Guest Column

Bush’s Social Security Plan Mirrors Model Used in Chile, Mexico

El Sol, Commentary,
By Sam Cesfar
Feb 08, 2005

In the first State of the Nation of his second term, President George W. Bush last Wednesday laid out his plans to make radical changes to the country’s Social Security system, which he argues will be bankrupt by the year 2042. But according to Congressman Sam Farr (D-California), the president’s intentions are not to prevent the system’s presumed collapse, but to eliminate the essential purpose it was created for. Latinos would be among those most affected by the President’s plan, which follows the same models used in Chile and Mexico.

Created by President Franklin D. Roosevelt to save millions of elderly people from poverty during the Great Depression in 1935, Social Security is one of the pillars of American society.

Social Security functions by taxing today’s workers to provide checks for today’s retirees. When a worker retires, his social security check, in turn, will come from the workers at the time.

The reform that Bush is proposing would create individual accounts where each worker contributes part of his or her salary to a personal retirement fund, “a conservative mix of bonds and stocks that would produce a larger return, giving autonomy to the savers,” as he said in his address on Wednesday.

Among the groups most affected by the reform will be Latinos. Each year, the program keeps 32.9 percent of Latinos over the age of 65 out of poverty, said Farr during a conversation in his Salinas office last Monday. “Many elderly Latino people rely on that payment every month.”

Carmen Obeso, 77, says that the reforms Bush is pushing for don’t affect her, “but we have to think about the young people in our family, and this isn’t good for them,” she said over lunch at the Support
Center for Seniors, in the Salinas Firehouse.

The Case of Mexico and

“The president is copying the model of the system that was implemented in Chile,” says Farr. Mexico also followed the Chilean model when, in 1997, it reformed its Social Security law to Administrators of Retirement Funds (Afores in Spanish). In the Afores, each worker has an individual savings account, and deposits a contribution every two months, adding to the money deposited by the employer and the State.

Mexico’s Afores charge workers a fee of 30 percent of the total amount in the savings account, according to a study by the Mexican House of Representatives’ Social Security Commission last year.

Farr says that what the president wants to do is to put workers’ money into the hands of market investors. “The only people who are going to win with this reform are the investors.”