Jason Richwine, Center for Immigration Studies, April 5, 2021
Under current law, illegal immigrants are net contributors to Social Security and Medicare. They partially pay in to entitlement programs, but cannot legally receive benefits. By granting eligibility for benefits, however, amnesty would transform illegal immigrants from net contributors into net beneficiaries, imposing steep costs on the Social Security and Medicare trust funds:
- Amnesty would impose a lifetime net cost on Social Security and Medicare Part A (hospital insurance) of about $129,000 per amnesty recipient. This cost is the present discounted value of benefits received minus new taxes paid.
- If 10 million illegal immigrants receive amnesty, the total cost to Social Security and Medicare Part A would be roughly $1.3 trillion in present value, equivalent to a one-time transfer of 6 percent of GDP.
- Because most of these costs would occur outside its 10-year budget window, the Congressional Budget Office is unlikely to include them when it scores amnesty legislation.
Congress may consider several bills this year that would offer legal status and a path to citizenship to illegal immigrants. Although amnesty would have wide-ranging legal and political effects, this report focuses on the most salient fiscal effect – namely, the added costs to Social Security and Medicare.
Amnesty is costly to Social Security and Medicare for two main reasons. First, both programs have a progressive benefit structure, meaning that lower-income participants receive more benefits relative to their contributions compared to high earners. In the case of Social Security, participants contribute the same 12.4 percent tax on all earnings up to the maximum taxable salary, but their benefits increase at a slower rate as their earnings increase. Medicare is even more progressive because it hardly depends on earnings at all. Once participants have worked for 10 years at a minimal earnings level, they become eligible for the same benefits as high-earning, full-career workers. Because illegal immigrants tend to have lower earnings and work fewer years in the U.S. than the average Social Security and Medicare participant, as a group they will benefit from these programs’ progressive benefit structures — if, that is, they become eligible through amnesty.
A second reason that amnesty would be costly to Social Security and Medicare is that many illegal immigrants are currently paying into the system without accruing any benefits in return. Although the exact percentage is unknown, roughly half of illegal immigrants are thought to be contributing payroll taxes — either because they entered a fake Social Security number (SSN) on employment forms, or because they acquired a real SSN through former legal status or fraud. The “free” contributions made by these taxpaying illegal immigrants are a fiscal positive for the U.S., but amnesty would reverse the situation. Once illegal immigrants receive amnesty and become eligible for Social Security and Medicare, they will no longer be net contributors who partially pay in without receiving anything in return. Instead, they will become net beneficiaries who receive more in benefits than they contribute in taxes. It is this dramatic change in status that makes amnesty so costly to the system.
This report estimates amnesty’s impact on Social Security and Medicare by comparing the new cost to the status quo in which illegal immigrants continue to work in the U.S. without authorization. In order to contain the analysis to programs funded through the payroll tax, this report considers only Social Security and Medicare Part A (hospital insurance). Although amnesty is surely costly to Medicare Part B (outpatient care) and Part D (prescription drugs), those programs are funded through general revenue, and including them would require a much broader analysis.
Based on a set of plausible assumptions, this report estimates that amnesty will confer about $129,000 in net entitlement benefits to each amnesty recipient, implying a $1.3 trillion cost if the amnesty covers 10 million illegal immigrants.
Unfortunately, the Congressional Budget Office usually projects budgetary impacts only 10 years into the future, meaning it will capture almost none of the Social Security and Medicare costs associated with amnesty. Costs falling outside of the 10-year budget window are no less real, however. Lawmakers need to be aware of the full, long-term costs of any amnesty legislation that comes up for debate.
The costs described here are driven by amnesty itself, not by immigration in general. Whether bringing more immigrants into the U.S. burdens entitlement programs is a complicated question that hinges on issues of fertility and long-term growth. In the context of amnesty vs. the status quo, however, the immigrants are already here — the only issue is whether the U.S. will decide to pay them Social Security and Medicare benefits that they otherwise would not receive.
One may object that some illegal immigrants “deserve” to collect entitlement benefits because they are paying into the system. Legally, however, they cannot collect, and the government’s baseline fiscal estimates assume they will not. It is important to at least acknowledge the added cost associated with making illegal immigrants eligible for entitlements, even if one prefers that policy change as a normative matter.
Furthermore, the ethical case for allowing illegal immigrants to collect benefits is not so obvious. Most illegal immigrants surely knew they would be ineligible for benefits if they crossed the border without authorization or overstayed their visas. They chose to do so anyway. Unless one believes that there is nothing at all objectionable about living in a foreign country illegally, then taxation-without-benefits could be considered part of a reasonable set of penalties for breaking the law.