DC and its think tanks are selling the idea that Immigration Reform will help fix Social Security.  For example, "Improving Lives, Strengthening Finances: The Benefits of Immigration Reform to Social Security".  Without making any statement on the merits of Immigration Reform, there seems to be little actual research that supports the idea that Immigration Reform will improve the outlook of Social Security. 

There are not any reforms on the table for the Social Security Administration to score.  But I make the statement based on information that the SSA has already provided.

First, undocumented workers provide a stable source of unattached revenue.  When Americans pay payroll taxes, the revenue creates future costs in the form of promised benefits.  Undocumented workers cannot collect Social Security benefits.  Millions of undocumented workers pay payroll taxes by either using someone else’s Social Security card or by using a false name and Social Security number.  The Social Security Administration estimated that this revenue exceeded 10 billion dollars in 2010.  Losing free revenue cannot help Social Security.

Second, the demographic mix of workers affects Social Security.  If the immigration reform brings in a higher percentage of single workers, or high-paid workers, or workers that work longer than 35 years then immigration reform may help improve the picture of Social Security.  None of the media reports suggest that the system will enjoy more profitable demographics.  And to be clear, improve the picture of Social Security and fix Social Security are trillions of dollars apart. 

Third, immigrants tend to be a very poor demographic to add to the mix of Social Security because they do not have parents that depend upon the system.  Social Security is an electorial priority.  Voters elect Congress which sets the payroll taxes, which dictates the level of benefits.  We are adding an audience that has no value to parental support.  This change will overtime work its way into our representative government.  Unless the individual prospects of Social Security are dramatically improved for workers - we should expect immigration reform to negatively affect support for the system.

What supporters of Immigration Reform are saying is that Social Security will enjoy a boost in the number of workers.  More workers equals more revenue - but they ignore the cost of taking that revenue.  It may help Social Security in the short-term, but longer term it will make the system even more unworkable.  This is not a good trade-off for the system or the people who will depend upon the system in the future.

The point here isn't the immigration reform is wrong, but the people who tell you that Immigration Reform will fix Social Security are wrong.

In the 2013 Annual Report to Congress, the Trustees announced:

• The combined trust fund reserves are still growing and will continue to do so through 2020. Beginning with 2021, the cost of the program is projected to exceed income.
   
• The projected point at which the combined trust fund reserves will become depleted, if Congress does not act before then, comes in 2033 – the same as projected last year. At that time, there will be sufficient income coming in to pay 77 percent of scheduled benefits.
   
• The projected actuarial deficit over the 75-year long-range period is 2.72 percent of taxable payroll -- 0.05 percentage point larger than in last year’s report..
   
• Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period.

Pew Research has produced a report on the preparedness of generations for retirement. 

"When the Great Recession hit in 2007, the oldest baby boomers faced the real possibility of downward mobility just as they were entering their golden years.The downturn also heightened concerns about retirement planning—or lack of planning—by younger generations. Many younger Americans were already behind in saving for retirement, and suddenly millions of them were out of work or owned homes worth far less than they had been just a few years earlier"  (read more)

The research includes expected revenue from Social Security.  It reports the expected benefit levels to continue forever.  This will significantly overstate the preparedness of early Boomers.  According to the report, various studies have shown that pensions (such as Social Security) contribute as much as 50 percent to the household wealth projections. (See the full study)

The debate about Social Security reform isn’t serious.  It is noise filled with statistics that paint a picture of convenience.  This piece comes from testimony in a hearing about Social Security reform before the Ways And Means Sub-Committee.

Despite Social Security’s great success, its growth in lifetime benefits over time has been decreasingly targeted at its major goals. Even while programs for children and working families are being cut, combined lifetime benefits for couples turning 65 rise by an average of about $20,000 every year, so that couples in their mid-40s today are scheduled to get about $1.4 million in lifetime benefits, of which $700,000 is in Social Security.

What Are The Major Goals Of Social Security?

Social Security is suppose to be old-age insurance, and has virtually nothing to do with other programs for the children and working families.  What is really meant here is that the system does not serve the major goals of the person testifying.

What About The Growth Of Benefits?

In all honesty, this couple does not expect to collect $700,000 or anything close to it.

1. When he says ‘scheduled’ he ignores the fact that this couple expects to retire after the Trust Fund is exhausted which means that they will be subjected to benefit cuts. 
2. These people would likely trigger means-testing that would claw back benefits at more than 10% per year  
3. These people may die before collecting a penny

But the number sounds impressive.  Well, until you consider how much this couple has contributed.  In all honesty, the couple depicted probably deserves more than $700,000.  Someone born in 1970, making 2/3rds of median income (roughly 34K in 2010) will lose about $600,000 in savings to Social Security.  In case of this couple, two people were contributing, and both made more than median income.

If fixing Social Security were easy, it would already be done.  Politicians are paid to hide problems, not solutions from the electorate. 

Nonetheless, the mainstream media continues to say that Social Security is an easy fix.  Typically the line runs something like “Social Security has become the focal point of entitlement debate because it's so easy to find different ways to address its funding problems.”  Basically, the hardest part of fixing Social Security is choosing from so many different options. 

A lot of the ease comes from changing the meaning of words.  The first word to lose its meaning is the word ‘fixed’.  Normally, the word ‘fixed’ means that there is no problem. In the Social Security debate, the word fixed means solvent, or the cost to make our problem a problem for our children.  Solvent and fixed are about 12 trillion dollars apart.  So, saying that fixing Social Security is easy, essentially is comparable to saying it is easy to run a 4 minute mile without telling anyone that the mile is actually only a 100 yards long.

The debate about fixing Social Security isn’t about fixing the system.  It is about paying for it.  The discussion is entirely about increasing revenue or decreasing expense.  The best example of this false dichotomy is the discussion of the COLA change to Chain-CPI.  Social Security is intended to be old-age insurance.  Yet, we are looking at a ‘fix’ which progressively reduces benefits as one gets older.  In all honesty, this is no different than fixing a broken refrigerator by calling it a doorstop.

If we are going to increase revenue, we have to understand that there are three kinds of revenue in Social Security.  The Social Security Trust Fund is funded money.  Contributions are revenue financed with the promise of future benefits.  Finally there are taxes, or the part of the part of payroll taxes on which there is no economic return.  In terms of a house, the word ‘funded’ means that you own the house.  Financed revenue is the loan from the bank.  Tax revenue means that the bank bought the house for you out of the goodness of its heart.

None of these revenue sources provides a stable solution.  Today, the Trust Fund provides about a nickel or a dime per dollar of benefits, but that contribution will go away as the Trust Fund is depleted.  Increasing the level of contributions - say immigration reform - only creates the promise of larger benefits in the future.  This enables us to postpone our problem, but creates an even larger problem for our children. 

The only other type of money in the system is taxes which is a dangerous game for old-age insurance because taxes are a political priority.  FDR rejected this model.  In 1941, he said that the contributions were vital as a means to ensure workers ‘a legal, moral, and political’ right to benefits.  He understood that taxes are dependent upon shifting political priorities.  FDR saw that contributions were the only way to make sure that ‘no damn politician could ever scrap' his program.[1] 

The other problem with increasing tax revenue for Social Security is that it makes it more difficult to raising taxes to control the debt.  We aren't raising taxes as much as we are shifting the taxbase away from debt control to Social Security.  This strategy preserves the debt load for the future generations on whom Social Security depends.

Decreasing benefits is possible, but it is difficult to sell.  The reality of decreasing benefits is that politicians would have to explain to voters that they never made a contribution on which they can expect to collect benefits.  They actually paid a tax on which they collect nothing.  This alternative is very difficult because these same politicians are the ones who have said for years that there is no problem in Social Security.

Every easy solution has a loser, and trying to convince that person that losing is winning is never easy.  So how does the media get back to easy.  We cut the benefits of future generations, and raise taxes on future generations.  It is easy to say that future generations will pay taxes that we will not.  It is easy to say future generations will accept benefit cuts that we will not.  In that context, it is very easy to say that Social Security is easy to fix. 

1 :  The exact quote is : "(Contributions) are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.” (source)

Social Security consists of two programs.  One is old-age and survivors insurance (OAS) and the other is the disability insurance (DI).  While these programs are legally distinct and separate, Social Security OAS is not completely independent of the DI system because both systems draw on the same tax base for support.  They inherently compete against each other for resources. 

The DI system according to the Trustees 2012 is projected to reach insolvency in 2016.  At that time, Congress will have one of three choices.  It will be able to pull payroll taxes away from OAS to fund the shortfall.  It can pull general taxes away from debt control.  Or, it will have to redefine the benefit levels of the DI program.  It is unreasonable to believe that OAS will not be part of this discussion.

If we perserve the 15.3% payroll tax, it is possible to shift the percentages such that DI gets a larger portion of the revenue directly taking money from the OAS program.  This is the assumption built into the Trustee's projection that the combined trust-funds will be exhausted in 2033.  The Trustee's projections use the OAS trust-fund to cover-up the shortfalls in DI.  If we consider the OAS without support for the DI, the Trustees project that full benefits would last until 2035.

It is possible to increase the payroll tax rate from 15.3%, but that tax revenue that cannot be raised for the OAS system. Increasing payroll tax rates for DI, means that it will be harder to raise them for OAS or medicare.  It is possible that we could provide a subsidy from the general tax payer, like the EITC, which is an offset for the high cost of payroll taxes.  Such a change would come at the expense of not controlling the debt.  It is possible to lift the cap making more of the wages subject to taxes, but against this revenue could have been raised as an income tax to control the debt. 

In all likelihood, the issue of DI's financial imbalances will trigger a national discussion about taxes and how to deploy new tax revenue.  If we raise taxes, the voters will set the priority for that revenue.  The priority might be DI.  It might be OAS.  It might be lowering the debt.  It might be something else.

Here is NPR aritcle on the problems in DI, and it is a reminder that Social Security does not operate in a vacuum.

We cover a number of Chuck Saletta's pieces on Social Security.  This piece is worth reading because it is well written and well thought.

"Over the last several years, the news about Social Security's long-term health has gotten progressively worse. With nearly every passing year, the Social Security Administration's annual Trustees' Report has pulled forward the date when the Social Security Trust Funds are expected to run out of cash."

The article spells out the problem and the consequences.  It tells you about the problem, and what is being done about the problems.

Sen. Bernie Sanders (I-Vt.) reintroduced legislation which would increase the amount of wages subject to payroll taxes.   His website provides material describing the bill, here.

In the five years that Sen. Sanders has pushed this legislation, the core problem with it has not changed.  This legislation diverts tax resources away from deficit reduction to Social Security.  Every penny collected under this tax provision could be raised as income taxes that would go to the general fund to either reduce the deficit or reduce the outstanding debt.  This idea is no different than putting your 401K contribution on your child’s credit card.

Over that time, though, the Senator’s promises have severely deteriorated.  Originally he promised that this change would make the system ‘solvent’ for 75 years.  Now he is promising to make the system ‘strong’ for 50 years.   Instead of basing his statement on current information, the news release points to research that is two years old.  He uses old data because Social Security has lost trillions of dollars of solvency over the past two years.  (To understand the difference between 'Fixed' and 'Solvent', here) 

The one thing that has not changed is the willingness of Sen. Sanders to support his ideas with word-games and sound-bites that have no factual basis.  His unique definition of words like ‘pay’, ‘owe’, and ‘cost’ tells the reader that not even the system’s strongest supporters actually believe in the system anymore.  If he still believed in the system, he would not be compelled to mischaracterize what the Trustees have said about the system.

 “Through good times and bad, Social Security has paid out every benefit owed to every eligible American”

Sen. Sanders can make this claim because Social Security can reduce what it owes to beneficiaries.  Social Security hasn’t paid out every benefit promised – just every benefit owed.  In 1983 Congress reduced what Social Security owes to people – substantially.  People who were owed benefits at 65 are now owed benefits at 67.  People who saved for retirement now face a means-tested claw-back against what they are owed.  

Sen. Reid, a co-signer, said “assuming that the only way to strengthen Social Security is to take away benefits that seniors have earned, or raise taxes on the middle class.”  According to the Supreme Court, Flemming V Nestor, Social Security benefits are not earned.  In its ruling, "the Court established the principle that entitlement to Social Security benefits is not contractual right" - (source www.SSA.gov)  In other words, Social Security does not in fact owe anyone anything.

 “Social Security officials say that simple change would yield about $85 billion a year to keep the retirement program strong for at least another 50 years.”

The $85 billion a year could be used to reduce the annual deficits which run nearly a trillion dollars a year.  Pushing this $85 billion to Social Security means that our children will face $85 billion dollars a year in more debt plus interest.  This isn’t a tax on billionaires.  It is a tax on our children. 

 “The most successful government program in our nation's history has not contributed to the federal deficit.”

Sen. Sanders does not let facts get in the way of a good sound bite.  The payroll tax holiday cost the general taxpayer nearly $250 billion dollars of dollar for dollar deficit spending.  The EITC which was designed to offset the high cost of payroll taxes on lower-wage workers is projected according to Forbes to cost $326 billion over the next five years. 

 “It has a $2.7 trillion surplus, and it can pay out every benefit owed to every eligible American for at least the next 20 years, according to the Social Security Administration.”

This is another statement that is factually inaccurate.   The Trustees of the system have said in the 2012 report that the system’s financial resources may last as long as 20 years provided that we have a good economy.  On page 58 of the Trustees Report, the Trustees warn that the system resources maybe depleted in as little as 14 years.  These are what the Trustees call the ‘high cost’ assumptions.  While the report calls them high-cost, fertility, interest rates, and wage growth assumptions actually seem fairly optimistic.

What any reader should see in the news release is a sense of panic in supporters.  They no longer use facts to explain solutions because these ideas aren’t really about fixing Social Security as much as postponing the collapse until the senator leaves office.

Jed Graham, who writes for IBD, discusses new Congressional Budget Office projection showing a worsening financial outlook for Social Security:

“Social Security's financial outlook took another hit this week, as the Congressional Budget Office hiked its estimate for cash deficits from 2013 to 2022 by $212 billion.”   (Read "Social Security Trust Fund Likely To Run Out In 2031")

The article says that "Meanwhile, workers 44 years old who may be more than halfway through their working careers face the prospect of retiring after the trust fund is bust."  It appears that the writer assumes people will retire at 62, which is an option for less than half of Americans.  For people who expect to retire at full retirement age, 49 years-old is the point where workers expect to retire after the trust fund is gone.  Anyone 66 or younger expects to live long enough to have benefits cut.