Medicare and Social Security are in trouble. According to a new report, Medicare will become insolvent in 2026, which is three years earlier than previously forecasted. Social Security is projected to become insolvent in 2034. More than 62 million people currently depend on Social Security income, and about 60 million, most of whom are age 65 or older, rely on Medicare-funded health insurance.
A major policy change is the only thing that can put these programs back on a sustainable path. Nothing short of a complete overhaul will fix them. In our current hyper-partisan environment, that is unlikely. The best we can do for now is shore up these programs’ financial health at the margin.
The best way of doing that is by increasing immigration.
Immigrants use social benefits at lower rates than natives do.
Immigration is a contentious topic. Many want to restrict it. But studies of the effects of immigration suggest we should actually encourage it. Immigrants use social benefits at lower rates than natives do: for instance, they consume 22 percent less Supplemental Security Income on average. Legal immigrants pay the same income and payroll taxes, including those that fund the social safety net, as do natives. Combined with immigrants’ higher labor force participation rate—for male immigrants it’s about 80%, which is 10% higher than for male natives—it’s clear that immigrants come here to work, and that making it harder for them to do so worsens the financial condition of the social safety net.
Critics may reply that legal immigration is all well and good, but illegal immigration is a drain on public funds that needs to be plugged. But even illegal immigration contributes to the health of the social safety net. Illegal immigrants cannot collect social safety net benefits, except for emergency medical care (Medicaid). And most illegal immigrants pay income and payroll taxes, too. Between 50 and 75 percent of illegal immigrants pay federal income taxes, including the FICA tax, which funds Social Security and Medicare. Illegal immigrants are making these contributions even though they won’t see any benefits. In 2010 Social Security administrators estimated that illegal immigrants contributed more than $10 billion to the Social Security trust fund on net.
Worryingly, immigration is showing real signs of decline. The number of illegal immigrants peaked in 2013 and has held steady since then. Legal immigration is holding steady at around 1 million entries per year, but in 2018, the number of high-skilled (H1-B) visa applications fell for the first time in 5 years. We must reverse these trends if we want to give our social safety net a fighting chance.
We need something that can carry the load previously borne by domestic demographics.
In the past, our social safety net has been kept afloat by a rising population. But native births have declined from 3.46 million in 1970 to only 3.1 million in 2014. In addition, there are far fewer workers per benefit recipient than in previous decades. In 1960, there were 5.1 workers per Social Security beneficiary. Last year, there were only 2.8 workers per beneficiary. We need something that can carry the load previously borne by domestic demographics. Immigration can help smooth things over until lasting policy reforms can be implemented.
Whether legal or illegal, immigration is a boon to the domestic economy. Immigrants’ production of goods and services makes us all better off. A portion of this increased output can be diverted to shoring up the social safety net. It won’t be enough by itself to stave off insolvency, but it can buy some time. The question isn’t whether we can afford to increase immigration; it’s whether we can afford not to.
Alexander William Salter
Alexander William Salter is an associate professor of economics in the Rawls College of Business at Texas Tech University, the Comparative Economics Research Fellow at TTU’s Free Market Institute, and a senior fellow with the American Institute for Economic Research’s Sound Money Project. Follow him on Twitter @alexwsalter.