 1980

Mr. Chairman, I want to personally thank you for your great courtesy in scheduling the hearing for today so that I might appear before you.

Strange as it seems, there has never before been a Congressional hearing solely addressing the earnings ceiling on social security benefits, and I applaud your decision to give me and others an opportunity today to focus on this anomaly in the old age insurance program.

Mr. Chairman, I believe the earnings test should be repealed at age 65, which is the traditional age of entitlement to full benefits.

The bill I have introduced with Senators Bayh, DeConcini, Pressler and Stone as co-authors will do just that. S. 1287 will repeal the earnings ceiling for all persons age 65 and older beginning in January of 1983.

We are joined by other Senators who have cosponsored S. 1287, and I ask that the text of the bill and names of all sponsors may appear at the conclusion of my remarks.

Senator Jepsen has also introduced repeal legislation. I am a cosponsor of his bill. He is a cosponsor of S. 1287.

Mr. Chairman, the law now discriminates against more than 11 million citizens aged 65 to 72. If persons of this age wish to or must continue working, they must pay a surtax of 50%! They lose one dollar of social security for every two dollars of wages on all income earned over $5,000, until their benefits are cut entirely.

This tax of 50% is in addition to any Federal, State, County or city income taxes they will have to pay; and the penalty is on top of continued social security taxes collected from aged workers whether or not they receive benefits.

Mr. Chairman, the law has been improved. An amendment which I offered in 1977, as modified by the substitute amendment of Senator Church, increased the