Now that Congress has passed and President Clinton has signed legislation removing the penalty on income earned by retirees who have continued to work past 65, an interesting inequality seems to have emerged.
When one retires and applies for Social Security benefits, those benefits are calculated on the individual's past contributions to Social Security. And the benefits are locked henceforth until death at the same level.
However, retired individuals who continue to work continue to contribute to Social Security at the same rates as in the past. But those additional contributions have no effect on Social Security benefits. In effect, the retiree is penalized for continuing to earn income.
Here's how.
Say the retiree's annual Social Security payments total $15,000 a year, a not too fanciful level. Say the retiree has a modest job with Social Security taxes of $2,000 a year. What this does in effect is reduce the income from Social Security to $13,000 a year. The retiree is working to reduce his or her own income!
I have no idea where this kind of taxation fits into the big picture. Is it taxation without representation? Taxation from which no possible benefit can accrue to the taxpayer? A cruel joke on retirees who are still celebrating their right to earn without loss of income?
And I suspect no one thought of the effect of continuing to work after 65 was going to change the future of Social Security. Obviously, as workers continue to contribute (in effect taking a pay cut) the future of Social Security becomes brighter.
More money coming in without more going out has got to do something to all the doomsday projections. And wait until those Baby Boomers decide they want to continue to work!
Maybe we working seniors are going to save the Social Security system after all. That should silence all those people who say poor old seniors are a drag on life.
So, working seniors of American, we're saving the system. Bully for us!