April 15, 2005


Taxation without benefit

By Robert H. Linnell

    Millions of workers in the U.S. pay billions in taxes and yet have no possible way to receive benefits. Who are these people? They are illegal immigrants. They all pay Social Security taxes, Medicare taxes and to a lesser extent income taxes. At 7.65% of earnings (matched 100% by employers) even the farm worker who only earns $10,000. contributes $765. (adding the employer match makes a total contribution of $1530.). Just how does the system work to collect these taxes?

Estimates on the number of illegal aliens that are in the U.S. vary widely with numbers ranging from 10 to 20 million or even more and growing by more than one million  each year. Immigrants come here for jobs and there is plenty of work for them at the lower wage and more menial positions that Americans don’t want. The annual arrival of 1.5 million legal and illegal immigrants plus 750,000 births to immigrant women provides three-fourths of all U.S. population growth. The Census Bureau estimates this growth will increase the U.S. population from its current 295 million to over 400 million within 50 years.  

Since the crackdowns on employers of illegals they now require legal documentation for all employees. This is no problem. For about $150 an illegal can readily secure a package which includes a Social Security card and a green card. Never mind that the Social Security number is bogus. The employee and employer then ship off to Washington their combined 15.3% of wages and, finding no record of the bogus Social Security number they place these funds in an “earnings suspense file.” These funds amounted to about 10% of the Social Security surplus last year and in total are approaching $200 billion. This is a great deal of money and with its massive deficit and concern for the long term finances of Social Security and Medicare there is a  temptation to just take the funds and not worry about justice issues.

In early 2003 efforts were made to pass H.R. 489, “The Social Security for American Citizens Only Act.” Congressman Ron Paul, a typical supporter argued that “...Paying benefits to non citizens is an insult to millions of Americans who pay into Social Security their entire lives, pledge their loyalty to America as citizens, yet now face the possibility of a bankrupt system when they retire.”

In July 2004 the U.S. and Mexico signed a controversial agreement that could allow illegal Mexican workers to collect U.S. Social Security benefits. This so-called “totalization agreement” (similar to that existing with some 20 other countries) must be approved by Congress and the Mexican Senate. Both Mexican and American workers who have divided their working careers between the two countries would be eligible, on a prorated basis, to benefits from both countries. Mexican workers must be able to document at least 18 months of work in the U.S. Clearly Mexican workers in the U.S. would be the primary beneficiaries. In the first five years Social Security officials estimate that there would b 50,000 eligible Mexican workers costing about $100 million per year. Long term costs would be drastically larger. Opposition is strong and the required Congressional approval is unlikely.  

The issue of fairness to illegal immigrant workers, and the taxes they pay, is imbedded in the larger issue of what to do about illegal immigration in general. President Bush has proposed one set of plans that are bogged down in controversy. Business interests need immigrant labor to sustain their labor forces. The aging American population will increase this need for new younger workers. Some are concerned that illegal immigrants are a source of terrorists.  

At this time there is no clear path to resolve these issues into legislation that could pass in Congress.

Americans need to engage their Congressmen in dialogue on these issues and help to develop legislation. The labor needs of business need to be met but not to drive down wages with lower cost immigrants. There are a lot of jobs most Americans don’t want which immigrants are eager to fill. The terrorist problem is exaggerated and should not be a major factor. We must legitimatize foreign workers and give them a fair chance to become citizens. Once they become citizens their taxes will be counted just like other Americans. Short term workers could be given an exemption from Social Security and Medicare taxes. There are a lot of ideas that have not yet been explored. Now is the time to come up with new ideas and work for solutions.


1. http://www.theamericanresistance.com/ref/illegal_alien_numbers.html and http://www.cis.org/topics/current numbers.html

2. http://www.thelibertycommittee.org/update02.26.03.htm

Reproduced with permission from: www.my-oped.com.

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