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March 24, 2005
Immigrants Can’t
Bail Out Social Security
It’s not just
Vicente Fox who
touts mass immigration as a means of saving Social
Security.
Stuart Anderson, the
notorious immigration enthusiast now associated
with the National Foundation for American Policy,
claims that a 33 percent rise in legal immigration
would reduce the program’s future funding shortfall—by
a whopping one-tenth. [See
The Contribution of Legal Immigration to the Social
Security System]
Hold on—one tenth?
That’s right. When you look at the
details, the financial gains claimed for mass
immigration are ridiculously small.
Social Security actuaries, the source for Anderson’s
figures, calculate the trust fund’s 75-year deficit for
three levels of projected net immigration: (Table 1)
 | At 672,500 per year the deficit
is 2.08 percent of payroll |
| At 900,000 per year the deficit
is 1.89 percent or payroll |
| At 1,300,000 per year the
deficit is 1.63 percent of payroll |
The middle figure (900,000) is
about where we are now. So a sustained increase of
400,000 immigrants per year, to 1.3 million, would cut
the Social Security deficit by 0.26 percent of taxable
payroll, or by about 14 percent. [SSA
Memorandum Changes in Level of Legal Immigration]
In other words, according to the
official calculation, an additional 30 million
immigrants over the next 75 years would pare a mere
14 percent off the baseline Social Security deficit.
Why so little bang for the
immigration buck?
| Most importantly, the immigrants
themselves become social security pensioners upon
retirement. The much-touted benefit from immigration
is actually just the initial brief one-time effect of
new workers arriving who have no retired counterparts
in the system. Relative to the workforce, it’s small. |
| Immigrants typically
earn less and therefore contribute less to Social
Security than the native-born. |
| Any spike in
legal immigration is invariably accompanied by
even larger increases in illegal immigration. Social
Security acknowledges the link in its actuarial
report. (Table 2.) Often, illegals work off the books
and neither they nor their employers pay
Social Security taxes, although their income is
supposed to be subject to
payroll taxes. |
In
fact, Social Security’s cost projections probably
overstate the benefit of immigration. Thanks to
totalization agreements,
foreign workers can now qualify for Social Security
after working as few as
6 quarters—a far cry from the 40 quarters demanded
of U.S. citizens before vesting.
Foreigners who began working as illegals and later
obtain legal status can even use their illegal earnings
to
qualify for Social Security. Social Security
makes no effort to collect payroll taxes due on back
income.
Even if immigrants return to Mexico
the Social Security check follows them. And because they
are relatively low income workers, the “rate of
return” on their social security contributions is
higher than that of the average native worker. It’s a
progressive system, offering better returns to lower
incomes.
Bush’s amnesty/ guest worker program will further
exacerbate Social Security’s problems. Following the
last such amnesty—the
1986 IRCA legislation—immigration
surged more than three-fold, to 1.8 million per
year. Most of the new immigrants had worked here
illegally for years. Many promptly qualified for Social
Security—i.e. were burdens, not benefits, to the Social
Security system.
There are far more illegals working in the U.S. today
than in 1986, yet Social Security has not factored an
amnesty into its projections. The rosy scenario lives.
[Number fans
click here for tables.]
Edwin S. Rubenstein (email
him) is President of
ESR Research Economic Consultants in Indianapolis. |
