The Social Security Earnings Test Removal: Money Saved or Money Spent by the Trust Fund?

Abstract

Beneficiaries of Social Security face restrictions on how much they can earn without incurring the earnings test (ET). In 2000, President Clinton eliminated the ET between age 65 and 70. In this paper I evaluate how this removal impacts the longterm finances of the Trust FUnd. I find that starting in 2006 the Social Security Administration is actually saving money and that the removal appears to be Paretoefficient. A removal of t'he remaining part of the ET is likely to be even less costly and to produce larger increases in labor supply and contributions.