So far, former Maryland Gov. Martin O'Malley has struggled in his quest to become the liberal alternative to Hillary Clinton. The rise of Bernie Sanders has deprived O'Malley of his natural base, and in the wake of the Baltimore protests, O'Malley's less-than-beloved reputation among the city's black residents from his time as mayor has made it tough for him to make inroads with black voters.
His latest attempt to turn things around is a proposal to expand Social Security that matches and in some ways exceeds Sanders's. Here's how it would work.
O'Malley and Sanders both want to raise payroll taxes on the rich to fund expanded benefits
O'Malley and Sanders both fund their proposals by making income above $250,000 subject to the payroll tax. Currently, wages up to $118,500 are subject to Social Security payroll taxes, but wages above that point are not. That helps limit benefits, which are determined by applying a formula to one's average monthly earning over the course of their career. But it also means that rich people pay less as a share of their income into Social Security.
Sanders goes a bit further on this point, and would also subject unearned income above $250,000 to the tax. That means that capital gains and dividends (which typically provide a lot of income to the rich but not much to the poor) would be taxed to fund Social Security, for the first time ever.
Both O'Malley and Sanders want to establish a higher minimum benefit for poor retirees. Both want to place it at 125 percent of the poverty line for Americans who've worked for at least 30 years; currently the minimum is $9,957.60 a year for people with 30 years of work experience, which is below the poverty line.
They would both adjust benefits for inflation using CPI-E, an experimental inflation measure the Bureau of Labor Statistics devised that measures price increases for items bought by seniors, as opposed to goods bought by the public as a whole.
CPI-E grows slightly faster than the current inflation measurement (largely because seniors are less likely to consume electronic gadgets and digital content) so this amounts to a benefit increase. It's intended as a direct response to proposals, such as that put forward by the Obama administration, to adopt "chained CPI," which is a method of calculating population-wide price inflation that most economists regard as more technically accurate than the current measure, which would effectively cut benefits.
Finally, both would increase benefits across the board by mucking with the formula by which the Primary Insurance Amount (PIA) is calculated. The PIA is the initial monthly benefit that Social Security beneficiaries get, before cost-of-living increases. Currently, the PIA is a function of income, but it's not a fixed percentage.
- If your AIME is less than $826 a month ($9,912 a year), then your primary insurance amount is 90 percent of your AIME.
- If your AIME is between $826 and $4,980 ($59,760 a year), your primary insurance amount is 90 percent of $826 plus 32 percent of your earnings over $826 a month.
- If your AIME is over $4,980, then it's 90 percent of $826 plus 32 percent of $4,154 — the difference between $4,980 and $826 — plus 15 percent of earnings over that.
O'Malley and Sanders want to increase the $826-a-month number, so that the 90 percent bracket lasts for longer. Sanders wants to gradually increase it by 15 percent, while O'Malley is vague about the size of the hike. This change would considerably increase benefits not just for low-income people (though they'd benefit the most), but for everyone who earned more than $9,912 a year over the course of their career.
O'Malley goes further than Sanders on some points
There are three aspects of O'Malley's plan that arguably make it a bit more ambitious than Sanders's.
For one thing, he states that he supports "immediately boosting monthly benefits in a progressive manner for all retirees." Sanders's PIA boost starts taking effect in 2021 (assuming 2015 enactment); O'Malley's kicks in right away, for everybody, as does the CPI-E rollout.
O'Malley also includes a new policy called a "caregiver credit."
The idea is that sometimes people work fewer years pre-retirement because they drop out of the workforce to care for their children, or elderly or disabled relatives. As it stands, this reduces Social Security benefits, just because it means you worked less. O'Malley would give people credits that increase their lifetime earnings, for Social security purposes, for up to five years in which they were caretakers. This effectively boosts benefits for parents, women especially, who dropped out and back into the workforce upon having children.
Finally, O'Malley would mandate that all employers with 10 workers or more have their employees all contribute to an IRA by default. Workers could opt out, but the default would be to start saving for retirement. Recent economic research suggests that "nudges" like this are far more effective than tax breaks (like making IRA contributions deductible, or Roth dispersals tax-free) at encouraging people to save, so this could meaningfully improve retirement for people currently working.
President Obama has included this idea in his budgets, and a number of states (including California and Illinois) have automatic IRAs already — and Bernie Sanders has expressed support — but O'Malley stands out for emphasizing it as part of his Social Security plan.