Monday, December 8, 2014

The Financial Consequences of Amnesty For 4.5 Million Illegals

Just recently, the White House admitted that President Obama's executive action giving illegal immigrants permanent residency, would also give them Social Security and Medicare benefits. In defense of this, they are claiming that this will actually benefit programs like Social Security because these people will now be paying payroll taxes in support of those programs. This in turn, will help balance out our aging population

Well, on the surface that all sounds great.  However, a majority of those who would benefit from Obama's executive order can't speak English; have few, if any, high level skills and little education. Many are functionally illiterate in their own language, and as a result, are incapable of learning English. Over their entire lifetimes they will only be able to work in low level jobs. Taking all this into consideration, you have to understand that the President will be  creating a large and permanent underclass.  In this country, those kinds of people will always take more from the government than they put in.

Take, for example, paying taxes. Only 53% of all Americans pay any federal income tax.  However, most of those who make up the remaining 47% -- especially those who have low incomes --  actually get money back from the government for having children and by qualifying for Earned Income Tax credit.  So, if most of these people are low income workers, what benefit are they going to be to our tax system when they don't pay income taxes?

Then, there's Medicare and Social Security.  The White House claims that these programs will only be strengthened by having them pay into the Federal Insurance Compensation Act (FICA) fund (the payroll tax that collects the funds needed to support Medicare and Social Security).  Of course that would be true only if they weren't so far skewed to the low income side of the equation.

You see, the FICA tax is a fixed percentage tax on your gross wages.  The amount paid diminishes with low income individuals; meaning that he middle class and the upper middle class will foot the bill for most of the future payouts.  Thus, when a low income worker goes on Medicare, he/she receives the same benefit as everyone else; while having paid relatively little into the system. The same is also true with Social Security.  Therefore instead of strengthening these two benefit programs, these newly minted beneficiaries are only going to help speed them toward insolvency.  If you don't think this isn't already a problem, just look at this chart on Social Security:
Of course, this projected insolvency was calculated before Obama's action on immigration. There might be a short term increase in funding from these younger workers paying into the system, and thus, delaying insolvency.  But, when they do start retiring, the impact on will be significant and rapid because too few dollars were added to the fund to pay for their benefits.

In my opinion, the long-term survivability of the benefits to our nation's seniors is being put at risk so this President can garner future Hispanic votes for Democrats.  Similarly, this nation's debt will only increase as we payout an increasing number of tax dollars in Earned Income Tax Credit refunds.  This is why there should have been a fully explored and debated reform of immigration through Congressional means.  Instead, we have another go-it-alone action that will have far reaching consequences; long after Obama is out of office. Then some other President or Congress will be saddled with the cleanup.


Under Executive Action, Immigrants Are Entitled To Social Security Benefits:

Illegal immigrants could receive Social Security, Medicare:

Commonsense Immigration Reform Will Strengthen Social Security:

TPC Tax Topics | Who Doesn't Pay Federal Taxes?:

Policy Basics: The Earned Income Tax Credit:

What is FICA? - CNN Money:

 Social Security to Become Insolvent Far Earlier Than Expected:

Chart: Medicare insolvency projection:

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