The short version: A lot of illegal immigrants are paying money into the Social Security Trust Fund that they will never see. That’s bad news for them and good news for Social Security.
BUT, they’re paying so much in that it’s making the Social Security Trust Fund look like it’s in better shape than it actually is. That’s bad news for Social Security, particularly if that money were returned to the immigrants and their employers.
But wait, there’s more. Krasting thinks this article isn’t appearing by accident — that the Obama administration sees a way to leverage this situation to come up with a way to “bribe” opponents of immigration reform into going along. Really. He writes:
We know that the actuaries at the Fund have been aware of the magnitude of this issue for a very long time. The question I have is, “What did they do about it?” We need to understand what this means in terms of anticipated future benefit payments. There are two possibilities:
(1) The Fund knew the money was from illegal workers but chose to close their eyes. For the purposes of calculating future liabilities they assumed that everyone, including the illegal workers, would someday get benefits. But they won’t. This would imply that the future liabilities of the Fund are much smaller than has been projected. This “good” news would have to be offset with the reality that the “true” assets of the fund are significantly overstated.
(2) The Fund knew all along that the benefits that are associated with these illegal receipts are never going to be paid and therefore it has reduced the liabilities associated with this to some degree. This would essentially make a fraud of all of the SS accounting. I doubt (hope) that this is not the case. To restate both assets and liabilities would create a very big credibility gap for SS.
I have said repeated that nothing happens in D.C. by chance. That every nuance must be looked at closely. They all have meaning. In my opinion the WaPo article shines a very bright light on SS. They have been knowingly overstating assets and financial conditions for years. What possible motive could be behind this Labor Day weekend bombshell? My guess:
The Administration will use the Goss revelation to prove to the American people that illegal workers have made a major contribution to the US economy via the taxes they paid to SS. This will be done to blunt the growing tide of ire among those who actually live here. There could be another chapter to this story. It could be the ticket whereby some illegals get legal. The cost for a Green Card would be that the applicant would have to (among other things) agree to give up their rights to any future SS benefits based on prior contributions made to SS. They would be entitled to benefits based solely on what they were taxed in future years. Any previous contributions (both employer and worker) would be given up as a penalty. This thinking would set up the possibility for two extraordinary outcomes.
(I) If SS eliminated the future liabilities associated with the estimated $320b of excess contributions and they were allowed to keep those tainted contributions SS would be transformed overnight to an overfunded position of significant proportions. It would be so significant that the Fund could reduce the current 12.4% PR tax by 20-30% for the next three to four years. That would have a meaningful impact on the economy.
(II) America would get paid $350b (P+I) [principal + interest] for allowing a significant number of workers to become legal. Many would still gripe. But the tradeoff of a partial tax holiday for 150mm workers and their employers would shut down much of the opposition.
The Administration needs a win-win on the economy and immigration. Steve Goss at the Trust Fund may have given them the opportunity to do that. Stay tuned. It does not get much weirder than this.
Given the volatility of both Social Security and immigration as election-year issues, this may or may not get weirder but definitely is going to get more interesting.