(Original publication date: May 1, 2007. Republished May 10, 2007, as an Immigrants' Rights Update special report.)

By Jonathan Blazer, Public Benefits Policy Attorney
and
Josh Bernstein, Director of Federal Policy

     As Congress prepares to reform the nation’s immigration laws, it will once again consider proposals under which immigrants would forfeit contributions they made to Social Security before obtaining legal status.  If enacted, these proposals would set the stage for an enormous social problem in the future when these workers retire — many as U.S. citizens — and find themselves indigent because they lack access to the benefits their taxes were intended to fund.

Background

     Contrary to common perceptions, the majority of undocumented noncitizen workers actually work “on the books” for employers who require that their employees have a Social Security number (SSN).  Undocumented people generally cannot obtain a valid “authorized for employment” SSN.  Therefore, many must use an invalid SSN if they are to work in the U.S.  As a result, they and their employers pay billions of dollars in payroll taxes each year, boosting the Social Security and Medicare trust funds from which everyone benefits.[1]  Like any other workers, undocumented workers are both required and encouraged by the federal government to pay payroll and income taxes.[2]  According to the U.S. Internal Revenue Service, undocumented noncitizens paid almost $50 billion in federal taxes from 1996 to 2003.[3]  Recent reports from across the country indicate that during the 2007 tax season, record numbers of undocumented people filed tax returns.[4]

     These contributions are a central theme in the debate surrounding comprehensive immigration reform.  Rewarding work is a core principle on which earned legalization programs are founded.  Yet comprehensive immigration reform proposals have never proposed to afford immigrants the full value of their tax contributions. The proposals contemplate long waiting periods during which many public benefit programs would be unavailable to legalized workers.  Until recently, though, Social Security benefits, a universal entitlement based on the actual earnings of those who have paid into the system, were considered in a different light.  Before last year, comprehensive immigration reform proposals had not attempted to change current law and disqualify lawfully present and citizen workers of credit for work performed and contributions already made to the Social Security system.

     Under current law, undocumented people are ineligible for Social Security benefits.  As long as they are undocumented, they cannot secure credit for their own contributions.  But if and when they adjust to lawful status, they have the opportunity to benefit from their actual earnings record.  This feature of current law carries important advantages:

• It allows immigrants to use the account funded by their own earnings to fend off poverty when they retire or face disability, a benefit not only to them, but also to the communities in which they live.

• It allows any problems or confusion caused by improper past use of an SSN, including the use of a number and identity that may be held by another person, to be corrected.  This benefits everyone, including the Social Security Administration (SSA), because when no one comes forward to explain a discrepancy, it takes far more time and costs much more money to restore integrity to records than it does when someone volunteers an explanation.

• It eliminates the substantial logistical challenge and cost to the SSA of attempting to verify, for each and every past quarter of work used to calculate Social Security benefits, whether the work was performed under a valid SSN issued to that worker.

     Nevertheless, pressure is increasing on Congress to deny workers the benefit of their Social Security tax contributions once they legalize their status.  Under the leading proposals, either

1. Earnings during periods in which the person was not employment-authorized would not be counted for purposes of calculating Social Security eligibility and payments, or

2. A similar result would be accomplished indirectly by making it impossible for legalizing immigrants to correct their Social Security earnings record without risking felony prosecution.

     Regardless of which mechanism is chosen, the proposal would force large numbers of legalizing immigrants into indigence upon retirement and would leave millions of Social Security records uncorrected.  These uncorrected records could result in substantial complications for all workers who have paid into the system.

Seizing Credits for Contributions Made Prior to Legalizing Status

     As mentioned above, under current law, undocumented workers are ineligible for Social Security benefits even though they are required to pay the same taxes as all other workers.  However, the contributions made by these people do accumulate in the Social Security trust fund.  If and when they are granted lawful status, their quarters of coverage from payments made on work that they have actually performed are counted for purposes of determining their eligibility and the amount that they can claim upon retirement or disability.[5] 

Social Security Basics

     Individuals generally become “fully insured” to receive Social Security benefits if and when they have worked 10 years (40 quarters).  The amount of benefits is based on a person’s average earnings over 35 years.  If a person is credited for less than 35 years of work, the missing years are averaged in as zeros, greatly reducing benefits.

Ensign Amendment

     Defeated during the debate on the Senate’s 2006 comprehensive immigration reform bill,[6] but again under consideration in 2007, this amendment would require the SSA, when calculating eligibility and benefit amount, to ignore all payments into the system and quarters of coverage for periods before which an immigrant was issued a work-authorized SSN.  The proposed restriction would apply to any immigrant who applies for an SSN in the future, even after the person becomes a U.S. citizen, irrespective of how long the person has worked in the U.S. or how much Social Security tax he or she has paid into the system.  It would affect workers who obtain legal status in the future through any pathway under immigration law, not only those who participate in a special legalization program under a new immigration reform bill.

White House Concept

     Under a discussion draft of the recently leaked White House principles for immigration reform, “Workers who paid Social Security taxes while working illegally may not obtain benefits based on those contributions unless they were made under a real name with a valid Social Security Number. Fraudulent contributions are forfeited.”[7]

Impact of the Restrictive Proposals

     The Ensign amendment and related White House proposal would reduce or completely eliminate the Social Security benefits for which most legalizing immigrants would otherwise become eligible years — even decades — later when they retire or face disability.  For many, this would mean that they will experience desperate poverty during the last years of their lives.  This policy would also have a profound impact on the economies and social fabric of the communities where these immigrants live.

     Many of the individuals who would be eligible to legalize under immigration reform proposals have been in the U.S. for decades, working and paying taxes.[8]

     These proposals would also threaten the security of surviving citizen spouses and children in the event of a wage earner’s premature death.[9]

Consider a 45 year-old father of three U.S.-born citizens who has been employed for 20 years, paying a total of $50,000 into the system.  Shortly after obtaining legal status and a new SSN, he suffers unexpected death.  His children would be denied $15,000 in annual survivor’s benefits that he earned through his contributions to Social Security.  Instead, they would receive nothing because, despite 20 years of work, he lacked sufficient credited earnings to be considered fully insured.  In addition, it should be noted that disability benefits similarly would be unavailable to this worker and his family in the event that the father became permanently disabled, even if he worked for years after legalizing.

Preventing Correction of Social Security Records

     Absent a specific provision in the comprehensive immigration reform legislation, immigrants who legalize would not be able to correct their records without risk of felony criminal prosecution.  For this reason, even if the Ensign amendment and similar proposals are defeated, many immigrants could be deterred from applying for credit for any contributions made prior to obtaining lawful status.  Fear of criminal prosecution would mean that many would not make the corrections in their records necessary to transfer their prior earnings to their newly issued SSN.  S 2611, last year’s Senate-passed bill, contained a provision that aimed to address this problem.  However, no similar provision is included in the STRIVE Act (HR 1645), the bipartisan House immigration reform bill introduced earlier this year by Reps. Jeff Flake (R-AZ) and Luis Gutierrez (D‑IL).

Consequences of Using an Invalid Social Security Number

     As discussed above, most undocumented workers do not have an SSN validly issued for employment and therefore cannot work on the books unless they provide an invalid number.  This has become a necessary reality for the millions of undocumented people who are navigating the push and pull of the economy’s demand for labor and an immigration system that provides virtually no pathways to lawful status for low-skilled immigrant workers.  Using an invalid SSN to work subjects workers to potential felony prosecution under various laws prohibiting the misuse of SSNs or Social Security cards; however, these laws are aimed primarily at persons who use the violation to steal or conduct other criminal enterprises.[10]  These laws carry stiff penalties of up to five years or more of imprisonment.  In general, a conviction under any one of these laws would subject the person to deportation for committing a crime of moral turpitude and/or an aggravated felony. 

     Without a provision offering limited protection to people who correct their records, millions of workers who legalize under comprehensive immigration reform nevertheless could face felony prosecution — and deportation — for violations incident to their past immigration status long after they have taken the steps necessary to legalize. 

Solution Provided When Immigrants Failed to Correct Their Records in the Immediate Wake of IRCA

     Many immigrants who legalize under comprehensive immigration reform could face exposure and prosecution under these laws if they attempt to correct their Social Security records, absent a provision offering protection from prosecution.  In fact, after Congress enacted the Immigration Reform and Control Act of 1986 (IRCA) (under which millions of undocumented people legalized their immigration status), many individuals who legalized failed to correct their records because they feared the potential criminal consequences.

     To deal with this problem, Congress enacted a provision, 42 USC § 408(e), a few years later, exempting IRCA-legalized individuals from prosecution for having misused an SSN, before IRCA passed, solely for otherwise lawful purposes such as employment.[11]  The protection of section 408(e) did not apply to individuals who sold false Social Security cards or possessed or counterfeited a Social Security card with the intent to sell it, or who misused SSNs or cards to accomplish an illegal activity such as credit card fraud or any other types of theft. 

     Recognizing that some such provision is essential to acknowledging the reality of undocumented work and effectuating the goals of comprehensive reform, last year’s Senate-passed comprehensive immigration reform bill, S 2611, included a provision applying the same limited protection to those who would have legalized under its program.  This provision does not appear in the STRIVE Act.  

What’s Wrong with Preventing Legalized Workers from Gaining Credit for Their Social Security Contributions?

     Wildly inaccurate allegations have appeared on talk radio, the Internet, and inflammatory 2006 campaign ads, [12] such as that last year’s Senate-passed bill would have allowed undocumented people to qualify for Social Security benefits, or would have taken benefits from other seniors and given them to the undocumented.  Many who support the Ensign amendment or related proposals base their positions on this misinformation.

     Others tend to argue that failure to seize these contributions would “reward millions of illegal immigrants for criminal behavior while our Social Security system is already in crisis.”[13]  But all of the comprehensive immigration reform proposals include significant punitive fines as well as tough and lengthy mechanisms for legalizing immigrants to “earn” legal status and eventually equal citizenship rights.  And impoverishing millions of seniors who have paid into the system is an ineffective way to address the longstanding problems with Social Security as a whole.

     Others, such as Senator Ensign, argue that disqualifying employment performed prior to legalizing status is necessary to combat identity theft.  Identity theft is a serious problem, but the Ensign amendment would not lead to the prosecution of a single identity thief, nor would it in any other way protect us from those who would steal our identity to commit theft or other crimes.  It makes no distinction between such malicious actions and merely using a false number to work.  Under it, all who worked before legalizing, even those who never used a false SSN, would forfeit their contributions and face possible destitution in their old age.  Ironically, rather than helping, the Ensign amendment would actually cause unnecessary problems for U.S. citizens whose numbers were inadvertently used by undocumented workers in the past, because it would discourage those workers from coming forward to correct their records and thereby clear up any problems the citizen might have as a result.

     For many reasons, forfeiture of Social Security payments is a particularly problematic form of punishment:

1. Delayed Punishment of Seniors and U.S. Citizens

     Immigrants would not face the consequences of failure to count their previous contributions until their vulnerable retirement years, which for most would be decades in the future, after many have become U.S. citizens, worked legally for years, and parented U.S. families.  What other form of punishment is applied so cruelly?  Moreover, those most affected by the reduction or denial of Social Security generally will be U.S.-born children and grandchildren who will face the burden of supporting elderly family members solely because of the failure to count the earnings and quarters of work that their elders made to Social Security.  Many U.S. citizen minor children and spouses also would face the loss of survivor benefits that would have been available to them if all contributions had been counted.

     2. Shifting Costs to States and Nonprofits

     Social Security is funded by contributions by workers to the federal trust fund.  Over the next 75 years, lawfully present immigrants will provide a net benefit of approximately $346 billion in present value to the federal Social Security trust fund.[14]  If immigrants’ access to this trust fund — which they have helped to endow — is reduced or denied, many who legalize would have no other source of income after retirement.  As a result, as they age, many would have no recourse but to turn to welfare programs that are funded in whole or part by state and local governments, such as Medicaid and General Relief/Assistance.[15]  Private and religious charities and soup kitchens also would be forced to stretch their tight budgets to meet the increased demand.  This is precisely what the federal Social Security system is intended to prevent. 

     The reduction of federal Social Security benefits would represent a huge cost shift to states, localities, and private and religious charities as these workers who have paid into the system and otherwise would have no need for such services reach the age of retirement, long after any “impact assistance” provided under comprehensive immigration reform has ceased to be granted.   It would exacerbate the imbalance that exists that under current law, in which state and local governments receive fewer taxes from immigrants yet pay more expenses on their behalf than does the federal government.

3. Less Accurate Social Security Records

     The Social Security Administration will be able to correct Social Security records more quickly and effectively, and at far less cost, if workers responsible for the inaccuracy have an incentive to come forward and present information within their possession, without fear of felony prosecution.  Maintaining incorrect Social Security records is detrimental to the Social Security system as a whole and to other persons whose Social Security accounts may be affected by use of their SSN.  Persons who currently share a number with legalizing immigrants would benefit the most from allowing the immigrant to come forward and correct his or her records.

4. Fewer Social Security and Tax Contributions, More Immigrants Working under the Table for Cash

     In addition to the millions of immigrants who work and pay taxes “on the books,” each year hundreds of thousands of undocumented immigrants who work “off the books” or as independent contractors take the extraordinary step of meeting their income, Social Security, and Medicare tax obligations to the federal government by using an Individual Taxpayer Identification Number (ITIN) for which they have voluntarily applied.  A record number of undocumented immigrants filed tax returns using an ITIN during the 2007 tax season.[16]  These workers take this step because they want to document their contributions and invest in their future in the event they are able to adjust their status.  They will be less likely to do so if they will never gain access to their contributions even if they attain legal status in the future.  In addition, if Social Security contributions can never be recouped, individuals will have less incentive to work on the books rather than for cash.  Seizing immigrant earnings is a shortsighted and desperate approach that does not address the real challenges facing the system.