Friday, Democratic Presidential candidate Martin O'Malley released a plan, called "Expanding Social Security So Americans Can Retire With Dignity," to boost retirement security. The plan includes boosting Social Security benefits, boosting private savings plans, raising wages and providing long-term care.
The Retirement Crisis
In the late 70's and early 80's corporations managed to shift the retirement burden from pension plans that employers put money into, to "retirement savings plans" (401Ks, IRAs...) where employees had to put in their own money in instead. Along with that, the age for eligibility to receive Social Security benefits was increased.
Shifting the burden of paying for retirement from employer to employee, of course, worked out really well for the corporations and their 1% "investor" class, who had been paying into corporate pension plans. And of course it worked out well for Wall Street, which received commissions for "managing" whatever amounts workers could afford to save. The money that had been going into pensions plans for working people instead went into their pockets.
But shifting the retirement burden onto the backs of already-underpaid working people has turned out to be an utter and complete disaster for most of us -- and for our country's economy.
How much of a disaster has this shift caused? The National Institute on Retirement Security estimates there is now a U.S. "retirement savings deficit" of between $6.8 and $14.0 trillion, and that:
The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households.
Now, the "boomers" are retiring, and many are retiring broke. The Center for American Progress report, The Reality of the Retirement Crisis, explains:
The consequences of these growing savings shortfalls could be severe for both American families and the national economy, as a large share of households may be forced to significantly reduce consumption in retirement and will have to rely heavily on their families, charities, and the government for help to make ends meet. Rather than staying in control of their economic lives, millions of Americans may be forced to muddle through their final years partially dependent on others for financial support and to accept a standard of living significantly below that which they had envisioned.
O'Malley's Expanding Social Security So Americans Can Retire With Dignity plan sets "a national goal of increasing the number of Americans with adequate retirement savings by 50 percent within two terms in office." It does this not just by increasing Social Security benefits, but also with steps that make it easier for private-sector workers to invest in their own retirement, as well as steps "to prevent older Americans from losing the savings they already have."
- Immediately raise Social Security benefits -- with larger increases at the bottom than the top.
- Increase "the special minimum social security benefit to 125 percent of the poverty line for Americans who have worked at least 30 years.
- Strengthen Social Security's long-term financing by "lifting the cap on the payroll tax for workers earning more than $250,000."
- Provide "up to five years of 'caregiver credits' that would increase the 35-year wage base for those who spend an extended period of time providing fulltime care for children, elderly parents, or other dependents."
- Push policies to "lift the wages of all workers, which will make meaningful contributions to Social Security’s long-term balance sheet. This includes raising the minimum wage to $15 an hour and enacting comprehensive immigration reform."
- "Dramatically expand access to employer-based retirement plans. Half of all workers do not have access to a retirement plan. Among part-time and low-income workers, roughly seven in 10 lack an employer-based retirement option."
- Make affordable, high-quality long-term care a national priority. Develop an efficient, affordable, and high-quality system to provide a diverse range of long-term care services for our seniors.
Sanders And Clinton
Democratic Candidate Bernie Sanders has also proposed increasing Social Security, including his Social Security Expansion Act introduced to the Senate in March. This bill would:
- "Lift the cap" for paying the Social Security payroll tax, on incomes above $250,000.
- Increase Social Security benefits by about $65 a month for most recipients.
- Increase cost-of-living Adjustments for Social Security recipients.
- Provide a minimum Social Security benefit to significantly reduce the senior poverty rate.
Democratic candidate Hillary Clinton has not yet released a plan. The NY Times' First Draft, in "Martin O’Malley Unveils His Plan to Expand Social Security," reports that "Hillary Rodham Clinton, the leading candidate in most Democratic polls, has not said whether she would want to expand Social Security." Clinton's website says:
Working families should be able to save throughout their lives so that they can send their kids to college and retire with dignity. We will defend Social Security from Republican attempts to cut or privatize the program. And we will explore ways to enhance Social Security to meet new realities, particularly for women.
Politico expands on Clinton's position, in "Martin O’Malley puts pressure on Clinton with new Social Security plan":
So far, O’Malley and Vermont Sen. Bernie Sanders are the only two major Democratic candidates to offer their full support for expanding Social Security. Clinton, meanwhile, has not yet said whether she would endorse such a proposal. The former secretary of state has indicated that she would be open to increasing Social Security taxes on those making more than $118,500, as Sanders is proposing, as a way to pump more money into the program, but she has not yet detailed any specific ideas.
“We do have to look at the cap, and we have to figure out whether we raise it or whether we raise it a little and then jump over and raise it more higher up,” Clinton said at a New Hampshire campaign event last week.
Those comments represent a shift from the 2008 campaign, when Clinton attacked then-Senator Barack Obama for proposing to lift the payroll tax cap. At the time, she said doing so “would impose additional taxes on people who are educators, police officers, firefighters and the like,” and proposed a bipartisan commission to come up with solutions for ensuring the program’s long-term solvency.
Lifting The Cap
By proposing to lift the cap on incomes above $250,000, O'Malley's (and Sanders') plan fixes Social Security's financing problem by getting the money from where the money went.
A major cause of the future financing shortfall is increasing inequality. The 1983 "Greenspan Commission" correctly calculated the amount by which national incomes would rise over time and set payroll taxes accordingly. But it did anticipate that that those income increases now largely (only?) go to people at the top. Because Social Security's payroll tax is on people at the bottom it does not capture a share of the expected income increase. Lifting the cap above $250,000 leaves a gap from the current "cap" to $250K that does not pay an increase -- because they have not seen the increased income to cover it.