Although it may seem strange to push amnesty bills in the middle of a border crisis, Democrats in Congress are doing just that. The legal, political, and, economic ramifications of amnesty are all important, but there is a fiscal effect that I fear will be overlooked, even by the CBO. It’s the steep cost that amnesty would impose on Social Security and Medicare.
The cost is steep in part because of a fiscal benefit that illegal immigrants generate as long as they remain illegal – namely, free contributions to our entitlement programs. Although the exact percentage is unknown, roughly half of illegal immigrants are thought to be contributing payroll taxes, usually because they use Social Security numbers that are fake, stolen, or no longer authorized for work. Despite their contributions, illegal immigrants are generally not eligible to collect any benefits – hence, the fiscal benefit to Americans.
Amnesty would transform that benefit into a large cost by making recipients eligible for Social Security and Medicare. Yes, all amnesty recipients will have to contribute payroll taxes in order to collect benefits. However, these programs have progressive benefit structures that typically allow lower-earning workers to collect more in benefits than they pay in taxes. Even more importantly, under the no-amnesty status quo, illegal immigrants were already going to pay roughly half of the payroll taxes that they owe. Thus, the net cost of amnesty – benefits paid to recipients minus the new payroll taxes they contribute – is especially large.
In a new report for the Center for Immigration Studies, I try to estimate just how large that net cost would be. My best estimate is that eligibility for Social Security and the hospital-insurance component of Medicare would cost about $129,000 per amnesty recipient. (This is a “present value,” meaning the year-by-year costs are consolidated into a single upfront payment.) Thus, if 10 million illegal immigrants receive amnesty, the total cost could be north of $1 trillion.
When the CBO scores upcoming amnesty legislation, it is unlikely to include these entitlement costs because they fall outside its 10-year budget window. Of course, there are often good reasons that the CBO limits itself to one decade. As I note in my report, predicting long-term costs is fraught with difficulty, and a number of simplifying assumptions are necessary to quantify them. Nevertheless, the basic logic here is inescapable – as far as entitlements go, amnesty will convert illegal immigrants from net contributors to net beneficiaries, and the cost of that conversion must be large. We shouldn’t ignore it.