Should Social Security Extend to Illegal Immigrants?

A study by Alan Gustman and Thomas Steinmeier looked into how Social Security benefits are calculated for immigrants and people born in the United States.

They found that, under current rules, immigrant workers get a higher return on the money they pay into Social Security than U.S. natives do. This difference isn’t because immigrants have less income or wealth.

This unexpected outcome has two main causes. First, the Social Security formula gives more benefits to people with lower lifetime earnings.

Second, any years an immigrant spent working outside the United States are counted as years with zero income. When Social Security calculates benefits, it averages the highest 35 years of earnings.

If someone has years with zero earnings, it lowers their average income. This makes it seem like immigrants earned less over their lifetime than they actually did when working abroad.

Because of this, every dollar that immigrant workers contribute to Social Security ends up giving them more benefits compared to U.S. natives. Gustman and Steinmeier calculated Social Security benefits for both groups, focusing on people born between 1932 and 1941.

They showed that the benefits formula replaces a higher percentage of total earnings for immigrants than for those born in the U.S.

For example, men aged 51 to 61 in 1992 who were born outside the U.S. paid about 76% of the taxes that U.S.-born men did.

However, they and their families will receive about 83% of the benefits that U.S.-born men get. High-earning immigrants who have worked in the U.S. for 10 to 20 years benefit the most from this system.

In their first 20 years of working in the U.S., immigrants earning $10,000 or more per year receive 70% to 80% of the Social Security benefits that native-born Americans get for a full working life.

This transfer of benefits from U.S. natives to immigrants isn’t justified by need. In the study’s sample, immigrants had similar income and wealth to U.S. natives.

In fact, the average income of immigrants was 3% higher than that of people born in the U.S. Gustman and Steinmeier argue that there’s no good reason to have a formula that automatically gives immigrants higher benefits. They suggest there are better ways to help poor immigrants if that’s the goal.

The researchers proposed an alternative policy. They suggested adjusting Social Security benefits based on how much of a worker’s life was actually spent in the U.S. With this system, an immigrant and a U.S. native who earn the same amount each year would get the same return on their Social Security taxes.

This change would reduce the benefits paid to immigrants in the sample by about 7%. By adjusting benefits based on a 35-year work period, the total benefits paid to immigrants born between 1932 and 1941 would decrease by $7.5 billion.

Foreign-born men would pay 76% of the taxes that U.S.-born men pay and receive 78% of the benefits for their families.

This approach reduces the extra benefits for immigrants but maintains higher benefits for low-wage workers, whether they are immigrants or U.S. natives.

Even though immigrants get a higher return on their Social Security contributions than U.S. natives, the study’s immigrants still paid slightly more in taxes than they will receive in benefits.

However, U.S.-born members of the same age group will have an even bigger gap between taxes paid and benefits received.

Since immigrants contribute more to Social Security than they take out, it’s in the interest of U.S. natives to include immigrants in the system, even if the system currently favors immigrants.

In conclusion, the current Social Security system gives immigrants a better deal due to how benefits are calculated. Some researchers suggest changing the system to make it fairer.

Read More:

Social Security Update: A Map Shows Which States Are Likely to Get the Smallest Raises!

Official: Social Security Is Making a Big Change to The Way Payments Are Made in November!

Whether illegal immigrants should receive Social Security is a separate question, but understanding how the system works for all immigrants can help inform that debate.