Wednesday, April 13, 2005

"Illegal" Immigrants and Social Security

Immigration has been back in the news since the "Minuteman Project" got underway on April 1, 2005 outside Tombstone, Arizona--no, unfortunately the volunteer protest over immigration at the Mexican border is no joking matter. The idea is to have volunteers, many armed, stationed along a 23-mile stretch of Cochise County and stop anyone trying to cross into the U. S.

Presidents Fox and Bush found something to agree on here. Both think the idea is terrible.

Then comes a very interesting report from The New York Times ("Illegal Immigrants Are Bolstering Social Security with Billions," April 5, 2005).

The common yap on the street characterizes Mexican immigrants as people who take advantage of the system here and return nothing in the process. Leaving aside for now the matter of billions paid in sales taxes across the nation, the article filed by Eduardo Porter dismantles common "American wisdom" about working "illegal" immigrants (Can a person really be "illegal"?)

Consider the facts:

*Seven million undocumented workers in the U. S. pay $7 billion annually into Social Security.

*The money paid into the Social Security system by this special class of labor amounts to about 10% of the system's current surplus. You know, the surplus Al Gore wanted to lock up in a box. The same surplus the President says is going away for good and real soon.

*The Social Security Administration factors these dollars into their projections about the future of the program.

*The majority of undocumented workers pay taxes.

*Since the late 1980s when the system began receiving millions of obviously bogus W-2 earnings statements, complete with fake SS numbers, it began holding them in what is called a "earnings suspense file." During the 1990s, $189 billion in wages ended up in this file. In our current decade the file is growing at a rate of over $50 billion annually. In 2002, nine million W-2s with incorrect numbers were filed away accounting for 1.5% of total reported earnings for the entire nation.

*Social Security Administration officials estimate that approximately 75% of undocumented workers pay payroll taxes.

*According to the Government Accountability Office (GOA), of the bogus W-2s, 17% arrived from restaurants, 10% from construction companies and 7% from farm operations.

*Actuaries at Social Security report that if immigration rose to 1.3 million persons annually instead of the current 900,000, the benefit to the system would be half a trillion dollars over the next 75 years.

One last note. Undocumented workers who pay into the Social Security System will never receive any financial benefit from Social Security. Unlike the funds I contribute, their contributions are "free" to the system.

Reality is often far from what it appears.


David U said...

Is the President the ONLY person that says the surplus is going away? I don't recall him saying it is going away "real soon". Of course, I guess that is all relative. What is soon to me may not be soon to you.

I'm not sure I would mention "The New York Times" and "reality" in the same blog post. But you are correct......reality is often far from what it appears.

Larry James said...

David, I have lots of buddies who sound like you! So, let me begin by saying I do love Republicans! Yes, the President and all of his political allies agree that the system is in a "crisis" of "grave proportions." Even The Dallas Morning News reports that--a paper much more to his and your liking, I expect. Of course, he never mentions the real crisis--Medicare, which will one day be your and my choice in healthcare, unless it is left to die. But, this has nothing to do with my blog--immigration and how "illegals" are helping save part of my retirement by their hard work. My point was to simply raise the question regarding how disingenuious we are about this issue, especially in view of how much we all benefit from the presence of millions of Mexicans here in our country. And for the record, the stats and analysis quoted from the Times come right out of Bush Administration offices. Thanks for tolerating me, or almost tolerating me! Larry

Krister said...

I had the opportunity to listen to Dr. Fernando Segovia from Vanderbilt Universtiy speak a couple weeks ago about his experience as a Cuban immigrant who actually had a chance to return to his homeland 40 years after leaving. His thoughts on immigration were perspective altering. He talked about how these people will do anything to try to create a better life for their families, including coming to the place that can make that dream a reality. I used to live in a border town (Yuma, AZ), so I know what it's like to live amongst this population that we have somehow demonized in our society. They are not unlike any of us rich folks (and I assume that the majority of us are all rich, whether we think in those terms or not) who truly want to create a successful life for themselves across the border. Why do we plug our ears to the scripture that talks about how we should never forget our status as strangers and how we should welcome the stranger as a result of that identification and empathy?

How do our economic practices and policies sustain a poor economic outlook for countries like Mexico, thus leading to a level of increasing occurrences of border crossing. TCU's Brite Divinity School has a wonderful program on the Borderlands that puts on a great lecture series addressing these very topics each semester. Dr. Segovia was a part of that series.

One of the interesting things he brought up was the U.S. policy that allows Cuban immgrants to stay here if they can make it to the states but puts up fences and armed guards to keep Mexicans out. This sort of duplicity sends a confusing message to Latinas and Latinos trying to navigate life in this new culture.

Larry James said...

Krister, thanks for your thoughtful words. American immigration policy has always been tied to our political objectives. I think of the civil wars in El Salvador and Guatemala in the 1980s. We were on the wrong side and as a result, immigrants from those places were not welcome, though Cubans were.

David U said...

Larry, "tolerating" you is the farthest thing from my are a BLESSING to me, and so many others! That is what you will ALWAYS be to me, brother!

I am not concerned with how I am benefiting from immigrants. I AM concerned about how we can benefit them. Our country has immigration laws, and I think we should enforce those laws for matter if you are from Cuba, Mexico, Mars, or Oz. All of us trace our heritage back to immigrants, so I have NOTHING against ANYBODY coming to the United States. I don't think we ought to have quotas. But, I do believe in people coming legally.
Do I want to send the ones back who are here illegally? No way!

So, I am for EVERYONE who wants to come....let em ALL come. Just come legally.

As for Medicare...yeah, that scares me too! :)

Thanks brother!

JDrake said...
This comment has been removed by a blog administrator.
JDrake said...

I don't know if this blog is the best place for this, but I am in need of some further schooling on the social security issue. As I see it (for what that's worth), the government needs to pay back all the money they've taken from the system before they have any further discussion about "fixing" it. If I understand correctly, social security was set up so workers could put money back for their retirement days. As our beloved government took money out for other purposes, it has turned into me paying money in for today's retirees, and I'm depending on future workers to pay in when I get to retirement age. I've heard no one discussing this part of the issue, and I'm wondering how it fits into the equation.

By the way, I do typically vote Republican, but as I get older, and hopefully wiser, I struggle to find any political party worth fully supporting. I do appreciate the challenging message you bring here, both from a political stand and, more importantly, a spiritual stand. Blog on, brother!!

Tim Perkins said...

We are supposed to have a left brain and a right brain. Well, on this issue, I have a Republican brain and one that's Christian.

The full-blooded, card-carrying Republican in me lashes out at the illegals. They have to be schooled and they have to have medical care they can't afford, or so says Mr. GOP.

The Christian in me tells me that I shouldn't hoard when those in need want what I have. Imagine being desperate enough to risk everything for a chance at a low-paying job in this country.

That's it, the Christian wins. (It should always win.)t

Anonymous said...

I'm with JDrake in that I need some schooling, so forgive a neophyte's question-- how can an undocumented worker pay into social security? Doesn't the lack of documentation keep a worker from having payroll taxes withdrawn and subsequently reported by the employer?

Thanks always for the crash course, Larry.

Jeremy Gregg said...


The illegal workers are making up a social security number on their employers' paperwork. Basically, they have to fill something out on the SS# line to get a job, so they put a number in there, get the job, and go about their business. The employer doesn't really know if the number is legit or not; they are only required to take out the appropriate SS payments and report it towards the provided SS#.

As Larry described, this money then goes to the SS office, which puts it in that mystery fund. So, the money is never going to get paid out to the workers, but it's there to bolster the fund.

Why do illegals do this? Because they have to in order to get a job. And even after all that tax for benefits they don't have a chance of receiving, they stay because the pay is better than their alternative.

IBreakCellPhones said...

Social Security was always set up as a Ponzi scheme. For those who don't know, a Ponzi scheme is one where the initial investors make money based on the later investors. That is, investor #1000's money is given to investor #100. There once was a "trust fund" (I think the raiding began in the 1960s) but there has never been anything like "personal accounts" where there are actual things of value stored up. The money paid in goes to meet current SS demands (in addition to retirement, there are death and disability benefits), and the "surplus" has been used by Congress to pay into the general fund, and the SS system gets lots of IOUs from the other hand of the government.

Crank back the time machine to the period immediately following World War II. The reason it was called the "Baby Boom" was that there was a huge jump in births. The birth rate has since decreased, and this demographic "wave" has been surging through society ever since. When the Boomers got old enough to have their own money to spend, marketing changed to follow them. As Boomers get still older, you see a lot of advertising pitches to their needs. Vioxx, anyone?

Now, for Boomers born in 1945, they will turn 65 in 2010, and begin to collect SS retirement payments. With the increase in lifespan, they'll collect it for a while. Here's where the crisis starts. When the system was designed in 1932, most people didn't live to reach 65 where they could collect SS. This made for roughly 10 people working for every one person collecting by the time things were in full swing. Now, there are about three people working for every one person collecting. This number will continue to decrease as the Boomers retire. Each person working will have to support more and more of a person collecting.

The crisis will really start hitting in about 2019 when, according to projections, the SS tax collections will no longer be enough to cover the payments promised. The 2042 date you've probably heard tossed around is the date that, if all the vouchers that the other parts of the government took are paid back, the money runs completely out--the "trust fund" is exhausted and the money coming in isn't enough to cover the obligations.

So what are the possible solutions?

The first is to raise the age at which you can start to draw SS payments. If this age had been increased along with life expectancy, I think it would be in the upper 70s now. You can imagine the political popularity this solution would have.

The second? Borrow money from the Federal Reserve to cover the obligations. If you think the budget deficits are bad now, just imagine what they would be if we did this!

Another is to raise taxes. Hear those crickets chirping when I mention this one? Ain't nobody likes this one. Who is this FICA and why is he taking all my money?

We could reduce benefits. The crickets just went away to be replaced by the howling of those like the AARP. I don't think they'll like this solution.

The solution proposed by the President would take a portion of the SS taxes you pay and divert them into a real account that has your name on it. From what I understand, this account would be managed much like a 401(k) or a 403(b) (for you teachers). There would be a choice of different types of investments, you couldn't withdraw until you were at such and such an age, and other similar restrictions. The rest of your SS taxes would be put into the SS fund as they are now, and used to meet the needs of those currently retired, those on disability benefits, and so forth.

As an aside, looking at some interesting demographics, black men don't live as long as white men. They are more likely to work and pay in to SS, and then die before they collect anything. If there are these personal accounts, this wealth could be amassed and passed on to their children and families.

Back to the original topic of illegal immigration, they may contribute money to SS, but they also draw money in terms of schooling, hospitals, and other things which make it an overall negative on the tax situation.

Jeremy Gregg said...

Interesting that Mr. Bush, who was unaware of the dramatic increase of HIV in black women during the debates, doesn't focus on why African-Americans are experiencing shorter lives than whites. This, to me, is a much more pressing issue.

However, regarding Mr. Bush's proposal . . . if we truly are supporting current recipients with 100% of our contributions, what will happen when a portion of our contributions is restricted to our personal account? This will decrease the cash available to pay for current recipients. How can this result in anything but decreased benefits?

Regarding the tax issue, I slightly disagree. Although we all work hard on our tax filing to increase our return, I think that many of us would be willing to accept higher taxes if we knew that everyone else was paying higher taxes (few individuals will voluntarily give more money to the government). At CDM's Prayer Breakfast, the keynote speaker (David Shipler) asked the crowd who would be willing to pay more taxes in order to support the most pressing needs facing the working poor. The vast majority raised their hand.

I think that the over-emphasis on decreased taxes is the primary culprit for the government's inability to create a safe, supportive, equitable society for everyone in our country. Our refusal to "render unto Caesar what is Caesar's" has bound up wealth into the hands of the few, and prevented us from helping Christ to bring His kingdom into this world. If we were less concerned about our personal wealth and more concerned about the lives of our neighbors, we would be closer to doing the work of God.

Personally, I find it discomforting that our politicians are considering revoking the estate tax, a move that will almost exclusively benefit the wealthy and increase the disparity between the rich and the poor (who have few assets to pass on to their heirs). As recently studied at CDM's Urban Engagement Book Club on "Being Black, Living in the Red," the primary difference between creating the economic disparity between whites and blacks is that the former has a greater capacity for intergenerational wealth transfer.

I agree that illegal immigrants place burden on systems like health care, since our system is so costly that it does not effectively solve health problems.

(check out Paul Krugman's Op-Ed in the NYTimes today:

However, I think that these immigrants are keeping our economic engine running. Think about the impact on employers if this source of labor went away. How do you think, for example, the hotel & restaurants industries would fare if this population went away?

It is a complicated issue. However, I do not think that selfish economics can solve it.

IBreakCellPhones said...

Now, where did I put that dead horse? Oh, yes, here it is.

Right now, I'm not sure of the exact percentages, but we could divert some of the SS taxes to private accounts and still meet all our current obligations.

For those people who said they'd be willing to pay higher taxes, wouldn't it be just as effective, if not more so, to give more of their money directly to ministries and organizations like CDM, lowering their tax bill and hence enabling them to give even more? Why must they use government based coercion to get them to contribute more?

An alternative look at how to bring Christ's kingdom into the world is to lower taxes, enabling more contributions to churches and ministries like CDM. Is it Caesar's job to bring about Christ's kingdom? Can Caesar really bring about the changed hearts that Christ can? Or it is Caesar's job to get out of the way, because the mountain of Christ (Daniel 2:35) is growing?

Regarding the estate tax, one of the primary places where this hurts is in terms of the family farm. Lots and lots of capital is tied up in land, but you can't take any away. If you do, you destroy the income-producing potential of that farm. Another place is in terms of small business. If someone owns a beauty parlor or barber shop, and then when they die, they have to give half to the government, that's something their children cannot have. Also, how does giving half of large inheritances to the state help the poor? It seems like while you may be shrinking the gap between rich and poor, you're doing it from a direction which helps nobody.

What measures can be taken to increase the ability of intergenerational wealth transfer of blacks that doesn't impinge on anyone's ability to do so, but only increases it? Would you consider it a good solution if the ability of whites was increased as well?

Jeremy Gregg said...

I like your thoughts about CDM -- I have half-jokingly thought about sending out invoices instead of appeal letters. :)

However, I think it's unrealistic to think that a reduction in taxes would be off-set by an increase in donations. I think it would just result in people becoming more tied to this earth through the acquisition of material goods. The reality is that only government can require contributions (taxes). However, I would not expect them to do all of the work: I would prefer that they redistribute this money to NPOs in the form of grants and contracts.

The sad reality is that the government is proposing changes to tax law that will reduce the incentives for people to donate (particularly with in-kind goods, which are precious to most charities). Decreasing taxes reduces the amount of money available for charities. Decreasing incentives to donate reduces the amount of money available for charities. Reducing government programs for the needy, a major priority of the current administration, increases the need for non-profits.

This is a bad trend. Let's hope that Christians can see it, and compensate by adopting the system that you describe.

For those who want to get started today, here is the link to Central Dallas Ministries:

Jeremy Gregg said...

Oh, and on the matter of estate tax, I was listening to a radio show the other day with a Republican talking head who made the same claim that estate taxes hurt family farms and Small Businesses. Yet, when asked, he couldn't cite a single example of a family farm or business that had been closed because of the estate tax. I think that it makes some sense from a purely intellectual point, but I have yet to find any evidence of it.

IBreakCellPhones said...

One reason you probably haven't heard much about farms and businesses being sold off is that a lot of preparation goes in to tax planning for small businesses. If, for instance, the proprietor knows that the estate taxes will come to $500K, he or she would take out at least that much life insurance. This, of course, reduces the amount of money available for him or her to use to expand his business by the amount of at least the premium. There are additional expenses as well, such as those for the accountants and lawyers involved in the planning, and so forth.

What would the small businesses be like if they didn't have to plan around these large taxes?

Anonymous said...

They pan *NO* taxes. They are *UNDOCUMENTED* They are paid in cash. Theat is the problem. Theat is why they get hired. A legal resident manikn $10/ hr cost a company mor than an illegal making $13.65 because the legal pays taxes and the illegal pays *NONE* he has no documents.
Rod Stanton

Larry James said...

Rod, you miss my point completely. The fact is undocumented workers often use fake social security cards and numbers and they DO pay these taxes! They pay SO MUCH in taxes that even the IRS doesn't turn the money back or pursue with INS (now Homeland Security)the fact that the workers are using bogus numbers and id. The fact is "undocumented workers" are helping support what the President is now arguing is a failing system. The point here to be understood is that millions of undocumented workers do pay Social Security taxes because employers know that to hire and not pay could mean all sorts of problems with the IRS.

Anonymous said...

Larry you do not understand They are *UNDOCUMENTED* because they have *NO DOCUMENTS*. I know several businesses that hire these people and pay them *CASH* again *no documents* No taxes of any kind are collected. The do not exist on the company's records.
*undocumented* They are phantom employees who net at $5 an hour more than a legal does at $7 because no taxes and no other payroll related benefits are taken.

Go to Culver City or Santa Monica and visit the plant floors of some of the biger companies. Count heads, then check the payroll- not only is no one out sick, vacation or personal day but some are there twice. They tend to have ~120% of their employees on the floor.

Rod Stanton

Larry James said...

Unfortunately, Rod, you don't understand. Re-read what is written. Then check out the documented fact that many, many "illegal aliens" use fake SS cards, the IRS knows it, but takes no action because these workers are paying so much into the SS and tax system--money they will never, ever recover. Money that will pay your retirement. The hard to believe reality is that the IRS takes no action becasue to do so would cut off this flood of money. The problem you describe is different. If these workers have no SS number (fake or legit), then why doesn't INS (or whatever it is called these days) take action? I suspect it has something to do with the government's bias in favor of business interests and against American labor in general. Check the facts. You will be surprised.