2012 GOP presidential hopeful Herman Cain — when he’s not mangling the details of his own 999 tax plan — has been singing the supposed benefits of “the Chilean model” of Social Security privatization. Using the right-wing buzzword “personalization,” (instead of “privatization”) Cain claims that this model will provide a better deal for workers.
As many analyses over the years have shown, privatized retirement accounts would not provide a more secure retirement for seniors. In fact, an October 2008 retiree would have lost tens of thousands of dollars in that month’s stock market slide alone. And as it turns out, not only would Chile-style private accounts be bad for workers, they’d be bad for the country’s bottom line as well, as Bloomberg News detailed:
Herman Cain, the former pizza executive surging in polls for the Republican presidential nomination, wants to replace Social Security with what he called the “Chilean model” of private pension funds. Full adoption of that model may push the U.S. deeper into deficit than Greece. […] The U.S. budget shortfall would rise above Greece’s 10.5 percent of GDP if all of the current payroll tax was diverted into private saving funds, according to Bloomberg data.
Chile’s plan has “left millions without savings for their retirement and originally provided no safety net for the poor.” According to estimates by Chile’s undersecretary for pensions, “in 2007, only 60 percent of Chilean workers had some kind of pension coverage, down from 86 percent in the 1970s.”
Of course, Cain would have to radically rethink Social Security since his 999 tax plan eliminates the payroll tax, Social Security’s source of financing. But that doesn’t change the fact that the sort of privatization he envisions would entail massive new costs to the government just to pay for shifting to a new system, while leaving everyone but the very wealthiest seniors more vulnerable and with less of a safety net.