News Column

Will Immigration Reform Bolster Social Security? Forecast Increasingly Complex

July 6, 2013
immigration bill, immigration reform, analysis

The White House said this week that passing the immigration bill will help boost Social Security - a claim that gets at the heart of the immigration debate and whether it's good for the economy or not.

Two of the federal government's official economists, the Congressional Budget Office and Social Security's independent chief actuary, both have concluded that in the near term, the boost of extra workers will both be paying more in Social Security taxes and will be helping the economy, which means others will be paying more in payroll taxes, too.

But over the longer term the numbers are more complex.

Today's workers are tomorrow's retirees, and most Americans end up getting more back in benefits than they pay into the entitlement system, meaning the immigrants being added now could become liabilities later on.

Still, the Social Security actuary said that over a 75-year period, the bill would help a bit. Without the legislation, Social Security is projected to run a $9.6 trillion deficit, while the bill would improve that figure by about $500 billion.

"There will be more people here paying taxes and No. 2, the economy will be stronger and that means more people paying taxes," said Douglas Holtz-Eakin, president of the American Action Forum and an economist who favors expanding immigration. "Immigration's a pro- growth policy and can be helpful as we face these other problems."

But Robert Rector, a senior research fellow at the Heritage Foundation who studies the economics of entitlement programs, said the problem is that the gains are short-lived, and they are outstripped by other federal spending that will have to go to sustain the immigrants.

The chief factor, he said, is that the immigrants, both illegal and legal, tends to be lower-skilled than the average American, which means they'll collect more than they pay in.

"All of these things, when they are looked at in the short term, they produce a small amount of gain for Social Security that tends to wither away over time, and that's a misleading way to look at this anyway," Mr. Rector said. "With all of these bills, even though you're greatly increasing the number of people coming into the economy, unless their skill level is dramatically better than the average U.S. citizen, there can't possibly be a gain."

Mr. Holtz-Eakin argues that it doesn't make sense to look beyond the near term on Social Security because, as the actuarial report shows, that system is already running a deficit and can't be sustained. He said the solution isn't to ignore immigration, but to reform Social Security itself.

"It's not an uncertainty about immigration, it's an uncertainty about Social Security," he said.

Mr. Rector, though, counters that the newly legalized immigrants and future immigrants are lower-skilled - exactly the kinds of people who politicians will want to protect, no matter what they do to Social Security.

"You're adding in more vulnerable people who will have to be protected when you go to deal with Social Security, so you're making it more difficult to deal with the problem," he said.

The illegal immigrant population is predominantly low-skilled, and while in the near term they will be denied most taxpayer-funded services under the Senate's immigration bill, in the long run they could be among the biggest net drains.

Some House Republicans appear to want to cut out those illegal immigrants and just move to expand legal immigration, particularly for high-skilled workers.

But the White House, in cheering the Social Security news, said legalizing illegal immigrants is important to getting the full economic boost.

"A significant portion of the increase in revenue is from currently undocumented workers who will start to pay their share of payroll taxes once they leave the underground economy," the White House's top economics and policy advisers said in a blog post on Monday.

Still, the CBO analysis did raise some problems. It showed that the boost to federal finances comes entirely in payroll taxes, which go to fund entitlement programs such as Social Security - which are known as "off-budget" in Washington-speak.

When it comes to "on-budget" spending, immigration would actually be a net drain. And that hole grew bigger after backers added about $35 billion in new spending for Border Patrol agents and fencing - all of it coming out of the Social Security taxes.

In theory, that means the Social Security Trust Fund is being drained to pay for border fencing and agents.

CBO also said that since Congress has imposed strict discretionary spending caps through the end of this decade, the new border spending will force lawmakers to cut from other domestic spending.





Source: Copyright Washington Times (DC) 2013


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