Tuesday, May 02, 2006

Immigration and taxes

With all the hubbub lately about "undocumented workers" we've been wondering if these folks have been paying their fair share of taxes. After all, how do the IRS and Social Security Administration keep track of them if there are no Social Security numbers? If the illegal workers are using fake numbers, where does the money go? The New York Times shed some light on it today.

It is impossible to know exactly how many illegal immigrant workers pay taxes. But according to specialists, most of them do. Since 1986, when the Immigration Reform and Control Act set penalties for employers who knowingly hire illegal immigrants, most such workers have been forced to buy fake ID's to get a job.

Currently available for about $150 on street corners in just about any immigrant neighborhood in California, a typical fake ID package includes a green card and a Social Security card. It provides cover for employers, who, if asked, can plausibly assert that they believe all their workers are legal. It also means that workers must be paid by the book - with payroll tax deductions.

Since the Social Security numbers are fictitious, the contributions end up in Social Security limbo.
Starting in the late 1980's, the Social Security Administration received a flood of W-2 earnings reports with incorrect - sometimes simply fictitious - Social Security numbers. It stashed them in what it calls the "earnings suspense file" in the hope that someday it would figure out whom they belonged to.

In the current decade, the file is growing, on average, by more than $50 billion a year, generating $6 billion to $7 billion in Social Security tax revenue and about $1.5 billion in Medicare taxes.
Without legal status these workers will never be able to collect any Social Security or Medicare benefits but they continue to subsidize the struggling system. For that I say, "Gracias!"

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