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As most know, Social Security benefits include monthly Social Security checks plus Medicare coverage for health needs. Currently, the magic age to start receiving the standard retirement payments is approximately 66 years, although you may elect to receive reduced payments at age 62 or increased payments by delaying retirement until age 70. Further, these benefits will continue for the rest of your life (with appropriate increases for inflation), whether or not you continue to work. Obviously, Social Security and Medicare payments are not gifts for having reached one’s 66th birthday. Indeed, the individual worker likely perceives them as the return on an investment, one that looks very much like an annuity contract. To fund this investment, the worker has been paying premiums throughout his or her entire working life. For many, that approaches five decades of work. That tax is now 15.3% of one’s annual earnings up to $94,200, close to $14,500 per year; and, if you earn more than $94,200 this year, then add another 2.9% of the excess to the tax pot. If you are an employee, half of these taxes are deducted from your salary; the other half is “paid” by your employer, although the likelihood is that your stated salary was reduced by an equivalent amount to fund this. What will our 66-year-old worker receive in return for these payments? The Social Security Administration has complex formulas to determine this monthly benefit. But, essentially, it depends upon what the worker’s income was over the years. The higher the income and the longer it was earned, the higher will be the monthly benefit at age 66. Thus, although it is not perfectly correlated, the worker increasingly benefits from the increasing accumulation of Social Security taxes which he or she paid prior to reaching age 66. However, there is a cap, currently about $2,000 per month, for age 66 retirees, on the amount of the Social Security benefits that they may receive (and there are probably more than a million receiving this maximum benefit). And that is the rub for those post-age 66 workers who continue to work. They must continue to pay that 15% tax on their earnings, even though they have already paid enough into the Social Security pot to receive the maximum benefit payments. Unlike the situation before age 66, these maximum-benefit individuals who continue to work get no additional benefits from the Social Security system, despite their new and ongoing contribution of that 15% tax. It is a tax on these workers who receive no quid pro quo in return. It thus is not surprising if many of them view this as just throwing 15% of their income down the drain. There are those who figuratively just hold their noses, continue to work and pay this confiscatory 15% Social Security tax, thereby giving quite a windfall to the Social Security Administration. However, I suspect that for many other post-age 66 individuals, the 15% Social Security tax becomes the proverbial last straw that convinces them not to seek further employment, particularly since that 15% Social Security tax penalty is piled on top of the usual income taxes that are deducted from one’s income. To these individuals, the net income they can retain by working during their post- age 66 years is just not enough to justify the effort. Better to just sit back and enjoy those maximum Social Security payments, which they will receive anyway without doing any further work or paying any further taxes. It is in this sense that the Social Security system ironically pays these individuals for not working. We all lose Just how many have taken this position is probably not known. It may be a few or, as I would guess, thousands. But, whatever the number, all of us lose when any post-age 66 worker who wants to and can work chooses not to do so. Rather obviously, our federal, state and local governments are losers, since they lose the additional income taxes they would have received (and badly need) from the earnings of an employed individual. Remember that it is primarily higher-paid workers who have already achieved the maximum benefit. Thus, they likely are the ones who can generate higher income levels in their post-age 66 jobs and thereby would pay the highest amount of income taxes. Beyond these lost taxes, the general community suffers. It loses the often valuable goods and services that older (and usually experienced) workers could contribute. Finally, and perhaps most important, older individuals who choose not to continue to work may suffer. They obviously will lose whatever additional income they would have received. Beyond this, as many studies have shown, an older person’s emotional and physical well being often is much improved by working and staying active in his or her later years. Thus, this older employed individual is less likely to be a burden on our health system and other societal support systems. To the contrary, he or she actually contributes to those systems. Our Social Security laws should be changed to encourage, not discourage, our older workers who wish to continue to work. In particular, we ought to repeal the requirement that the income received by our post age-66 workers-at least those who are receiving the maximum retirement benefit-is subject to Social Security and Medicare taxes. These workers have already fully paid for their benefits under the program. Basic fairness suggests that they ought not to be required to pay more. And what an incentive this would provide for these individuals to seek further employment. As a 66th birthday present, their “take home” pay automatically would increase by that 15% Social Security tax that they no longer would have to pay. Morris Shanker is a professor at Case Western Reserve University School of Law. Judith Kaul, a reference librarian at the law school, assisted in obtaining the Social Security statistics.

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