“Totalization” No Threat to Social Security

February 26, 2004 • Commentary
This article appeared on Cato​.org on February 26, 2004.

The Mexicans are coming, and they are going to take away our Social Security. So say the latest warnings from anti‐​immigration alarmists. But, as with previous claims that immigrants were going to take our jobs or live on welfare (I always wondered how they were supposed to do both), this latest brouhaha is much ado about nothing.

The source of alarm is a new agreement, known as “totalization,” which the Bush administration is negotiating with Mexico. Totalization would allow the citizens of either country who live and work in the other country to qualify for Social Security benefits that they earn while working there. They could receive those benefits even after they return to their home country, and in some cases could combine credits earned in both countries to qualify for benefits.

There is nothing particularly unusual about this agreement. The U.S. has been negotiating totalization agreements since 1978, and currently has such arrangements with some 20 countries. There were few cries of alarm when the U.S. signed such an agreement with Australia in 2002. In fact, Americans have generally been the biggest beneficiaries of totalization because they are more likely to work for multinational corporations and split their working careers between the United States and foreign countries.

Of course, Mexico is a bit different because there are more Mexican citizens working in the U.S. than the other way around. Even so, it is difficult to understand the hysteria.

Most immigrants from Mexico do not stay in the United States for the 10 years needed to qualify for Social Security retirement benefits. But the new rules will likely lead to some increase in the number of recipients. Moreover, because the time needed to qualify for survivors and disability benefits is shorter, those benefit payments can be expected to rise significantly. Still, the overall cost of benefits to Mexican citizens under totalization is estimated to be about $78 million in the agreement’s first year.

By way of comparison, we currently pay $173 million a year to citizens of countries with which we already have agreements. By 2050, the annual payments to Mexican citizens would rise to about $650 million. That is real money, of course, even by Washington standards. But, let’s keep it in context. Given that Social Security currently faces unfunded liabilities of more than $26 trillion, the additional cost of totalization is hardly staggering.

Social Security is facing a financial crisis, but it has nothing to do with Mexican immigrants, legal or illegal. Indeed, at least in the short term, immigration benefits Social Security, increasing the size of the labor force and increasing the amount of payroll taxes collected. In fact, without immigrants Social Security might already be running a deficit. In the long run, of course, the pyramid will come crashing down. But that is because of Social Security’s flawed financing structure.

Clearly, Social Security needs to be reformed. President Bush has, in fact, proposed allowing younger workers to privately invest a portion of their Social Security taxes through individual accounts. That would go along way towards solving Social Security’s financial problems — and creating a better, more secure retirement system for today’s workers.

Scapegoating immigrants will do nothing to solve the problem.

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