Social Security and Mexico: A Travesty

Social Security and Mexico: A Travesty
What's Really Being Proposed
By Marti DinersteinThe American EnterpriseJanuary/February 2005
Social Security agreements between countries are meant to accomplish two things: One is to prevent dual taxation of employees who work temporarily in another country and the employers who send them. The second is to guarantee and old-age pension to workers who end up paying into the Social Security systems of two countries, but earn insufficient credits to qualify for retirement from either of those countries alone.Previous cross-country agreements on Social Security credits have benefited American workers and their employers , as well as foreign workers sojourning here, and the U.S. Congress has never voted against one. Since the 1970s, the United States has entered into what are called “totalization” agreements with 20 different countries.This is how the agreement works: A corporation asks an employee to work abroad for a specified period of time. Both the employee and the employer have been paying Social Security taxes in the home country. Employees enter the foreign country legally with appropriate authorization, and leave when their temporary assignments are over. When the employees retire, they are eligible to collect benefits based on the total number of years worked in each country.The proposed totalization agreement with Mexico, however, is a perversion of the 20 existing agreements that have been structured along these lines. Most Mexicans do not contribute to Mexico’s retirement system; (only 40 percent of non-government workers participate in their country’s social security system in any way; in the United States, 96 percent of workers do.) Most Mexican workers make the decision to migrate to the United States on their own; they are not dispatched abroad by their companies. A majority enter the United States illegally.The sheer size of the Mexican-born population in the United States is another anomalous aspect of this agreement. In 2000, an estimated 9.2 million Mexicans lived in the United States, None of the other nations we’ve established Social Security reciprocity with have even one million citizens here, and eight of the countries have such tiny populations in the United States that the Census Bureau doesn’t even track their numbers.This pact is utterly one-sided—in Mexico’s favor. The benefits to U.S. workers and their employers are miniscule compared with the windfall this proposal would yield for millions of Mexicans. There is no benefit parity.One becomes entitled for a lifelong Social Security pension after just 10 years of contributions in the United States, but it takes 24 years to qualify in Mexico. Once eligible, Mexico’s financial benefits are not remotely similar to those of the United States. In Mexico, workers get back exactly what they contributed, plus accrued interest. In the United States, the Social Security system is progressive, with lower-wage earners receiving benefits far in excess of what they contributed. Therefore, any program that accepts a huge number of low-wage retired workers from a foreign country will create a giant drain on the U.S. Social Security trust fund, which is already on a path to fall into the red in just 15 years.Not one of the foreign countries we have so far negotiated Social Security agreements with accounts for even 1 percent of the illegal-alien population in the United States; in fact, all 20 together account for only 4 percent of our illegal aliens. Mexico, on the other hand, accounts for 69 percent.Any Social Security exchange with Mexico—a country at a fundamentally different level of development from the United States—will cost Americans a king’s ransom. Such an agreement would overwhelmingly dwarf the total costs of all our other existing agreements combined. An agreement with Mexico in this area is simply not in our national interest. The risks are far too great.
Marti Dinerstein is a Fellow at the Center for Immigration Studies.