Immigration and Social Security

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One apparent result of the immigration deal between the White House and congressional Democrats is that there seems little chance that the flood of immigrants, legal or otherwise, into this country will slow anytime soon. One economic argument for more immigration is that all those new workers will help keep Social Security solvent. This rationale from the National Foundation for American Policy is typical:

"Maintaining or increasing current levels of legal immigration significantly aids the Social Security system, while imposing an immigration moratorium or reducing legal immigration would worsen the solvency of Social Security, harm taxpayers, and increase the size of the long-range actuarial deficit of the Social Security trust fund."

Indeed, according to Social Security Administration officials, a moratorium on immigration would mean $400 billion less in tax revenue over the next 50 years, a shortfall that would have to be made up in even higher payroll taxes from existing residents. In other words, the SSA is expecting immigrants to contribute $400 billion in tax revenues over the next half century. But given that the current value of the Social Security shortfall is nearly $5 trillion, immigrants alone won't close the gap.

What's more, Social Security analysts are expecting net immigration to gradually slow from current levels over the next two decades, partly because of falling birthrates in Mexico. But even if immigration were 40 percent higher than what the SSA expects, it would push back by only a few years–from 2041 to 2043–the date when the trust fund is predicted to become exhausted. Now there is an analysis by Northwestern University economist Robert Gordon arguing that SSA officials are vastly understating future immigration levels. Others contend that Social Security is also vastly underestimating future economic growth, another thing that would help Social Security solvency.

Indeed, many countries are combining the two issues–immigration and economic growth–to formulate an immigration policy that is geared toward attracting highly educated, highly skilled immigrants. In Australia, immigration is based on the skills and talents the newcomers potentially bring to the economy. And the same approach will be adopted in the United Kingdom next year.

Analyst Steven Malanga of the Manhattan Institute is a big advocate of implementing an Australia-type of system here in America, and so far he is mildly optimistic about the immigration compromise. "The problem is that the devil is in the details, but I am encouraged that the philosophical underpinning of this legislation seems to move us toward a merit-based, skills-based immigration policy. I could support a lot of the other compromises if this created a long-term change in immigration policy."

So maybe Bush and Congress, by pushing America toward an immigration system built around skills rather than around reunifying family members, have helped save Social Security after all.

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immigration reform
social security