Social Security: Should Undocumented Immigrants Be Allowed Into the System?
Social Security is one of America's oldest and greatest social programs. For nearly eight decades it's been providing a guaranteed monthly payout to our nation's retired workforce, with more than three out of five of today's seniors leaning on their monthly benefit check for at least half of their income.
But, as you're likely aware, it's also a program facing a number of challenges. A handful of ongoing demographic changes that include the retirement of baby boomers, which is weighing on the worker-to-beneficiary ratio, increased longevity over many decades, lower birth rates, and growing income inequality, are set to alter America's top social program. According to the 2018 Social Security Board of Trustees report, the program will begin expending more than it collects in revenue very soon, with its $2.9 trillion in asset reserves built up since 1983 vanishing by 2034. Should this excess capital disappear as forecast, a cut to benefits of up to 21% may await then-current and future generations of retirees.
Clearly something needs to be done to reform Social Security. The big question is, "What?"
Plenty of Social Security solutions, with little consensus
To be clear, there are countless proposals on the table from both sides of the political aisle. Both the Democrats and Republicans have a respective core idea that would, on paper, significantly strength Social Security. Democrats prefer lifting or eliminating the 12.4% payroll tax cap on earnings, currently set at $132,900 in 2019. By making more or all earned income for the wealthy taxable, it would generate more revenue for the Social Security program.
Meanwhile, Republicans prefer gradually raising the full retirement age to counteract increased longevity. Currently set to peak at age 67 for folks born in 1960 or later, members of the GOP on Capitol Hill have called for a gradual push to age 70 for the full retirement age. This would require future generations of workers to either wait longer to receive their full benefit, or to accept a steep permanent reduction if claiming early. Either way, it reduces the long-term outlays from the program, thereby lowering expenditures.
But there have been a number of proposals made by both parties that don't fit this traditional mold. For example, Marco Rubio's (R-FL) Economic Security for New Parents Act, and the more recently introduced Cradle Act, would both allow new parents to essentially borrow against their future Social Security benefits to take paid parental leave. In exchange, these parents would be agreeing to delay the start of retirement benefits when they're eligible.
A controversial Social Security reform idea has emerged
However, last week, one Democratic presidential candidate really pushed the boundaries of nontraditional reform, although her ideas were more of a collection of campaign promises should she win the Democratic nomination than an official proposal.
At a campaign stop in Davenport, Iowa, Sen. Kirsten Gillibrand (D-N.Y.) proposed the idea of allowing all current residents in the United States -- meaning American citizens, legal immigrants on the path to citizenship, and undocumented persons -- a means to pay into the Social Security system. Here's Gillibrand's official statement, in its entirety:
Right now, only American citizens, and those immigrants legally admitted for citizenship, who have earned the requisite 40 lifetime work credits, are eligible to receive a Social Security retirement benefit. This means that being born in this country isn't an entitlement to a Social Security benefit or the other coverage it provides, such as disability benefits or survivors insurance protection.
Meanwhile, undocumented workers without a path to citizenship have no means with which to ever receive a dime from Social Security. Asylum seekers may have the ability to obtain a monthly benefit from the Supplemental Security Income (SSI) program, which is overseen by the Social Security Administration. But it's important to understand that an SSI payment and a traditional Social Security retirement benefit aren't the same thing, nor are these two programs funded in the same manner. Plain and simple, undocumented workers currently receive nothing from the traditional Social Security program. Period.
Yet, for what it's worth, undocumented workers are currently contributing about $13 billion annually to the Social Security program (a little over 1% of collected revenue each year) by using a friends' Social Security number or a fake Social Security number. But, again, they'll never receive a benefit from the program they're paying into as long as they remain undocumented.
What would Gillibrand's reform proposal actually mean for Social Security?
Gillibrand aims to change things by providing all residents in this country, regardless of documentation status, the opportunity to obtain a Social Security number, which would allow them to collect wages legally, as well as pay into the Social Security program via the aforementioned 12.4% payroll tax. As a reminder, these undocumented workers wouldn't be "stealing your Social Security," since the program has always been designed as a social investment in the financial well-being of older workers who could no longer provide for themselves.
Gillibrand's proposal would obviously have some positive or negative ramifications for Social Security. The ability to collect more in payroll tax revenue would be an immediate positive for a program that's currently estimated to be short on cash by $13.2 trillion between 2034 and 2092.
Also, since immigrants to the U.S. tend to be younger, the assumption would be that these folks would be paying into the system for decades to come before they, too, would become eligible for a retirement benefit. In essence, on one hand it looks as if this would be a financially good thing for an otherwise troubled social program.
The downside is that we just don't know what the demographic layout looks like for undocumented persons in this country, because by name they're undocumented. If this group of currently undocumented persons is, on average, older than the legal immigrants this country typically takes in each year, then these folks may not have the means to earn the 40 required work credits to receive a Social Security benefit. This could place an undue burden on the SSI program and worsen the elderly poverty rate.
Additionally, even though immigration is a net positive for the Social Security program over the long run, the unknowns associated with this base of undocumented persons may have the potential to worsen the near- or intermediate-term outlook for the program.
Without an official bill and just some campaign commentary to go off of, this is about as far as the analysis can go. But make no mistake about it, allowing undocumented persons into the Social Security system is a polarizing proposal with a number of unknowns.
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