Although President Reagan has called for widespread cuts in Social Security to save the system from bankruptcy, one proposal goes in the opposite direction -- removal of the earnings ceiling for retirees aged 65 and over.
Based on a promise Reagan made during the campaign, the proposal would cost the financially hard-pressed system at least $2 billion a year.
Two-thirds of the money would go to a small group of well-to-do retirees earning over $17,500 a year, according to a report earlier this year by the National Commission on Social Security. And nine-tenths of those between 65 and 69 wouldn't benefit at all, either because they don't work or they earn less than the ceiling.
Under existing law, a worker who is 65 or over can earn up to $5,500 a year without any loss of Social Security benefits. If his job pays more than that, he loses $1 out of his benefit for each $2 earned above the $5,500 limit. Reagan is proposing to phase out the limit in steps by 1986. Removal of the limit would apply to both current and future beneficiaries.
The earnings limit doesn't apply to workers who are over 72. They are already exempt. There is also an earnings limit for Social Security retirees between 62 and 64, but Reagan isn't proposing to change that one, only the limit applying to workers who are 65 or over.
The proposal to remove the limit for those over 65 is sure to bring conflict when the voting starts on the Social Security bill. Rep. Andy Jacobs (D-Ind.), a member of the House Ways and Means Social Security subcommittee, for example, repeatedly has attacked the idea of removing the ceiling.
Jacobs says he can't see the logic of incurring $2 billion a year in extra costs for a small number of better-off, largely white-collar people, while proposing to cut benefit levels for less affluent or disabled workers who retire in the future.
However, Secretary of Health and Human Services Richard S. Schweiker has said the limit "discourages senior citizens from remaining in the labor force to supplement their Social Security income."
The American Association of Retired Persons, which represents about 12.5 million people, is one group that favors removal of the earnings limit.
"Many low-income retirees, in fact over half, have earnings below the exempt amount," said Laurie Fiori of the AARP in an interview. "We believe they are deliberately holding their earnings down because they don't want to hit that ceiling. These people, who are low-income people, would benefit."
She added that the goal of encouraging people to work longer -- helping both the workers and the Social Security trust fund (as well as the Treasury) when they pay more taxes -- would be met by removal of the earnings limit.
Because the earnings limit is a test of retirement from the job, it applies only to pay from employment, not to interest or dividends from stocks, bonds, saving acounts and the like. A person can have tens of thousands of dollars in interest from securities, and it has no effect on his Social Security benefit.
At times there have been suggestions that such income be counted in the earnings limit. But the argument has been made, most recently in the Social Security commission report, that to do so would penalize people from trying to save money and put by a nest-egg for retirement.
According to the commission, of 24.4 million people 65 or over who were eligible for Social Security benefits at the end of 1979, only 1.1 million had any benefits at all withheld under the earnings limit, and only 400,000 of those received no benefits.