Privatization of Social Security : For six decades, our Social Security program has meant economic security and peace of mind to generations of Americans.
On the issue of entitlements for the middle class (letters, Feb. 15), one of your readers states that the Chilean government’s private social security system could provide a model for us. Before we rush to judgment about the advantages of privatization, I would like to point out some of the negative aspects of Chile’s often oversold social security system.
The most glaring drawback is the cost to Chilean workers--which can run as high as 30% to match similar coverage provided at about half the cost by the U.S. Social Security system. Also a drawback is the administrative cost. While many people assume that any privately run system has to be more efficient and cost-effective than a government-based operation, a comparison of the Chilean and U.S. Social Security programs shows the opposite to be true. In the U.S., just one penny of every Social Security tax dollar collected is used for administrative expenses. Overhead costs in Chile are estimated to run as high as 30 cents on the dollar.
Finally, there is the issue of delinquent contributions. In 1994, the Chilean pension fund management system released information showing that 45% of their participants were delinquent in making contributions, with 28% being more than a year behind in their payments. The Chilean example shows that without the regimen of a mandatory withholding tax, many people--generally those at the lower end of the wage spectrum who can least afford to lose coverage--would opt to spend for today rather than save for tomorrow. The long-range impact of such behavior, and the strain this will put on a nation’s tax-supported welfare rolls, has yet to be determined.
For six decades, our Social Security program has meant economic security and peace of mind to generations of Americans. The current fiscal strength of our program means we have time to make reasoned choices for reform. A rush to emulate a relatively new and untested Chilean social security system should not be one of those choices.
MARIANA TALLEDA GITOMER
Public Affairs Specialist
Social Security Administration
Los Angeles
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