An amnesty for illegal aliens and increased legal immigration on top of that would only remedy a small portion of the social security deficit.
The problem: As the baby-boomers age, U.S. society will have an increasingly older population that is collecting Social Security. Because of the large outflow of money from the Social Security trust fund, that fund will go bankrupt in approximately 2042. As of 2004, the Social Security deficit was $5.229 trillion. That deficit narrows to $3.699 trillion if the $2.5 trillion supposedly in the Social Security trust fund is counted. However, the existence of that $2.5 trillion is in doubt. Paul O’Neill, the first Secretary of the Treasury during the G.W. Bush administration was interviewed on November 24, 2008 for the PBS show Frontline:
There's a so-called famous lockbox in West Virginia I went to look at when I was secretary of the Treasury. You know what's in the lockbox? Actually it's a filing cabinet, and there are some pieces of paper that say, "We owe you." There's no money there; there are no investments there. There's nothing there but a piece of paper. That's a fraud.
People think, "Hey, I put money all my life in Social Security and Medicare." You didn't really. The government just took it and spent it on something else. There's no money there. ...1
So, the deficit is either $5 trillion or $3 trillion, depending on whether you believe in the Social Security trust fund.
The supposed solution: Ben Wattenberg, of the American Enterprise Institute, has argued that immigration is the “easy solution to the Social Security crisis.”2 Legalize the illegal immigrants already here, and bring in even more of working-age immigrants to add to the workforce and pay into Social Security. The Social Security taxes paid by immigrants will cover the withdrawals made by the baby-boomers and keep the Social Security fund solvent.
B. Lindsay Lowell, of Georgetown University, has said that immigration “is not a solution to the aging of the American society or Social Security. That’s not news to a lot of us, but again, it really bears reinforcing.”3
In 2005, Steve Camarota, of the Center for Immigration Studies, released a report concluding that immigration is not the solution to the Social Security funding problem. Nicholas Eberstadt of the American Enterprise Institute commented, “It is a meticulous and diligent report, and I commend it to all of you to read. ... the broad conclusion of Steve’s report is incontestably true.”4 The general findings of this report follow.
The United States now grants about 1 million green cards per year. Adding another 600,000 green cards per year, which is probably at the limit of what is politically feasible, would increase Social Security receipts by a sum total of about $260 billion over the next 75 years. However, this would only remedy 5 percent of the Social Security deficit, if you accept the $5.229 trillion figure, or 7 percent if you prefer the $3.699 trillion deficit figure.5
By way of confirmation, a pro-amnesty study touts a similar figure:
Over the next 50 years, new legal immigrants entering the United States will provide a net benefit of $407 billion in present value to America’s Social Security system, according to official Social Security Administration data. Maintaining or increasing current levels of legal immigration significantly aids the Social Security system...6
$407 billion comes to less than 10% of the $5.229 trillion social security deficit.
The United States would need to admit 500 million new immigrants between 2005-2050 in order to solve the Social Security funding deficit through immigration. That would leave the nation with a population of 1 billion in 2050.7
And this “immigration solution” may actually create a new problem of its own: Social Security will be bankrupt once again when the 500 million immigrants retire, because all the money they paid into the system will have gone to clear up the previous deficit. To be clear, those 500 million new immigrants paid off the $5.229 trillion needed for the retirement for the Americans already here- but how is their social security going to be paid? Would the United States import 1 billion more immigrants to pay for their retirement? That would bring the population of the United States up to 2 billion.
Dr. Camarota’s analysis indicated that even the $260 billion figure is an optimistic calculation by the Social Security Administration (SSA). The SSA projections (as of the year 2004) do not account for the fact that legal immigrants, for their first 10-15 years in the United States, earn less money than native born Americans of similar skill level.8 So they pay less lifetime payroll taxes, which means a lower contribution to Social Security. A 1998 study by the Urban Institute, found that legal immigrants in New York State paid only 85 percent as much in Social Security taxes as natives on average.9
Also, the SSA projections did not account for the earned income tax credit (EITC). The IRS states on its website that the credit was created, “to offset the burden of Social Security taxes on low-wage workers.” For a family consisting of a wage earner earning $25,000 per year, a spouse, and two children, would get $2,100 back from the credit. That $2,100 comes out of general revenues, not social security, but ultimately all the government’s money comes from taxes, so it is in the end coming from the same source. Those are the two primary reasons that Dr. Camarota concluded that increasing immigration would solve less than 5 percent of the Social Security deficit.
Finally, if increased immigration causes education, welfare and other expenses to rise, then the immigrants would be paying money into one of Uncle Sam’s pockets, but withdrawing more money from the other. Social Security should not be viewed in isolation because it is part of the same federal budget as all the other federal programs. Nobel laureate economist Paul Krugman has noted that low-skilled immigrants do not earn enough money to cover the cost of government benefits they receive.10 More than 25 percent of legal immigrants lack a high school diploma, compared to 9 percent of the general population. Lacking a high school diploma is an indicator that the immigrant is low-skilled. The Heritage Foundation has found that low-skilled immigrants use far more dollars worth of government services than they pay in taxes.10 The Heritage study calculated that the average low-skilled immigrant household costs the American taxpayer $19,588 per year. It is a proposition that makes sense for the employer who hires people at a very low wage, it makes sense for the immigrant who can live a better life than he or she could back home, but it inflicts a heavy cost on the American taxpayer.
1The Transcript of the interview is available at PBS.org.
2Ben J. Wattenberg, The Easy Solution to the Social Security Crisis, The New York Times, June 22, 1997.
3B. Lindsay Lowell, director of Policy Studies at the Institute for the Study of International Migration at Georgetown University speaking at a roundtable discussion April 26, 2005, the National Press Club Washington, D.C.
4Nicholas Eberstadt, Henry Wendt Scholar in political economy at the American Enterprise Institute. Speaking at a roundtable discussion April 26, 2005, the National Press Club Washington, D.C. Transcript available at: http://www.cis.org/articles/2005/back505transcript.html. His full remark reads: “It is a meticulous and diligent report, and I commend it to all of you to read. In my remarks I’m going to try to do three things very quickly: first, to tell you that the broad conclusion of Steve’s report is incontestably true, secondly, to quibble with a few things about interpretation in the presentation, and finally, to give Steve and Mark some more work for the future by asking some questions which I don’t know the answer to but somebody may want to go into.”
5Extrapolating that every 800,000 immigrants adds $346 billion in Social Security payroll taxes. Dr. Camarota noted that the SSA figures indicated a simple linear trend in Social Security revenues from increased immigration. So it is easy to extrapolate from the data with simple mathematics. From pp. 10-11 of: Immigration in An Aging Society: Workers, Birth Rates, and Social Security, Steven A. Camarota, Center for Immigration Studies, April, 2005.
7According to Nicholas Eberstadt of the American Enterprise Institute at the roundtable discussion of Immigration in An Aging Society, April 26, 2005.
8See footnote 32 of the Camarato paper.
9“Immigrants in New York: Their Legal Status, Incomes and Taxes” by Jeff Passel and Rebecca Clark, Urban Institute 1998. Table 3a page 109 reports Social Security Tax payments by legal status.
10Paul Krugman, North of the Border, The New York Times, March 27, 2006.
11Robert E. Rector and Christine Kim, The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer, The Heritage Foundation, Special Report #14, May 22, 2007.