2003 February 26 Wednesday
US Retirement Fund May Be Extended To Illegal Mexican Workers

Back in December the US government was negotiating an agreement to allow Mexicans who have worked in the US to become eligible to collect US Social Security retirement payments.

White House and Mexican government officials say discussions on an agreement to align the Social Security systems of the two countries are informal and preliminary. But excerpts from an internal Social Security Administration memo obtained this month say the agreement "is expected to move forward at an accelerated pace," with the support of both governments, and could be in force by next October.

The National Review discovered details of the agreement and learned it would be incredibly expensive.

By contrast, the Mexican deal could cost, according to National Review, $345 billion over the next 20 years. Congressional experts say Mexico would burden Social Security with 162,000 new beneficiaries in the next five years.

Most of that $345 billion would go to illegal aliens. One proxy for how much the Social Security Administration gets in taxes paid by illegal aliens is the figure for money collected that can't be tracked to potential beneficiaries. That figure of $21 billion is a small fraction of the projected $345 billion cost.

Mexico would also like the US to allow workers employed under false Social Security numbers to obtain credit for their US earnings. Over $21 billion in Social Security payments have not been tracked to potential beneficiaries, most likely because they were paid under a false Social Security number.

Joel Mowbray reports that the White House wasn't aware of the scope of the agreement the State Department was negotiating.

When White House officials learned the scope of the Totalization Agreement ("totalization" is government-speak for combining or "totalizing" the Social Security taxes paid by individuals into the U.S.'s and a foreign country's respective systems to create a single, harmonized retirement payment), the eye-popping price tag caught many off guard. Explains one senior GOP congressional staffer: "The White House thought this was a low-cost favor to get in Vicente Fox's good graces." According to people familiar with the negotiations, officials at State knew illegal aliens would be covered by the deal — and they also knew that the White House didn't know. Which brings us to "character," which State's mission statement defines as "Maintenance of high ethical standards and integrity."

Libertarian Republican Congressman Ron Paul (R-TX) is opposed.

Furthermore, Congress needs to ensure that Social Security benefits are paid to American citizens only. In December, the national press reported on a deal looming between the administration and the Mexican government that would allow Mexican citizens who worked in the U.S.- even illegally- to qualify for Social Security benefits. A so-called “totalization” system would permit Mexican workers to add years worked in Mexico to those in the U.S. when qualifying for benefits. Unless Congress acts, the administration will begin using Social Security dollars to fund a global welfare system!

Paul Weyrich agrees with Ron Paul that this is a bad idea.

Give credit to Rep. Ron Paul (R-TX) for his willingness to take on totalization by introducing the "Social Security for American Citizens Only Act." Paul is a congressman with Libertarian views whom I respect for his willingness to stand on principle even though, over the years, there have been times we have been at odds over one thing or another.

The Social Security system is already projected to start running a deficit in the next 20 years as the ratio of retirees to workers steadily rises. Social Security taxes will inevitably rise even as benefits are reduced. Under the circumstances it would be the height of folly to extend Social Security benefits to large numbers of illegal aliens.

Update: The treaty with Mexico will undermine a previously passed law that cuts back on Social Security payments to aliens who haven't paid into Social Security for very long.

If the draft treaty becomes law, it will dismantle the chief provision of the 1996 Welfare Reform Act, a law which has saved U.S. taxpayers $72 billion since inception, because it will give Social Security payments to illegal aliens and legal aliens who have not paid into our payroll tax system for the requisite 10 years.

Update II: The Center for Immigration Studies finds a high cost for Mexican immigraton. (bold emphases added)

This report has found that Mexican immigration creates significant challenges for the United States. It has added significantly to the size of the poor and uninsured U.S. populations, as well as substantially added to the welfare caseload in the United States. For example, while Mexican immigrants and their young children comprise 4.2 percent of the nation’s total population, they comprise 10.2 percent of all persons in poverty. They also comprise 12.5 percent of those without health insurance. Perhaps most troubling, the findings show that the welfare use, income, and other measures of socio-economic status of legal Mexican immigrants do not converge with natives over time. Legal Mexican immigrants who have lived in the United States for many years do not enjoy a standard of living similar to that of natives. Their low incomes coupled with high use of means-tested programs create very significant fiscal costs for the country as well. Based on research by the National Academy of Sciences, the lifetime net fiscal drain (taxes paid minus services used) on public coffers created by the average adult Mexican immigrant is estimated to be more than $55,000. While employers may want increased access to unskilled Mexican labor, this cheap labor comes with a very high cost.

The primary reason why Mexican immigrants have not faired well is that a very large share have little formal education at time when the U.S. labor market increasingly rewards skilled workers, while offering very limited opportunities to the unskilled. The heavy concentration of Mexican immigrants at the bottom of the labor market also is likely to have a significant negative effect on wages for unskilled natives who are in direct competition with them. Mexican immigrants now comprise 22 percent of all the high school dropouts in the work force, while they comprise 1.5 percent of all workers with more than a high school education. Therefore, it is only the lowest-skilled workers who are adversely affected by Mexican immigration.

Because the vast majority of natives have completed high school and are employed in higher-skilled occupations, most natives do not face significant job competition from Mexican immigrants. However, there are more than 10 million adult native-born workers who lack a high school education in the U.S. workforce. Consistent with previous research, the results in this study indicate that these less-educated natives face significant job competition from Mexican immigrants. And those native-born workers adversely affected by Mexican immigration are among the poorest in the United States and are also disproportionately native-born minorities. Moreover, it is difficult to justify reducing the wages of unskilled workers since their wages, unlike those for other workers, actually declined in the 1990s, indicating that there is no shortage of high school dropouts in the United States.

The problem is that low income Mexican immigrants pay less in taxes and receive more in benefits.

So far, this report has generally concentrated on public service use by Mexican immigrants; however, this is only half of the fiscal equation. Immigrants also pay taxes to federal, state, and local governments. The CPS contains estimated federal income tax liabilities for those in the sample. These estimates are based on adjusted gross income, number of dependents, and other tax characteristics. These estimates are useful because they can provide some insight into the likely tax payments made by immigrants and natives. Because of their much lower incomes and their larger family size, Mexican immigrants pay dramatically less in federal income taxes than do natives. The March 2000 CPS indicates that in 1999, the average federal income tax payment by households headed by Mexican immigrants was $2,156, less than one third of the $7,255 average tax contribution made by native households. By design, the federal income tax system is supposed to tax those with higher income and fewer dependents at higher rates than those with lower income and more dependents. So the much lower income tax contributions of Mexican immigrants simply reflect the tax code and not some systematic attempt by Mexican immigrants to avoid paying taxes.

In 1999, 74 percent of households headed by natives had to pay at least some federal income tax, compared to only 59 percent of Mexican immigrant households. Even if one confines the analysis to legal Mexican immigrants, the gap between their tax contributions and those of natives remains large. Using the same method as before to distinguish legal and illegal Mexican immigrant households, the estimated federal income liability of households headed by legal Mexican immigrants in 1999 was $2,538. Thus, the very low tax contribution of Mexican immigrants is not simply or even mostly a function of legal status, but rather reflects their much lower incomes and larger average family size.

The much lower tax payments made by Mexican immigrants point to a fundamental problem associated with unskilled immigration that seems unavoidable. Even if Mexican Immigrants’ use of public services were roughly equal to natives, there would still be a significant drain on public coffers because their average tax payments would be much lower. While much of the fiscal concern centers on use of means-tested programs, clearly tax payments matter at least as much when evaluating the fiscal impact of Mexican immigration. Changing welfare eligibility or other efforts designed to reduce immigrant use of public services will not change the fact that Mexican immigrants pay significantly less in taxes than natives.

The Federation for American Immigration Reform reports on the total cost of all immigration.

Current levels of immigration are not beneficial to our country’s economy, its fiscal well-being, or the health of our labor market. In fact, immigration is a drain on the economy; the net annual cost of immigration has been estimated at between $67 and $87 billion a year.1 The National Academy of Sciences found that the net fiscal drain on American taxpayers is between $166 and $226 a year per native household. Even studies claiming some modest overall gain for the economy from immigration ($1 to $10 billion a year) have found that it is outweighed by the fiscal cost ($15 to $20 billion a year) to native taxpayers.2 In short, the average native taxpayer is paying for immigration so that large companies can profit by employing immigrants in low-wage positions.

Obviously there are categories of immigrants (e.g. engineers and scientists) who provide a large net benefit to the US taxpayers and economy. But the current mix of immigrants is far too heavily skewed toward the least skilled. This is happening in an era when the demand for unskilled labor is declining and the demand for highly skilled labor is rising. Current US immigration policy is in need of drastic revision to produce an outcome that is a net benefit to the nation.

Share |      By Randall Parker at 2003 February 26 06:38 PM  Immigration Border Control


Comments
Michael said at February 27, 2003 2:42 PM:

Add our current obligations,this boondoggle,plus the demands baby boomers are about to make for dramaticly increasing senior benefits in preparation for their own retirements,and one must ask,Where will all the money come from?Increase taxes enough to fund all this and people will be knocked out of the middle class and take revenge at the ballot box.Print money and you have the same result as middle class incomes are eroded.Someone is going to screwed.The current "spoils system" isn't sustainable,something's gotta give.

Virginia Payne said at August 10, 2004 12:32 PM:

I do not think most americans know this is happening. Naturally, I vote no

Javier said at May 2, 2005 1:07 PM:

The vast majority of the immigrants who come to this country come here and work, never being able to experience the benefits that we as Americans citizens have. They can not have health care, file their income taxes, get drivers licenses, etc. I would think that in this day in age our government would be able to come up with a more effective plan to control immigration while at the same time treat them like human beings.

Ella said at August 15, 2008 2:04 PM:

I am a senior on Social Security. My Daughter-in- law's parents and I signed up for Social Security at the same time. Her parents had been here less than a year. Guess who was approved first!

When did we, the American citizens lose our right to be first? We work all our lives; have money put aside in an account, by our government, for our Retirement. And who benefits? Not those of us who worked and paid for it.... No its anyone who comes into our country illegal or legal.

Enough is enough.


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