WASHINGTON - Community bankers expect to cash in on the impending repeal of the Social Security earnings penalty.

Working people 65 to 69 now lose $1 of Social Security benefits for every $3 they earn above a $17,000 threshold. But the House and last week the Senate have unanimously approved a repeal bill, and President Clinton has said he will sign it.

Seven hundred thousand to 800,000 people now pay that penalty, it is estimated, and repeal could bring an extra $20.1 billion to such people over 10 years.

Much of this money will be deposited in community banks, said Paul Merski, chief economist and director of federal tax policy for the Independent Community Bankers of America. Repeal of the penalty has been a priority for the group, he said.

"Typically, seniors put their money in community banks," Mr. Merski said. Such banks must boost their liquidity, he said, and increasing deposits is the cheapest way to do so.

Economist Warren G. Heller of the Veribanc Inc. bank rating service agreed that local banks would benefit.

"I think a significant fraction of that $20 billion could wind up at community banks," said Mr. Heller, whose employer is based in Wakefield, Mass. "It was only the working stiff that got hurt by the earnings cap."

More than 77% of the 44 million Social Security recipients have their benefits deposited directly into their bank accounts.

Sen. William V. Roth, R-Del., said repealing the earnings penalty would protect economic gains realized since the mid-1980s. "It is good employment and good economic policy," Sen. Roth said. "It will not only help to raise the standard of living for many of our seniors, but will help keep the strongest economic growth in our lifetime on track."

The American Bankers Association also expressed satisfaction that repeal of the penalty seems assured, but the response was cooler than ICBA's.

"This was certainly an issue for us," said ABA spokeswoman Janet Eisenstat, but "it may have paled in comparison to financial modernization overall."

Still, repeal of the penalty "is important to bankers and to their customers," Ms. Eisenstat said. "Anytime you are putting more money in the hands of people, that is a good thing."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.