Amnesty Would Worsen the Entitlement Burden

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A new study published in Health Affairs looks at the impact of immigrants’ payments into the Medicare trust fund and concludes that immigrants pay more into the fund than they draw out. Reading just the headline of a recent media report, “Study: Immigrants put billions more into Medicare than they use,” could lead to an errant conclusion that immigration, even legalizing currently illegal immigrants, could help our overburdened entitlement programs.

Regrettably, granting amnesty would strain our entitlement programs in the long run. The Health Affairs study finds that “[i]mmigrants generate a surplus for Medicare primarily because so many of them are working age adults and the group has a high labor-force participation rate—a combination that generates large payroll tax payments.”

As The Washington Post acknowledges, “This paper does not explore what happens as demographic trends shift, as immigrant workers get older—and many would age onto the Medicare program.”

A major problem with entitlement programs like Social Security and Medicare is that they are transfer programs—relying on current workers to pay for current retirees. Looking at a population that is weighted toward workers will of course show that, on average, they are paying more into the system currently than they are taking out. That is just the way the system is designed.

A better approach would look at lifetime costs. Heritage recently published a study that calculated the cost of illegal immigrants, tabulating more than 70 government services and benefits—including Medicare—and adding up more than 30 categories of taxes (including even lottery tickets).

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The study concluded that at every stage of their lives, under amnesty, formerly illegal immigrants would receive more in government services and benefits than they paid in taxes, even if during some periods they might pay more in payroll taxes than they receive in (largely) retirement benefits. Over their lifetimes, Heritage calculated that, on average, formerly illegal immigrants “would receive more than $3.00 in Social Security and Medicare benefits (adjusted for inflation) for every dollar in FICA taxes he has paid.”

We are hardly alone in the conclusion that these entitlement programs end up spending more on individuals than they had paid in. Eugene Steuerle, at the left-leaning Urban Institute, has published a piece looking at how much an average wage earner pays into and receives in benefits from these two programs.

Even average wage-earning couples who have worked all their lives and paid payroll taxes receive a huge net benefit from these programs, especially Medicare. Anyone with a lower wage who does not work for their entire lifetime in the U.S. (like illegal immigrants) receives an even bigger net gain courtesy of the taxpayer.

It is important to look at the lifetime costs and the totality of taxes and benefits so as to get the whole picture of what amnesty would cost. That is what the Heritage report did, while the Health Affairs piece did not.

Source material can be found at this site.

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