Distribution of increased benefits under alternative earnings tests

Proposals for changes in the earnings test continue to be made. An important element in a decision to change the test is who receives the increased benefits resulting from the change. This article estimates and analyzes the distribution of increased benefits resulting from: (a) The liberalization in the test contained in the 1977 social security amendments, (b) possible future liberalizations of the earnings test, and (c) repeal of the earnings test. The authors conclude that any changes in the earnings test will not affect 90 percent of the aged population with respect to the level of benefits received because most have little or no earnings. The effect on the other 10 percent of the aged population will depend on which parameter opf the earnings test is changed. Lowering the age at which the earnings test no longer applies will be primarily advantageous to the 5 percent of the aged population at the top of the earnings distribution. Increasing the exempt amount within the range considered in this article (from $6,000 to $10,000) will be primarily advantageous to the 5 percent of the aged population in the middle of the earnings distribution. Lowering the tax rate on earnings above the exempt amount would affect high and middle earners equally.