Immigration And Social Security

by JoeTheEconomist June 17, 2013 10:13 AM

DC and its think tanks are selling the idea that Immigration Reform will help fix Social Security.  For example, "Improving Lives, Strengthening Finances: The Benefits of Immigration Reform to Social Security".  Without making any statement on the merits of Immigration Reform, there seems to be little actual research that supports the idea that Immigration Reform will improve the outlook of Social Security. 

There are not any reforms on the table for the Social Security Administration to score.  But I make the statement based on information that the SSA has already provided.

First, undocumented workers provide a stable source of unattached revenue.  When Americans pay payroll taxes, the revenue creates future costs in the form of promised benefits.  Undocumented workers cannot collect Social Security benefits.  Millions of undocumented workers pay payroll taxes by either using someone else’s Social Security card or by using a false name and Social Security number.  The Social Security Administration estimated that this revenue exceeded 10 billion dollars in 2010.  Losing free revenue cannot help Social Security.

Second, the demographic mix of workers affects Social Security.  If the immigration reform brings in a higher percentage of single workers, or high-paid workers, or workers that work longer than 35 years then immigration reform may help improve the picture of Social Security.  None of the media reports suggest that the system will enjoy more profitable demographics.  And to be clear, improve the picture of Social Security and fix Social Security are trillions of dollars apart. 

Third, immigrants tend to be a very poor demographic to add to the mix of Social Security because they do not have parents that depend upon the system.  Social Security is an electorial priority.  Voters elect Congress which sets the payroll taxes, which dictates the level of benefits.  We are adding an audience that has no value to parental support.  This change will overtime work its way into our representative government.  Unless the individual prospects of Social Security are dramatically improved for workers - we should expect immigration reform to negatively affect support for the system.

What supporters of Immigration Reform are saying is that Social Security will enjoy a boost in the number of workers.  More workers equals more revenue - but they ignore the cost of taking that revenue.  It may help Social Security in the short-term, but longer term it will make the system even more unworkable.  This is not a good trade-off for the system or the people who will depend upon the system in the future.

The point here isn't the immigration reform is wrong, but the people who tell you that Immigration Reform will fix Social Security are wrong.



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