Trump should put even more money in worker pockets by adopting the Chilean Model
President Trump scored a tax reform smash victory in Congress, and the immediate effect was not just an easier April 15, but companies passing their own tax savings along to workers in the form of $1,000 bonuses. Company after company did it, and they're still doing it. That's populism – the real kind, the kind that empowers everyone.
Trump shouldn't stop there. As he says, he should go for "more winning." To pile the victories on, he should now take up the Chilean Model, which shows some spectacular new results for ordinary citizens in practice:
According to Chile's pension regulator (see tweet):
Por fin, la @Superpensiones publica que 72% del capital de un afiliado (FondoC) proviene de la rentabilidad (gracias a decisión de crear un sistema basado en el ahorro y el interés compuesto) y solo un 28% de sus aportes. Bendito sistema de capitalización! pic.twitter.com/bC8SGKagCa— Sistema de Ahorro Previsional (@SCapitalizacion) January 3, 2018
What it means, according to one of my Chilean sources, is this:
Chile's Superintendency of Pensions has just published a study concluding that 72% of the capital accumulated in the personal retirement account of the average Chilean worker, after 36 years in the private pension system, comes from the return on the investments done with their pension contributions. So, if your pension nest egg at 65 is, for example, US$ 100[,]000, you have saved just US$ 28[,]000 and the other US$ 72[,]000 is due to the compound interest mechanism intrinsic to a fully funded pension system. As you understand, this is huge. It is wealth creation, on a big scale benefiting every worker. This is not a theoretical proposition. This has happened. In Chile. Thanks to the paradigmatic pension revolution of 1980 and to the fact that the rate of return of the average account, for 36 years, has been inflation plus 8.3% yearly.
What that means, for those of us in Trumpville, is that the Chilean Model is working, big time. Basically, you skip Social Security taxes for starters, which leaves you a lot more money to play around with. You then put 10% of your income into a government-certified private pension account (and you have many choices among them), which invests conservatively.
If, for example, you pile up $28,000 over the years, then when it's time to retire (and you, not the government, get to pick your retirement date), not only do you have the full $28,000 you put in, but you have another $72,000 in your nest egg due to the value of compound interest from the investments that came of it.
With the ups and downs of the market over the years, that figure, in Chile, amounts to an average of 8.3%, inflation-adjusted.
This is mass-scale wealth creation, and it benefits workers most of all. These new hard data show that it works well, and it continues to work well, year after year.
Chile's "Chilean Model" (a name popularized by Herman Cain and Newt Gingrich in 2012) was first put into place in 1980. It was a free-market mechanism tried shortly before the Reagan and Thatcher era and now stands as the world leader in how a system of retirement savings should work. Chile has no pension crisis as most of the rest of the developed world does – no worries about a "trust fund" and no Social Security "cuts" to speak of. This is why. Thirty nations have adopted the same plan, and as a result, they've gotten rid of their problems around unfunded entitlements and seen their workers live with dignified retirements that in the past were available only to public employee union members.
Here is a dated chart from 2011 showing how the wealth piles up from pensions, using Superintendencia de Pensiones (Chile) and IMF World Economic Outlook data, compiled by Treasury Today. It's useful in understanding the new data. You can see how it works here.
Incredibly...well, not incredibly, the left hates this stuff. It keeps workers out of the clutches of unions and un-dependent on government handouts. Of course leftists want it gone. They tried hard in Chile to turn workers against this pension idea in the past election...and the workers rejected them by a nine-point surprise electoral margin in last month's presidential election.
If President Trump wants to build on his stunning tax cut victory with all its wonderful "unintended consequences" such as the bonuses, he could do nothing better than to make the Chilean Model his next goal to attain. Here is a good source showing the model's comprehensive record from José Piñera, the system's inventor.
Doing this would enrich workers and demoralize the rabid left. It worked with taxes. Now, as the data from Chile show, it works with pensions, too.
Go for it.