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REVIEW & OUTLOOK

The Old and the New
Immigrants play a key role in Social Security.
http://www.opinionjournal.com/editorial/feature.html?id=110006397


Thursday, March 10, 2005 12:01 a.m.

Everyone knows by now that two major items on President Bush's second-term agenda are Social Security and immigration reform. Less known is how closely related the issues are.

With so much attention focused on illegal immigration, it's easy to forget that most foreigners come here legally. In addition to replenishing our workforce and spurring economic growth, these hard-working individuals help fund benefits for current and future retirees. And according to a new research paper by the National Foundation for American Policy, immigration will continue to affect Social Security regardless of whether Mr. Bush succeeds in modernizing the system with private accounts.

The study, based on government data supplied by the Social Security Administration (SSA), was prepared by Stuart Anderson, a former Immigration and Naturalization Service official. Mr. Anderson reports that stopping 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."

That "trust fund" is of course merely full of government promises, not cash in the bank. Social Security is a pay-as-you-go program in which the payroll taxes of current workers are transferred to current retirees. This is why additional labor, courtesy of immigration, is so important to the system. How important? The study notes that an immigration moratorium would increase the trust fund deficit by almost a third over the next 50 years, require Social Security tax hikes of a half-trillion dollars to cover the lost revenues, and cost someone earning $60,000 in 2004 more than $1,800 in higher payroll taxes over the next decade.

In 1996, Congress considered reducing immigration by about 40%, but the effort died in the Senate. If such cuts were to become law today, the Social Security deficit would grow some 13% by 2050 and require more than $200 billion in tax increases. By contrast, increasing immigration would boost Social Security revenues and help close the funding gap. A 20% rise in foreign workers, for example, would add $101 billion to the trust fund over 50 years and $128 billion over a 75-year period.

There's also the matter of what newcomers do for the country's overall economy. Quite a bit, it turns out. Halting immigration, the SSA data show, would reduce both the growth rate of the U.S. labor force and the rate of the country's GDP "by approximately one quarter of one percent (0.25%) per year, initially, a notable amount." That's a point lost on anti-immigration Republican lawmakers who claim to know something about labor markets.

Immigration alone won't close the Social Security funding gap, so the sooner we begin moving away from the current system, the better. In recent House testimony, Fed Chairman Alan Greenspan repeated his support for "the general issue of increased immigration" because "it's good for the country," not because it will fix our Social Security problems, which run deeper. That said, immigration both buys us time and ultimately will help make entitlement reform easier. Even under the Bush Administration's proposal to divert a small portion of a worker's payroll tax into a private account, the bulk of the system would remain pay-as-you-go for many years to come.

Thus, a Bush-style guest-worker program, both to regulate the flow of new immigrants and legalize the undocumented workers already in the country, would do more than just improve homeland security. It would also bolster America's economic well-being.
 

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