April 05, 2005

Illegals On Payroll

There are a couple of nifty corollaries from this New York Times report on Social Security and illegal immigration. The article's premise, by the way, is that about 75 percent of America's 7 million or so illegal immigrant workers pay about $7 billion a year in payroll taxes, and will never receive any benefits. So-o-o-o…
  1. Granting amnesty to all these illegal immigrants would put the other 25 percent of illegals on payroll, adding roughly $2.3 billion a year to the system. Tant mieux! But then you'd have to subtract the amount that these workers would take back when they retire. Tant pis! If those folks retired here in America, they'd take a lot back in benefits. On the other hand, immigrants from Central America and Mexico who returned home before retiring, as many tend to do, would receive nothing, since we haven't signed totalization agreements with any of those countries. On net, amnesty seems like it would slightly worsen Social Security's long-term actuarial balance.

  2. A system of private accounts would potentially allow some illegal immigrants shelling out payroll taxes to keep the money they divert into those accounts. There might be ways of getting around this—the Social Security Administration could try deny private accounts to anyone in the "earnings suspense file," i.e. workers with incorrect SS#'s—but in practice this seems quite hard to do, since no one really knows how many people in the "suspense file" are actually illegal immigrants.

  3. However! Amnesty plus privatization, which is essentially what President Bush has proposed, would be the worst of all worlds, financially. Illegal immigrants-cum-"guest workers" would now be able to keep their private account deposits, presumably—which is fine by me, though some of those red-state "Minutemen" loons might not be too thrilled here—and end up worsening the system's finances by some indeterminate amount. (The SSA actuary says that without "suspense file" contributions, the system's 75-year "deficit" would be 10 percent larger.)
The best of all possible worlds, I think, would be to keep the current system, grant amnesty to all current illegal immigrants, allow them some sort of path to citizenship, and then boost immigration levels to 1.3 million a year. But, this sort of thing—besides having the unfortunate flaw of being totally unrealistic and unpalatable to our nation's frothy xenophobes—would probably worsen Social Security's finances overall. (Perhaps not, but hard numbers needed.) Perhaps a better approach, then, might be to sell green cards and put the proceeds in the Trust Fund, no? Well, probably not.
-- Brad Plumer 3:34 AM || ||