Tuesday, April 05, 2005

Undocumented Workers Bolster Social Security

Undocumented workers, estimated to number about seven million, turn out to be a great boon to Social Security and Medicare, now providing them with a subsidy of as much as $8.5 billion ($7 billion in Social Security taxes and $1.5 billion in Medicare taxes) a year, though they are not entitled to their benefits (Eduardo Porter, "Illegal Immigrants Are Bolstering Social Security," New York Times 5 Apr. 2005). Why? The Immigration Reform and Control Act of 1986 established an employment verification system, making it illegal to knowingly hire those who lack work authorization, so employers began to demand IDs to avoid penalties, and undocumented workers had to oblige, paying about $150 for "a typical fake ID package [which] includes a green card and a Social Security card" (Porter, 5 Apr. 2005). Payroll taxes that undocumented workers and their employers pay end up in the government coffers just the same, while W-2 earnings reports with incorrect Social Security numbers accumulate in the Social Security Administration's "earnings suspense file."
In the current decade, the [earnings suspense] file is growing, on average, by more than $50 billion a year, generating $6 billion to $7 billion in Social Security tax revenue and about $1.5 billion in Medicare taxes.

In 2002 alone, the last year with figures released by the Social Security Administration, nine million W-2's with incorrect Social Security numbers landed in the suspense file, accounting for $56 billion in earnings, or about 1.5 percent of total reported wages.

. . . . . . . . . . . . . . . . . . . .

"Our assumption is that about three-quarters of other-than-legal immigrants pay payroll taxes," said Stephen C. Goss, Social Security's chief actuary, using the agency's term for illegal immigration. (Porter, 5 Apr. 2005)
Look at how the file ballooned:
Wages in Limbo
Undocumented workers and their employers' contributions amount to as much as 10% of last year's Social Security surplus (Porter, 5 Apr. 2005). Most importantly, taxes that they pay are factored into "all the Social Security Administration's projections" (Porter, 5 Apr. 2005), making debates on Social Security and immigration inseparable.

The more immigrants come to America, the more solvent Social Security will be.
Most immigration helps Social Security's finances, because new immigrants tend to be of working age and contribute more than they take from the system. A simulation by Social Security's actuaries found that if net immigration ran at 1.3 million a year instead of the 900,000 in their central assumption, the system's 75-year funding gap would narrow to 1.67 percent of total payroll, from 1.92 percent -- savings that come out to half a trillion dollars, valued in today's money.

Illegal immigrants help even more because they will never collect benefits. According to Mr. Goss, without the flow of payroll taxes from wages in the suspense file, the system's long-term funding hole over 75 years would be 10 percent deeper. (Porter, 5 Apr. 2005)
Without immigrant workers, legal or illegal, younger Americans would have to pay more taxes to support a growing proportion of the US population who are 65 and older:
US Population Pyramids
Population of the United States, by Age and Sex, 1950-2050 (millions)

Source: Ed Stephan, "Aging of the United States, 1950-2050" (data obtained from U.S. Census Bureau, International Data Base)
"We the People: Aging in the United States" (Yvonne J. Gist and Lisa I. Hetzel, US Census Bureau, December 2004) shows that about 97.4% of the US population aged 65 and older are citizens (of whom 6.9% are foreign-born naturalized citizens). In contrast, half of all new workers (and 80% of all new male workers) who entered the labor force (not counting the military) in the 1990s are immigrants, and new and old immigrants account for 14% of the labor force, according to a 2002 study by the Center for Labor Market Studies at Northeastern University (Andrew Sum, Neeta Fogg, Paul Harrington, Ishwar Khatiwada, Mykhaylo Trub’skyy, and Sheila Palma, "Immigrant Workers and the Great American Job Machine: The Contributions of New Foreign Immigration to National and Regional Labor Force Growth in the 1990s," December 2002):

(D'Vera Cohn, "Immigrants Account for Half of New Workers: Report Calls Them Increasingly Needed For Economic Growth," Washington Post 2 Dec. 2002, p. A1)
Immigrants are indispensable. As America grows older and deeper in debt, it can't afford xenophobia.

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