Economy / Healthcare / Immigration

Killing Two Birds With One Stone: Immigration and Social Insurance Programs

When addressing the nation last week, President Obama had only brief remarks regarding immigration reform, simply saying, “let’s get it done”. Perhaps this brevity is emblematic of how unlikely immigration reform has become.

While off-putting to some members of Congress, comprehensive immigration reform remains one of the President’s major legislative goals. Though the President has two years left in office, his rhetoric reflects his limitations. In the SOTU Obama insisted he is willing to bypass Congress if it would not work with him stating, “I’ve got a pen and I’ve got a phone”. However, a massive reform bill must come through Congress—and even then it still might be disastrous. (E.g. the ACA passed through the appropriate channel, Congress but without a single Republican vote). After the ACA debacle, few members of Congress want to attempt another comprehensive reform.

It seems President Obama had one opportunity at comprehensive reform. The President chose to use this opportunity on health care reform. Would the U.S. have been better off had the President chose immigration reform instead? Is it possible social insurance programs such as social security and Medicare could have benefitted?

It is difficult to say whether or not the US would have been better off had the President chosen to pursue comprehensive immigration reform instead of comprehensive health care reform. Based on the complexion of the 111th Congress, it is possible that the passage of an immigration reform bill would have also received mixed support along partisan lines. Though, an immigration reform bill might have been easier to implement since it is unlikely to have included error-riddled websites or directly impacted as many people as the ACA. It is possible for the immigration reform bill to have indirectly impacted many more Americans than the ACA.

By 2050, nearly 25% of Americans will be over the age of 65. Health care costs are predicted to double to ~15% of the GDP by 2050. The solvencies of important social insurance programs such as Social Security and Medicare are now at risk. However, immigration may unexpectedly alleviate some of these aforementioned problems. Between 2005 and 2050, immigration is expected to account for 81% of the US population growth. Latinos constitute a great proportion of the immigrants to the US. Also, Latinos on average are younger and have higher birthrates (~2.5 children compared to ~1.8 children in the US). Some experts suggest an increase in legal immigration would improve the economic health of the nation and even accelerate growth. These experts root this belief in the fact that immigrants contribute to Social Security through the payroll tax, even though neither they nor their families are eligible to receive benefits.

Politicians from both sides of the aisle have argued immigrants are “takers” and legalizing millions of illegal immigrants and reforming immigration laws to allow for more immigration would cost the nation trillions. However, mainstream economists have thoroughly debunked this argument. According to these economists, over the next 50 years, immigrants to the US will contribute a net of $407 billion to the Social Security system. Conversely, restricting immigration to the country would actually increase the size of the Social Security deficit by 31 percent over the next 50 years.

Research done by UCLA Professor Raúl Hinojosa-Ojeda suggests that by legalizing all undocumented immigrants and reforming the legal immigration system the US could add $1.5 trillion to the GDP over a decade. However, this is a conditional predication predicated on the occurrence of the best-case scenario. Hinojosa-Ojeda suggests legal workers would earn higher wages than illegal workers, stimulate the economy and create new jobs by purchasing houses, cars, phones, and clothing. However, if mass legalization occurs it is more likely to cause businesses that employ those newly legal immigrants (and pay them below minimum wage) to reduce their workforce in order to maintain profit margins. These newly legal immigrants would be out of work and have a claim to social insurance programs such as food stamps and unemployment benefits. It also unlikely that newly legalized immigrants would immediately go on a spending spree buying houses, cars, phones and clothes…

It is certainly possible for immigration reform to improve the solvency of social insurance programs. Over the next 36 years, studies show that immigrants would add $606 billion to the Social Security trust fund. That is enough money to fund a lifetime of retirement for 2.4 million Americans. However, while more people are paying into these programs it is also possible immigrants will become reliant on social insurance programs and negate any benefits they add. In this case, solvency would improve very little, if at all.

The degree in which immigration reform improves the solvency of Social Security depends on several conditions and assumptions. Most likely if there are benefits to be had they will be experienced over time. Even if new immigrants become reliant on social security programs the solvency of social security programs may eventually improve. A Pew research study of 20 million adult U.S.-born children of immigrants shows that these individuals have median incomes and homeownership rates similar to the general U.S. population. In fact, second generation adult children of immigrants have a lower poverty rate and higher college graduation rates.

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