Statement of Tom Woods, Small Business Owner and Home Builder,
Kansas City, Missouri, and Chair, Task Force on Labor Shortages,
National Association of Home Builders, and Chair, Board of Trustees, Home Builders Institute

Testimony Before the Subcommittee on Social Security
of the House Committee on Ways and Means

Hearing on Improving Social Security Work Incentives

February 15, 2000

Good morning, Mr. Chairman and members of the Ways and Means Subcommittee on Social Security. My name is Tom Woods, and I am a small business owner and home builder from Kansas City, Missouri. I am here today to talk to you about how the Social Security earnings test deprives the home building industry of many of its best and most experienced workers. And also to tell you that the Social Security earnings test robs our vibrant and healthy senior citizens of the opportunity to contribute to the economic vitality of this country and share their expertise and positive work ethic with younger workers.

I am not only representing my personal experiences of more than 25 years in the home building business, but also the perspective of the 200,000 business members of the National Association of Home Builders (NAHB) and their more than 8 million employees.

I have a strong commitment to the issue of worker development and retention. I currently chair the Association's Task Force on Labor Shortages and concurrently serve as Chair of the Board of Trustees of the Home Builders Institute (HBI), an organization solely dedicated to educating and training workers for the home building industry. And I am pleased to say that I am accompanied today by Frank Riggs, the recently appointed President of the Home Builders Institute and your former colleague from Northern California.

Today the home building industry is experiencing a severe shortage of skilled workers. This shortage of workers is so severe that for the past three years labor availability has ranked as the number one industry issue across the country in NAHB quarterly surveys of twenty critical issues. For the home building industry, labor availability is proving to be more important than all of the more traditional issues that one might associate with construction, such as cost and supply of materials, development costs, and the entire development and permitting process.

And far from being a temporary situation, a strong economy and changing demographics, coupled with occupational trends, suggest that this shortage of skilled workers in the home building industry will continue well into the future. To give you a perspective on this, please consider the following:

· Last year there were 1.71 million permits issued to build new homes. To give you an example of what this means in terms of numbers of workers, I estimate that for each of the homes I build I employ about 300 workers, either directly or through sub-contracts. If you multiply that by even 1 million new homes, it is easy to see how significant a skilled workforce is to this important industry that represents more than 4.7% of the Gross Domestic Product.

· In terms of demographics, aging Baby Boomers in the construction industry are already beginning to retire, and in part because of the Baby Bust of the 1970s, there is a much smaller pool from which to draw new workers. Currently, the United States Department of Labor estimates that some 240,000 new workers must be recruited and trained each year to meet the nation's building needs, and it is just not happening. Today we are experiencing a shortage of skilled workers in virtually every occupation in the home building industry.

· And we find that we are also challenged in our recruitment efforts by the draw of competing occupations, particularly new technology jobs that are such an attraction for younger workers.

While NAHB, through HBI and its state and local affiliates, trains thousands of young adults each year in the construction trades, these efforts do not compensate for the loss that the industry suffers each year in retirements.

From our industry's standpoint, the current Social Security earnings limit deprives the industry of an important segment of its knowledge base -- craft skills workers with years of experience who face a very real financial disincentive if they want to continue working beyond retirement age. And with those retirements, we also lose the best teachers that we have to transfer craft skills to younger generations, the high quality workmanship that goes along with many years of experience, and a work ethic that sets standards for high productivity.

The Social Security earnings test allows recipients under age 65 to earn up to $10,080 a year in wages or self-employment income without having their benefits affected. After this "earnings limit," retired workers lose $1 in benefits for every $2 in earnings. If retired workers are between ages 65 and 69, they can only earn up to $17,000 a year before losing $1 in benefits for every $3 in earnings. For most workers, including those whom I use to build my homes in Kansas City, this substantial reduction in benefits is entirely too much to justify working beyond the earnings limit.

As you know, the earnings test has been part of the Social Security program since its inception. And early on, when the American economy was not stable enough to sustain great numbers of both older and younger workers, and when we were not living longer, healthier lives as we are now, it made sense. But now that America has the opposite problem of insufficient numbers of workers, and many, many vital senior citizens who very much want to work, its sole function is to force, and keep, our older citizens out of the workforce.

From our perspective, this is unfair, as Social Security is a retirement benefit that is earned through a lifetime of contributions, and as such should not be taken away because an individual continues to work beyond the traditional retirement age. And what about retired individuals who must continue to work in order to survive?

Social Security benefits are oftentimes meager and, alone, do not provide for the quality of life that hard-working Americans deserve in their golden years. And for some older individuals, continuing to work is an absolute necessity, as they have no other source of income to cover basic necessities and pay their bills. Continuing to maintain the Social Security earnings limit unduly hurts poorer retired workers. The limit should be eliminated to encourage their participation in the workforce.

A recent study published by the Institute for Policy Innovation (IPI) estimates that someone between 65 and 69, paying no income tax but earning over the limit, could face a marginal tax rate of forty-one percent. "For people who also pay federal income tax, the marginal tax rate on wages can be well over 80 percent...such high, punitive tax rates on working individuals may help explain why only 16.5 percent of men age 65 and over are in the workforce today, compared to 47 percent fifty years ago."

For our nation's home builders, retention of skilled workers plays an important role in meeting our workforce needs. Because the skills of decades ago are no longer taught in current education and training programs, home builders especially recognize the need to keep and utilize the unique talents of retirees. And study after study confirms the importance of physical activity, having a purpose in life, and the opportunity for socialization, to the continued health and mental vitality of senior citizens.

Mr. Chairman, NAHB believes that it is time to retire the Social Security earnings test. We thank you for giving us the opportunity to share our views with you, and we commend you for your efforts to encourage older Americans to stay in the workforce longer and remain productive members of society. We look forward to working with you, and members on both sides of the aisle, to lift the Social Security earnings limit and help diminish the labor shortage problem confronting the home home building industry today.