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THE SOCIAL SECURITY EARNINGS TEST
AND OPTIONS FOR CHANGE
 
 
September 1988
 
 
PREFACE

Numerous bills have been introduced in the Congress to raise or eliminate the Social Security earnings test limit for people aged 65 through 69. At the request of the Subcommittee on Social Security of the Committee on Ways and Means, the Congressional Budget Office (CBO) prepared this paper examining who among those aged 65 through 69 are affected by the current earnings test and who would no longer be affected if the earnings test were liberalized or eliminated.

Roberton Williams of the Human Resources and Community Development Division wrote the paper under the direction of Nancy Gordon and Ralph Smith. Paul Cullinan of the Budget Analysis Division prepared estimates of budgetary effects. Roald Euller wrote the computer programs to tabulate extensive data. Paul Cullinan, Richard Kasten, and David Lindeman reviewed various drafts of the paper. Amanda Balestrieri edited the manuscript, and Ronald Moore prepared the paper for publication.

In accordance with CBO's mandate to provide objective analysis, the paper makes no recommendations. Questions should be directed to Roberton Williams of CBO's Human Resources and Community Development Division.
 
 

CONTENTS
 

SUMMARY

I - THE CURRENT EARNINGS TEST

II - EFFECTS OF CHANGING THE EARNINGS LIMIT

APPENDIXES

A - Effects of Changes in the Social Security Earning Test, by Family Income, by Income Relative to Poverty Thresholds, and by Living Arrangement, 1986
B - Effects of Changes in the Social Security Earnings Test, by Living Arrangement and Income Relative to Poverty Thresholds, 1986
 
TABLES
 
1.  Reported and Imputed Social Security Eligibility in 1986 of People Aged 65-69 with Earnings Above $7,800
2.  Effects on Outlays of Options for Changing the Social Security Earnings Test, 1989-1993
A-1.  Distribution in 1986 of People Aged 65-69 Eligible to Receive Social Security Benefits, by Family Income and Earnings
A-2.  Distribution in 1986 of People Aged 65-69 Eligible to Receive Social Security Benefits, by Family Income Relative to Poverty Thresholds and Earnings
A-3.  Distribution in 1986 of People Aged 65-69 Eligible to Receive Social Security Benefits, by Living Arrangement and Earnings
A-4.  Number of People Aged 65-69 Affected in 1986 by the Social Security Earnings Test Who Would Not Have Been Affected Under Alternative Earnings Limits
A-5.  Distribution in 1986 of People Aged 65-69 Eligible to Receive Social Security Benefits and Those Who Would Not Have Been Affected Under Alternative Earnings Limits, by Family Income
A-6.  Distribution in 1986 of People Aged 65-69 Eligible to Receive Social Security Benefits and Those Who Would Not Have Been Affected Under Alternative Earnings Limits, by Family Income Relative to Poverty Thresholds
A-7.  Distribution in 1986 of People Aged 65-69 Eligible to Receive Social Security Benefits and Those Who Would Not Have Been Affected Under Alternative Earnings Limits, by Living Arrangement
B-1.  Distribution in 1986 of People Aged 65-69 Eligible for Social Security, by Living Arrangement and Family Income Relative to Poverty Thresholds
B-2.  Distribution in 1986 of People Aged 65-69 Made Exempt from the Earnings Test by Raising the Earnings Limit from $7,800 to $9,000, by Living Arrangement and Family Income Relative to Poverty Thresholds
B-3.  Distribution in 1986 of People Aged 65-69 Made Exempt from the Earnings Test by Raising the Earnings Limit from $7,800 to $15,600, by Living Arrangement and Family Income Relative to Poverty Thresholds
B-4.  Distribution in 1986 of People Aged 65-69 Made Exempt from the Earnings Test by Raising the Earnings Limit from $7,800 to $22,560, by Living Arrangement and Family Income Relative to Poverty Thresholds
B-5.  Distribution in 1986 of People Aged 65-69 Made Exempt by Eliminating the Earnings Test, by Living Arrangement and Family Income Relative to Poverty Thresholds
 
FIGURES
 
1.  Distribution in 1986 of People Aged 65-69 Eligible for Social Security Benefits and Affected by the Earnings Test, by Family Income
2.  Distribution in 1986 of People Aged 65-69 Eligible for Social Security Benefits and Affected by the Earnings Test, by Family Income Relative to Poverty Thresholds
3.  Distribution in 1986 of People Aged 65-69 Eligible for Social Security Benefits and Affected by the Earnings Test, by Living Arrangement
4.  Distribution in 1986 of People Aged 65-69 Eligible for Social Security Benefits and People Affected by the Earnings Test, by Family Income
5.  Distribution in 1986 of People Aged 65-69 Eligible for Social Security Benefits and People Affected by the Earnings Test, by Family Income Relative to Poverty Thresholds
6.  People Aged 65-69 No Longer Affected by the Earnings Test in 1986 as a Result of Selected Changes, by Sex
7.  People Aged 65-69 No Longer Affected by the Earnings Test in 1986 as a Result of Selected Changes, by Family Income
8.  People Aged 65-69 No Longer Affected by the Earnings Test in 1986 as a Result of Selected Changes, by Family Income Relative to Poverty Thresholds
9.  People Aged 65-69 No Longer Affected by the Earnings Test in 1986 as a Result of Selected Changes, by Living Arrangement
10.  Distribution in 1986 of People Aged 65-69 No Longer Affected by the Earnings Test as a Result of Selected Changes, by Family Income
11.  Distribution in 1986 of People Aged 65-69 No Longer Affected by the Earnings Test as a Result of Selected Changes, by Family Income Relative to Poverty Thresholds
12.  Distribution in 1986 of People Aged 65-69 No Longer Affected by the Earnings Test as a Result of Selected Changes, by Living Arrangement


 

SUMMARY

This analysis examines two aspects of modifying the Social Security earnings test for people aged 65 through 69: the impact on beneficiaries currently affected by the earnings test of selected options for raising earnings limits, and the budgetary effects of those options. The paper does not consider other factors related to changing the earnings test, such as administrative cost savings from simplifying the test, or the labor supply response of beneficiaries--that is, whether they would choose to work more or less than they do under current law.

In 1988, the earnings test reduces payments to beneficiaries between the ages of 65 and 69 by $1 for each $2 of earnings in excess of the exempt limit of $8,400. The analysis, however, focuses on the effects of the earnings test in 1986, the most recent year for which data are available. In that year, the earnings limit for people aged 65 through 69 was $7,800. In addition, because the analysis is based on data from the Current Population Survey, small differences may exist between the findings of this paper and program statistics from the Social Security Administration.

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