Social Security: Proposed Changes to the Earnings Test Page: 2 of 6


retirement age (currently age 65 and two months) in the current calendar year and had
earnings in excess of their annual exempt amount ($11,520 in 2003) lost $1 of benefits
for each $2 of excess earnings. Recipients who had attained the full retirement age in the
current or previous calendar year, and who had earnings in excess of their annual exempt
amount ($30,720 a year in 2003), lost $1 of benefits for each $3 of excess earnings (see
following examples). The exempt amounts rise each year at the same rate as average
wages in the economy. The test did not apply to recipients over age 69.
Under Age 65 in 2003: Age 65 in 2003
Earnings .............. $35,000 Earnings .............. $35,000
Exempt Amount ......... 11,520 Exempt Amount ......... 30,720
Difference ............. 23,480 Difference ..............4,280
Reduction in benefit ...... 11,740 Reduction in benefit ....... 1,427
( of difference) (1/3 of difference)
New Law. Effective January 1, 2000, the earnings test does not apply to recipients
beginning in the month that they attain the full retirement age. In that year, for months
before attainment of the full retirement age the old law continues to apply, e.g., in 2003,
these individuals can earn up to $30,720 in the months before attainment, and for earnings
above this amount, they lose $1 in benefits for each $3 of earnings. The old law also
continues to apply to years in which recipients have not attained the full retirement age,
i.e., in 2003 they lose $1 of benefits for each $2 of earnings in excess of $11,520.
Beginning in 2003, the full retirement age is gradually rising, reaching 66 in 2009 and 67
in 2027, and the age for which the earnings test ceases to apply is rising accordingly.
Recent Legislation
The test has always been one of the most unpopular features of the program, and
proposals to liberalize or eliminate the earnings test are perennial. In 1996, P.L. 104-121
increased the annual earnings test limit, for those attaining the full retirement age, over
a period of 7 years, reaching $30,000 in 2002. In the 106th Congress, 20 bills were
introduced that would have eliminated or liberalized the earnings test.
H.R. 5. On February 16, 2000, the Social Security Subcommittee of the House
Committee on Ways and Means approved H.R. 5, the Senior Citizens' Freedom to Work
Act, which eliminated the Social Security earnings test for recipients who have reached
the full retirement age, effective in 2000. According to the Social Security
Administration, the bill will increase Social Security's outlays by $17 billion over 5 years
and $26 billion over 10 years. The Congressional Budget Office estimates that the bill
will cost $ 19.7 over 5 years and $22.7 billion over 10 years. These costs would reduce
projected unified budget surpluses over this period by the same amount, but, because
Social Security is scored as an off-budget item, there would be a negligible effect on
projected on-budget surpluses. In the long range, the cost would be negligible because
of offsetting effects. (Retirees will no longer receive delayed retirement credits, which
under current law compensate for the benefits lost to the earnings test applied to workers
above the full retirement age, and the savings from this would offset the cost of
eliminating the earnings test.) It was estimated that initially about 600,000 recipients
would be affected by the elimination of the test. H.R. 5 continued the severance between
the earnings test and the SGA level of the blind enacted in P.L. 104-121 (see footnote 1).

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Social Security: Proposed Changes to the Earnings Test, report, June 23, 2003; Washington D.C.. ( accessed March 18, 2019), University of North Texas Libraries, Digital Library,; crediting UNT Libraries Government Documents Department.

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