National Data | Immigrants Can’t Bail Out Social Security

03/24/2005

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 is President of ESR Research Economic Consultants in Indianapolis.

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