February 03, 2005
"Guest workers:" potential social security liability, or benefit?

According to the 2003 Statistical Abstract from the Dept. of Comerce, in the year 2000 there were approximately 139,000 "undocumented workers" a.k.a. illegal aliens, residing in Washington state. There are almost undoubtedly more now. That puts us in the top ten category.

Close to a million Washington residents are immigrants, or the children of immigrants. This number is likely to increase if Pres. Bush's 'guest worker' visa program, mentioned again in the State of the Union yesterday, is implemented.

A lot of immigrants, even legal visa workers, pay no payroll or federal taxes (read more below).

In light of the Social Security shortfalls due to arrive in 2018, bringing undocumented workers into the payroll tax system might increase worker/beneficiary ratios. (Whether it's worth the collateral economic risks is another issue.) But perhaps we should be more concerned with making sure immigrant workers, legal or otherwise, don't send social security money out of the USA. And by that, I don't mean paid benefits, I mean collected FICA wages.

Edwin Rubinstein, an economist for the Hudson Institute writes:

Many people believe that foreign workers offer a fairly painless way out of the Social Security dilemma: Immigrants pay billions in payroll taxes. Many, especially illegals, do not stick around to receive retirement benefits. Even non-U.S. citizens are required to pay Social Security taxes on income earned in the U.S. unless specifically exempt. So on balance immigrants and guest workers are a positive for the Social Security System, and by increasing their numbers we can reduce the funding shortfall. At least that’s the assumption.

In reality many foreign workers, including highly-skilled employees here on H-1b visas, pay no Social Security taxes whatsoever. Since the 1970s the Social Security Administration has concluded so-called “Totalization Agreements” with about 18 different countries, under which foreign workers may have their Social Security deductions sent to their home country program (rather than the SSA), and vice-versa. One of the primary objectives of the agreements is to eliminate dual Social Security taxation as would occur when a worker sent to the U.S. by his employer must pay tax to both the United States and his home country.

If enacted, a similar agreement with Mexico would immediately add nearly 5 million Mexicans, not here on a visa, to the Social Security system.

Rep. Dana Rohrabacher (CA-R) said: "Current law is silent on the issue. While the Social Security Administration currently will not grant benefits to workers without a valid Social Security number, this is an administrative policy... this policy can be legally changed by the Social Security Administration."

Rubinstein again:

Admittedly, H-1B’s represent a narrow slice of the immigrant workforce. (Technically they are “guest workers” rather than immigrants.) But their high earnings makes them valuable potential contributors to Social Security. With median income of $50,000, the half million H-1Bs could potentially contribute $1.9 billion to the pension system, or enough to fund benefits for more than 95,000 retirees.

Foregone payroll taxes are just the tip of the iceberg. H-1b’s are entitled to every social service funded by U.S. taxpayers. They use our city parks, roads, and other infrastructure. And after working six years without paying Social Security taxes many H-1bs get Green Cards, qualifying them for Social Security benefits when they retire. No effort is made to collect back payroll taxes. And what about those American workers who lose their jobs, their health insurance, and Social Security points because companies prefer the cheaper H-1bs?

Recent immigration laws have raised the H-1B quota and made it easier for displaced H-1Bs to stay in the country. That’s good for companies that employ guest workers, but ordinary Americans and their Social Security System are worse off because of it.

If Pres. Bush is serious about immigration reform, I'd like to see this changed. It might make some sense to bring the shadow, underground immigrant worker business into the light of day, and take untaxed, undocumented workers into the system. But it makes little sense to take the risks associated with this plan, on the heels of a totalization agreement with Mexico, allowing social security payroll tax to be sent out of our system.

In case you're depressed after this, read this over-the-top piece from humorist Frank J at IMAO. Excerpt:

Still, my ears perked up on the subject of the Social Security. I was like, "That's my @#$% money! Give it to me!" But the Dems actually booed him.
The Prez should not have taken that. He should have pulled out a .45, announced, "I like to call this my 'Veto Power'," and then fired at the Democrats, yelling, "I pardon myself!" with each trigger pull. That would have been awesome! If you're going to broadcast the SOTU in HD with 5.1 surround, you at least need some action.

Posted by Brian Crouch at February 03, 2005 11:22 AM | Email This
1. You know, I was with you right up until the "funny aside." This old Democrat was actually thinking that a Republican was making sense. Then you sent me my wake-up call.

These days, threats of violence, especially against public figures, are somewhat akin to bomb jokes in airports. If the scenereo was reversed, with the President as the target, it would (quite properly, IMHO) call for an FBI investigation and at least an uncomfortable few hours talking to people who have had their senses of humor surgically removed.

Of course, some here will find no problem with the story, as Democrats are the target.

Posted by: John Barelli on February 3, 2005 11:26 AM
2. I will start out by saying I have a diverse ethnic friend base, but I don't think it is a good idea to get lax with our borders and immigration process.I use to live in Eastern WA and I have seen way too many Mexican (illegal aliens) milking DSHS for every penny they can get. My parents live in Moses Lake and they are struggling financially paying $600 a month to live there, their neighbor Mexicxan (illegal again) pays $60 a month, has a complete custom Accord, how did they afford it all? they deal drugs. You would think the state would give him the boot from his easy life, but no the housing authority gets complaints all the time and blows them off.
Is all of this what we are hoping for? Bush needs to tighten up his proposal, I wouldn't sign it if I was in Congress.
I will say I like the idea of privatizing Social security, and not leaving a federal slush fund open for grabbing hands.

Posted by: Adriel on February 3, 2005 11:27 AM
3. JB: Not to derail the thread talking about that piece, but Frank J is an over-the-top satirist. His tagline is "Nuke the Moon."
The joke was not in the violence, but in the idea of Bush saying "I pardon myself!" shooting the hecklers.
Didja ever see the Simpson's episode where Homer and Mel Gibson remake "Mr. Smith Goes to Washington" and they take out the congress in a 'Lethal Weapon' bloodbath?
It's just a goofy onion-esque piece. Relax.

Posted by: Bleeding heart conservative on February 3, 2005 11:37 AM
4. We do not need immigration reform. We need congress to fund the enforcement of our existing laws.
Illegal aliens cost us far more than they contribute. For the most part, the illegal aliens are poorly educated males. Those that have families are flooding our schools and medical facilities and we end up paying higher taxes and medical payments because of it. I heartily recommend that each person that feels as I do contact their Senators and Representives and let them know how you feel. It is only through pressure is Congress going to act to stop this madness.
One of the mantras the pro illegal people use is that the illegals take jobs the citizens don't want. That is not true. They are undercutting our wages. They are taking jobs that young people in the past used to obtain job skills and work discipline. Now we have rows of welfare housing that are filled with people with no job skills, no opportunities, and not much to look forward to. To top it off, the taxpayers of the country have to shell out welfare dollars to keep them in food and housing.
If a person in our area applies for a job that deals with the public, they have to be bi-lingual in most cases to even be considered.
In a normal society, people exchange labor for things needed to live. (i.e.)The laborer works for a company that produces things ..the laborer gets paid..the laborer goes to a local store and buys things... It is a case of the money flowing within the local area.
In the case of the illegal alien... the laborer works for a company that produces things.. the laborer gets paid..but the largest part of the money is sent to another country and a local store there makes the sale. Millions are sent out of our country each year.
Most illegal alien wages are paid in cash so no payroll taxes are collected.
Both major politcal parties want more illegal aliens. Business wants cheap labor. Labor unions want more members.
I have never figured out how conservation groups can not vehemently oppose illegal immigration because of the crush for more natural resources to support this mass invasion into our country. There is a rift in the Sierra Club now over this issue. So far, the 'pro illegals' have the upper hand.
America seems to be wakening up to the seriousness of this problem. Lou Dobbs on CNN (the only program I will watch on CNN) has a segment on illegal aliens each day. There are many groups that are now pressing the issue. www.numbersusa.com is one of them.
Again... if you want to stop illegal immigration, let your representatives know by calling, faxing, or emailing them and make them understand that this is not good policy.

Posted by: JimL on February 3, 2005 11:49 AM
5. A better solution. Pay social security benefits out of the general fund. Eliminate both payroll and income taxes and implement a consumption tax. Everytime aliens (legal or otherwise) buy something, they would be paying into the system (as would the huge under-the-table workers).

Posted by: Jim on February 3, 2005 12:02 PM
6. Jim not a bad idea, We've agreed on something. I still think we need to invest the money like Bush says though, it does two things stimulates economy buy investing in the market, second it helps to grow the money instead of letting it sit stagnant and depreciate. It's a broken system that needs a full overhaul, and I think the greater portion of the left needs to open their eyes to that, even if we can't all agree with Bush's plan

Posted by: Adriel on February 3, 2005 12:10 PM
7. First off: John B, lighten up. Sheeeesh. We're not all out here wanting to nuke the Dems. Well, not all of em anyway.

Second: We don't need to bring in a bunch of guest workers to try to "balance" Social Security. If you want to see some other good stuff on what we need to do, I think there are still several good articles at the Cato Institute web site. There are others. But we need to make it clear that we don't need to bring in aliens, legal or otherwise.

Third: The Dems that were doing the booing need to look in the mirror and honestly tell themselves that we don't need to "fix" Social Security. The Democratic Party had the opportunity to fix it a long time ago. Look through the papers of FDR or Sam Rayburn on this issue. They wanted to "fix" it back then. The government would be in much better shape today, and would have been for the last 40-plus years, if they had done what they talked about doing.

Fourth: AARP and some of these other groups need to back off. We're not talking about the Social Security of today. We're talking about the Social Security of 30 years from now, when I'm eligible. We're not talking about my mom's SS, or my granny's SS. We're talking about mine. We need to get beyond the liberal crap trap and DO SOMETHING.

Posted by: SnoCo Voter on February 3, 2005 12:20 PM
8. I'm an immigrant, granted I have a green card, but I've paid Social Security tax since I started working here. Prior to receiving my green card, which is a lengthy process, I had a temporary worker's permit (not H-1b). I had to pay Social Security tax back then too.

I don't know much about the H-1b visa, but I'll ask around about the Social Security tax issue. An H-1b worker MUST maintain a job here, or he gets kicked out. Yes, not being employed for longer than a pre-set period of time is an immigration violation and the employer must prove that the work that the H-1b worker would perform cannot be done by a citizen.

Also, H-1b status doesn't allow a worker to draw federal benefits, neither unemployment, nor welfare. I suppose this also includes Social Security, in which case it doesn't make much sense to force the worker to contribute to the program. This quickly draws us into the discussion of Social Security being a stupid idea to begin with so I won't go there...

The final thing I have to say about H-1b and green cards is that the H-1b visa does in NO WAY provide a way to 'upgrade' one's immigrant status. In other words, the H-1b worker must either marry a US citizen or somesuch thing to be eligible to apply for a green card, or adjust to K status.

Posted by: Johnnie on February 3, 2005 12:35 PM
9. thanks, Johnnie: I'll post a followup based on your input.

I notice that some are missing the point: I'm not really talking about immigration as much as I am about the potential new agreement to send SS $ to Mexico... I think that kind of arrangement negates almsot all potential benefit to having this new guest worker program. I guess I rushed this piece.

Posted by: Bleeding heart conservative on February 3, 2005 12:40 PM
10. The key to personal SS account and SS reform is to Keep It System.

Here is my plan.

1. Remove cap on wages paid into SS, this brings in huge revenue
2. As an incentive for the high wage earners hit with the tax, allow everyone to direct 1/2 of the tax into their personal accounts. So 6.2% goes to SS and 6.2% goes into their private account. So a person who makes $1million would pay a total of $62,000 to SS and $62,000 into their accounts. Currently they pay a total of about $11,000 in taxes.
3. All personal accounts will be rolled into the current Federal employee Thrift Savings Plan. This plan is already up and running and provides for I believe 5 choices. The equity choices are all INDEX funds, meaning the lowest cost funds around, no big profits for Wall Street

The pitch line is, if the Thrift Savings Plan is good enough for Congress and Federal employees it is good enough for everyone.

Posted by: d meyers on February 3, 2005 12:40 PM
11. Love the Frank J piece!

Posted by: Michele S on February 3, 2005 12:53 PM
12. Thanks BHC. Seems like some light is being shed on our government's bedtime activities...that is the way treaties are made, right?

I'd spend more time at IMAO, but they load so slow on dialup...

Posted by: smegma on February 3, 2005 12:58 PM
13. I actually agree with objective in Bush's policy, but the problem is that it won't work. It won't work because the very people that are in the shadows working in the US are the same people that, when they are in Mexico, work in the shadow.

Mexico has a huge black market problem. Estimates are that as much as half the GDP of the country operates in the black market. It is part of the culture that people of indigenous origins work this way. They earn cash, do not pay taxes, and only buy from street vendors and other sources that don't charge sales tax.

It's unrealistic to think that these people are going to participate in a program in the US when they don't even participate legally in their own country.

The onus needs to be on the American employers. They should be given an avenue to hire these people legally that does not raise costs; they should have to force these employees to sign up with the program; and if the employer is caught doing it illegally, they should be severely punished.

If the onus is on the worker to sign up .... forget it!

Posted by: DeadManVoting (aka Iguana) on February 3, 2005 01:19 PM
14. Jim has it right. We should eliminate the payroll tax. Better yet the income tax should go away completely. It can be replace by a Business Transfer Tax as outlined here: http://www.chroniclesmagazine.org/Chronicles/December2004/1204Hartman.html

Posted by: M&M on February 3, 2005 01:32 PM
15. Slightly OT...
From the Washington Times, Feb 3, 2005:

Snipers target border agents

By Jerry Seper

Snipers working as "lookouts" for drug traffickers and illegal-alien smugglers are targeting U.S. Border Patrol agents from vantage points across the U.S.-Mexico border.
Within the past week, agents assigned to the Douglas station in Arizona's southeastern corner — one of the nation's busiest illegal-entry points — have been fired at on at least six occasions, according to federal authorities, and although none of the officers was injured, several reported near-misses.
One agent's vehicle was hit twice as he moved to avoid gunfire. Another sniper fired both at an agent and at a surveillance camera, which was hit by four bullets but was not seriously damaged.

Posted by: Boonie on February 3, 2005 01:52 PM
16. Any worker with 40 quarters or 10 years in the SS system currently gets a minimum benefit of about $850 per month at retirement. This would apply to an illegal who sends money to Mexico, works for cash, but just happens to report some USA SS wages for 10 years out of 40.

So he pays in little, but can collect enough to live on in Mexico.

Posted by: BruceK on February 3, 2005 07:15 PM
17. For what it's worth, I see the immigration thing as identifying the immigrants so that they will be taxed and the offending employer will be crucified.

However, that said, I think that there is a strong argument which could easily be made by a group of well intentioned correctly guided and completely truthful actuaries and/or mathematicians (good luck finding such a combination) who could illustrate the financial impact (positive or negative) on bringing the immigrants into the tax system.

Additionally, it seems that if we factor some of these reliable assumptions into the Social Security System, projecting increased growth, etc., and incorporate private accounts and their potential impact on the economy (perhaps with graded results) we might be able to either expose the fallacy of the current proposal or whole heartedly endorse it.

We don't seem to have the data the models or the ambition to do these things, but once done, I think they would make the arguments self defining.

Dean Herbst,

Posted by: Dean Herbst on February 4, 2005 08:57 AM
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