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Privatizing or Annihilating Social Security: What the United States Can Learn From Chile's Privatization
Author(s) -
Borzutzky Silvia
Publication year - 2018
Publication title -
poverty and public policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.206
H-Index - 4
ISSN - 1944-2858
DOI - 10.1002/pop4.236
Subject(s) - social security , payroll , payroll tax , obligation , economics , economic policy , public economics , business , market economy , political science , law , accounting
This article argues that based on Chile's 38‐year experience with a privately administered, fully funded, defined contribution system, the adoption of this kind of approach in the United States will be very damaging. We argue that this policy will be especially harmful to low‐income groups, to women, to both racial and gender minorities, and to those who have part‐time employment or find themselves in and out of the labor market. Additionally, this kind of policy does not solve the financial problems of the Social Security system. In fact, transferring either the entire, or a part of the payroll tax to private accounts will add a new burden to the fiscal coffers via transition costs, as fiscal receipts will diminish and the obligation to pay pensions to old and new retirees will continue. From the standpoint of the insured and potential retiree, the cost of administering the retirement accounts will increase, but there is no certainty that the benefits will increase due to the unpredictable nature of the market and the increase in administrative costs. Most importantly, for lower‐income groups, the redistributive effect that Social Security has today will be eliminated.