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Washington, D.C. – U.S. Senator Marco Rubio (R-FL) today introduced the Let Seniors Work Act of 2014, legislation to promote retirement security in the 21st century and incentivize seniors to continue working past retirement age if they choose to do so by eliminating the 12.4 percent Social Security payroll tax and repealing the Retirement Earnings Test (RET).
Rubio first outlined this idea during a speech Tuesday at the National Press Club, as part of his efforts to restore the American Dream.
“While our economy is rapidly changing, retirement programs and savings plans have failed to adjust accordingly,” said Rubio. “Currently, seniors who have already paid their fair share into Social Security are being punished for choosing to keep working rather than immediately cashing in.
“By eliminating the Social Security payroll tax for seniors and repealing the Retirement Earnings Test, older people are incentivized to continue working well into their golden years,” Rubio continued. “This proposal would lift a financial strain from an entire generation of hardworking Americans, equipping them with the tools needed to live out the American Dream with comfort, dignity and peace of mind.”
A PDF of the legislation is available here. The bill is supported by Americans for Tax Reform, Association of Mature American Citizens (AMAC), Citizens United, and the 60 Plus Association.
Eliminating the Social Security Payroll Tax for Seniors
Current law requires America’s seniors that are working past retirement age to continue to pay Social Security taxes while receiving almost no extra benefits in return. This encourages some seniors to quit the workforce before they would otherwise. In order to remove this disincentive to work, Senator Rubio proposes eliminating the 12.4% Social Security payroll tax for all individuals aged 65 and older.
Eliminating this tax will also help seniors accelerate their savings by letting them keep more of their money. And it could also make older workers more attractive to employers, since the employer’s half of workers’ payroll taxes would also be eliminated.
Eliminating the Social Security payroll tax for seniors will pay for itself because older Americans will likely respond by working more and thus increasing federal income tax revenue. And seniors that choose to keep working longer will improve their personal retirement security and decrease dependency on federal assistance programs.
The macroeconomic benefits or real world effects of this policy would create economic conditions that would offset any costs by:
Repealing the Retirement Earnings Test (RET)
Under the RET, benefits are reduced about 50 cents for every dollar a person between the ages of 62 to 65 earns in excess of $15,000 a year. This essentially equates to a 50% tax on benefits on top of all other taxes being paid, including the payroll tax. Americans often work until the age of 62, and then elect for early retirement before they start incurring the RET penalty.
The RET doesn’t save any money. When a senior that is hit by this tax finally reaches the age of 65, benefits are increased to make up for any loss caused by the RET. In the end, the benefits end up being mostly the same over the course of a retirement with or without the Retirement Earnings Test.
Senator Rubio proposes eliminating the RET. It has been estimated that abolishing the RET would increase employment among early retirees by 5.3%, which is significant for a reform that has no long-term budgetary cost.