Tuesday, February 15, 2005

The Link Between Immigration Reform and Social Security Reform

This last week Democrats and Republicans went to bat on their respective positions regarding social security. Democrats like Harry Reid refuse to consider private accounts and Republican allies of the president vow to never consider any increases in payroll taxes. Some more moderate voices were, however, willing to discuss all available options including wage indexing and/or increasing retirement age. Some said that what is needed is increasing the tax base of the country. That sounds like a good idea. How? Creating more jobs, they say. Ok, that’s fair but it is also like saying: The best way to get more shade from the sun is plant some more trees. Job creation beyond normal growth will require a long-term strategy and a whole host of economic policy decisions that one can only hope will yield desired results over time.

What I did not hear anyone talk about is the estimated 10 million or so illegal immigrants currently living in the U.S. Don’t they provide a near-term solution to increasing the tax base of the country? Many of them already hold jobs but are unable to pay taxes because they are undocumented. It is not that they do not want to pay payroll taxes including social security taxes, but rather that they can not. If president Bush succeeds in persuading Congress to adopt his immigration proposal, that would inject at least a few million people into the formal economy, hence, providing an instant increase in the revenue stream of social security. But because of the fear-mongering revolving around the issue of immigration, politicians in Washington do not want to even come close to being labeled pro-immigration in this post-9/11 era. For his stand, I give the president a lot of credit. It is one issue that shows him to be both compassionate and pragmatic and I suspect that his economic logic has something to do with his position on immigration.

I am not saying that immigration reform will single-handedly solve the long-term social security problem - far from it. What I am saying is that it is part of the solution and it would be foolish not to exercise it, as the president seems to full well realize.


Blogger Toad734 said...

Do you really think that those illegal immigrants are making enough money to even pay taxes? Remember poor people in this country don't pay taxes. Ya maybe a little SS tax but looking at what an illegal immigrant makes, does it really add up to anything?

February 18, 2005

Blogger Jawad said...

In response to your question about Immigration and Social Security, you are right about the low wages that most illegal immigrants make. However, if they join the formal economy, they will have to pay SS tax (tax no one gets back). Now a little math will show you that if we take half of the estimated total number of illegal immigrants and assume an average wage of $5 an hour (below minimum wage) . The additional annual revenue for SS will be around $5 Billion a year. It certainly is not enough to close the projected SS deficit, but $5 Billion is certainly better than 0 and as I said before it would be foolish not to take it. Because what is the alternative, really? The government is not about to engage in the mass deportation of 10 million people. That’s not going to happen. And as long as there is a massive economic divide between north and south, people will continue to try to come here in search of a better life and I do not blame them nor do I expect the government to suffocate the borders because the economic cost of such folly on cross-border trade, government budget, and the overall economy is of suicidal proportions.

"You exercise the options you have, not the options you wish you had, or wish to have at a later time"

February 19, 2005


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