The Crisis in Social Services: Taxing the Middle Class

This is the second in a series of excerpts from the new book, “Minutemen: The Battle to Secure America’s Borders.” Order your copy at Human Events Book Service. Read yesterday’s installment, “21st Century Slave Trade: The ‘Guest Worker’ Amnesty.”

“Fraud is an equal-opportunity employer that flouts America’s generosity to the feeble, the crippled, and the poor. Illegal aliens have powerful legal facilitators who litigate and lobby for “Open Borders” and for welfare benefits for all who cross onto America’s soil.”

—Dr. Madeleine Pelner Cosman, California medical attorney [1]

The large numbers of illegal immigrants already living in the country have put an enormous fiscal strain on government-funded social service programs because many of the illegal immigrants who arrive here are impoverished and undereducated. They are then forced to supplement their low-paying incomes with social welfare benefits, including those fraudulently obtained, to make ends meet. Moreover, the willingness of these illegal immigrants to commit fraud—both tax fraud and social service fraud—compounds the problem, as they work the system to get the maximum benefit from government-funded social services. No one seems to question them on their status, nor do American citizens speak out loudly enough against these generous benefits going to non-citizens. Instead a long list of supporters ranging from the ACLU to the communist Workers World Party are there to help illegal immigrants press their legal claims and protest in the streets for their “rights.”

Illegal Immigrants and Identity Fraud

Buy Now
Save 19%

False identification packets containing green cards, social security numbers, and driver’s licenses are available throughout the United States for anywhere from one hundred fifty to two hundred dollars. Los Angeles is the hub of the false ID market for illegal immigrants. [2] Ironically, the market for false documents was propelled by the 1986 Immigration Reform and Control Act (IRCA). The purpose of IRCA was to cut down on illegal immigration by requiring employers to fill out an Immigration and Naturalization Service (INS) form I-9, which lists the name, date of birth, address, and social security number for each employee, as well as documentation that would identify whether the employee is a U.S. citizen, legal resident, or non-resident alien.

The end result was that illegal immigrants went on the black market to buy the needed documentation. Employers lacked the resources and investigative skills to tell whether the documents presented were legitimate; and federal immigration and law enforcement agencies were deprived of the resources to investigate and prosecute employers who deliberately violated the law.

All that the IRCA accomplished with the I-9 requirement was to create a windfall for the Social Security Administration (SSA). The Social Security Suspense Fund is an account maintained by the SSA for payments when the SSA cannot match the social security number with the provided taxpayer information. In 2002, the SSA received 9 million W-2 “items” reporting social security withholding taxes with incorrect social security numbers or incorrect names. These errors represent $56 billion in reported wages, about 1.5 percent of total reported wages, resulting in some $7 billion in paid-in social security taxes that could not be attributed to a taxpayer. [3] In 2003, 8.8 million W-2 “items” were reported by the Social Security Admin¬istration, which represented $58 billion in wages and $7.2 billion in paid-in social security taxes that could not match a taxpayer. [4]

The SSA sends a “no match” letter to employers only when more than ten W-2 forms cannot be matched to a taxpayer and the total number of mismatches are more than one-half of one percent of the total number of forms that employer submits. However, when it comes to enforcement, we hit a jurisdictional conflict that is common to large government bureaucracies. The SSA collects the data, but it has no office to investigate or prosecute fraud. Moreover, the W-2 form is an IRS tax form, so the SSA has no enforcement mechanism to follow up with employers on tax matters, even when employers end up with too many “no match” records.

The I-9 form is now under the jurisdiction of Homeland Security. According to Mark Hinkle, Deputy Press Secretary at the SSA, the SSA has “no way” to determine how many of the nearly 9 million “no match” W-2 “items” reported to the SSA every year are attributable to illegal aliens. [5]

Experts believe that many of these accounts are attributable to illegal immigrants who have obtained false documents (or who simply have invented social security numbers) to comply with reporting regulations. If even 50 percent of the “no match” W-2 “items” were illegal immigrants, some 4.5 million would have been employed under false documentation in those years.

In addition to the large numbers of illegal immigrants using false documentation, how many more illegal immigrants have been paid off the books, with no taxes withheld at all? Mark Hinkle readily admits that the Social Security Administration has no way to tell how many illegal aliens have been paid in cash. Off the books cash payments of wages create an underground market at the bottom of the labor market. There is, however, little need for employers or employees to worry about being apprehended. Few government agencies have the resources or the political will to track millions of illegal aliens and their employers who today openly flout immigration and payroll tax laws.

Illegal Immigrants Drain Federal Social Services

Dr. Steven A. Camarota of the Center for Immigration Studies has taken a close look at the net drain that illegal immigrants put upon federal social services. Dr. Camarota concludes that illegal aliens cost much more in federal services than they pay in taxes, and if an amnesty such as the Kennedy-McCain bill S.2611 were ever passed, the consequence would be financially devastating. According to Dr. Camarota:

  • Households headed by illegal aliens imposed more than $26.3 billion in costs on the federal government in 2002 and paid only $16 billion in taxes, creating a net fiscal deficit of almost $10.4 billion, or $2,700 per illegal household.
  • Among the largest costs are Medicaid ($2.5 billion); treatment for the uninsured ($2.2 billion); food-assistance programs such as food stamps, WIC (Women, Infants, and Children), and free school lunches ($1.9 billion); the federal prison and court systems ($1.6 billion); and federal aid to schools ($1.4 billion). [6]

The costs would escalate dramatically under a new amnesty program, largely because the now-legal immigrants would receive federal benefit programs that they had previously been denied.

  • If illegal aliens were given amnesty and began to pay taxes and to use services like households headed by legal immigrants with the same education levels, the estimated annual net deficit would increase from $2,700 per household to nearly $7,700, for a total net cost of $29 billion.
  • Costs would increase dramatically because unskilled immigrants with legal status—what most illegal aliens would become—can access government programs but tend to make very low tax payments. [7]

For these reasons, Dr. Camarota concludes that, while the federal social benefit drain from illegal aliens amounts to around $10 billion today, with an amnesty as proposed in the Kennedy-McCain Bill, that drain would grow to nearly $29 billion a year.

IRS Tax Refunds for Illegal Immigrants

We interviewed Dr. Camarota by telephone in his Washington, D.C., office. [8] He pointed out that the IRS makes substantial tax refund payments to illegal aliens, often not knowing whether or not their tax refund claims are fraudulent:

Q: Wait a minute, you mean the IRS actually gives tax refunds to illegal immigrants who did not pay taxes?

Camarota: Yes. The IRS gave out $10 billion in 2002 to illegal immigrants in tax refund returns.

Q: How did the IRS do that?

Camarota: Well, let’s say you work on a bogus social security number, but then you ask the IRS for a tax ID number, which the IRS gives out like candy. You then you use the tax ID number to file your return, and you staple a bogus W-2 to the form. Then, the IRS sends you a refund.

Unless the IRS investigates the legitimacy of the W-2 information, there is no way to tell if the taxpayer is entitled to the refund claimed. The IRS does not have direct access to the social security number database. Nor does the IRS have the resources to investigate millions of W-2 forms, reconciling them with social security numbers to determine their accuracy.

The High Cost to the States

As high as the cost of illegal immigration is to federal social service programs, it is even higher at the state level. Many state welfare programs provide benefits to illegal immigrants, even though there is no federal requirement to do so. Additionally, each state bears costs for illegal aliens in public schools, state-funded hospitals, and in the state prison systems. Under the Emergency Medical Treatment and Active Labor Act (EMTALA), Congress mandated that hospitals with emergency rooms must treat and stabilize patients needing immediate medical care, even if the person is an illegal. [9]

The Federation for American Immigration Reform (FAIR) presents on its website extensive immigration data on a state-by-state basis, including data on federal payments received by each state [to offset the cost of federally mandated programs]. Additionally, the FAIR website includes several illuminating reports that attempt to estimate the impact that providing social services to illegal immigrants has on states. The FAIR report for Florida [10] documents nearly $2 billion in costs annually incurred by Florida taxpayers to provide education, medical care, and incarceration to illegal aliens in the following areas:

  • Education: Floridians spend more than $1.5 billion annually on education for illegal alien children and for their U.S.-born siblings. About 8.7 percent of the K–12 public school students in Florida are children of illegal aliens.
  • Health care: Taxpayer-funded, non-reimbursable medical outlays for health care provided to the states’ illegal alien population amount to about $165 million.
  • Incarceration: The uncompensated cost of incarcerating illegal aliens in Florida’s prisons amounts to about $155 million a year.

Generously estimating the state and local taxes paid by illegal aliens in Florida at around $910 million per year, Florida has a state tax net cost of more than $1 billion to provide social services to illegal aliens. The impact would have been even greater if costs were calculated in areas such as special English instruction, welfare programs used by the U.S.-born children of illegal aliens, and welfare payments for Americans displaced by illegal alien workers. According to 2003 Immigration and Naturalization Service (INS) estimates, Florida has an illegal population of 337,000, which totals about 1.9 percent of the 17,397,161 residents the Census Bureau estimates that Florida had in 2004. [11]

The INS estimates that California has over 2 million illegal immigrants in a state population of some 35.9 million people (6 percent of California’s population). Dr. Camarota estimates conservatively that the net costs to California (after taking into consideration illegal alien state and local taxes) for providing social services to illegal aliens is somewhere in the range of $60 billion annually. As illegal immigrants spread throughout the country, tax burdens to provide government-funded social services to illegal aliens are already out of control.

The Dim Prospects of Second-Generation Immigrants

The pattern of nineteenth- and twentieth-century European immigration was that American-born children of immigrant families overcame the language and education of their immigrant parents. For many immigrant parents, an important drive was to ensure that their children learned English, attended school, assimilated, and advanced economically. This picture is not being replicated in the “Trojan Horse invasion” that we are seeing today. To the contrary, the data now becoming available suggest that the development of a Hispanic immigrant underclass is being perpetuated into the second generation, including anchor babies born to immigrants in the United States.

Foreign-born teenagers constitute only 8 percent of America’s high-school students, but 25 percent of our high-school dropouts. [12] Much of the disadvantage is attributed to the poor educational foundation that these adolescents received before arriving in the United States. Another study by Dr. Camarota found that the high-school dropout rates for second- and third-generation U.S.-born Mexican-Americans are 2.5 times those for other native-born residents. [13]

None of this bodes well for economic advancement in the years to come. If the influx of uncontrolled, unvetted immigration continues to stream through our borders and points of entry unchecked, the future we envision is dim.

[1] Madeleine Pelner Cosman, “Illegal Aliens and American Medicine,” Journal of American Physicians and Surgeons, Vol. 10, No.1, Spring 2005, 6–10, 7.
[2] Leslie Berestein, “Immigration Loophole Leads to Spread of Fake-ID Mills,” San Diego Union-Tribune, February 19, 2006.
[3] “Facts on Immigration: Bolstering Social Security,” National Immigration Forum, April 6, 2005. See also David Kassabian, “Undocumented Workers Add Small Windfall to Social Security,”, Dec. 9, 2005.
[4] Mark Hinkle (deputy press officer, Social Security Administration) in telephone interview with authors, April 7, 2006
[5] Ibid.
[6] Stephen A. Camarota, “The High Cost of Cheap Labor: Illegal Immigration and the Federal Budget,” Center for Immigration Studies, August 2004. The bullet points are exact quotations.
[7] Ibid.
[8] Steven Camarota (Center for Immigration Studies) in telephone interview with authors, April 7, 2006.
[9] The Emergency Medical Treatment and Active Labor Act is described on the following website of the U.S. Department of Health and Human Services.
[10] “The Costs of Illegal Immigration to Floridians,” Federation for American Immigration Reform (FAIR), Revised October 2005.
[11] “Extended Immigration Data for Florida,” FAIR.
[12] Richard Fry, “The Higher Dropout Rate of Foreign-born Teens: The Role of Schooling Abroad,” Pew Hispanic Center, November 1, 2005.
[13] Camarota, “Immigration from Mexico.”