Mexicans pose Social Security drain

Allowing Mexicans who pay into U.S. Social Security to collect benefits would place a long-term drain on the system since Mexican workers are less-educated and tend to have more dependents, according to a new congressional report.

The report, released last week by the Congressional Research Service (CRS), looks at the effects of a “totalization” agreement with Mexico. Right now Mexican workers who are in the United States temporarily must pay into both the U.S. and Mexican systems but cannot get U.S. benefits.

Totalization would allow them to pay into just one system, and collect benefits based on the time they paid into the U.S. system. The Bush administration signed an agreement with Mexico in June 2004, but has not yet submitted it for congressional approval.

The United States has 21 totalization agreements already, but the CRS report says Mexico’s situation is different. “Because Mexican workers may have lower lifetime earnings, they may receive a higher replacement rate, relative to the payroll taxes they pay, than workers with higher lifetime earnings, such as U.S. citizens and noncitizens from the totalization countries,” the report says.

While in the short term that may mean more money coming in, “it’s a net long-term drain,” said Joe Eule, chief of staff for Rep. J.D. Hayworth, an Arizona Republican who is sponsoring a resolution to block totalization.

The debate lies at the intersection of two of the most contentious issues facing Congress: immigration policy and Social Security’s impending financial problems.

Mr. Eule said that’s probably why the Bush administration has not yet submitted the agreement for review. “I think they’re probably very nervous about it until they get some of these other issues straightened out,” he said. “Frankly, I don’t know how you bring this up in the midst of the debate over Social Security reform.”

But Michael Tanner, director of health and welfare studies at the Cato Institute, said the amount of a drain is likely to be very small. One government study puts the cost at $78 million the first year and $650 million by 2050. “It’s a drop in the ocean given Social Security’s problems,” Mr. Tanner said.

He also said that the question should not be whether a Mexican agreement is a drain, but rather what is fair. “This is clearly one where the balance runs against us, as opposed to other countries, but we should be setting up a standard set of rules, and sometimes we’ll win and sometimes we won’t,” he said.

A totalization agreement would benefit U.S. citizens working in Mexico, and the Bush administration says it would save U.S. workers and their employers $140 million over the first five years in taxes they would no longer have to pay.

The CRS report says that males make up a higher proportion of Mexican workers than either the U.S. citizen labor force or non-citizen workers from other totalization countries — particularly Western European nations, as well as Canada, Australia, South Korea, Japan and Chile.

The CRS report is not the only government study to question such an agreement. Two years ago the then-General Accounting Office released a report suggesting that the large number of Mexicans illegally living and working in the United States makes it almost impossible to predict how a totalization agreement would affect Social Security.