Why Immigration Reform Should Be Front and Center of Entitlement Spending Talks

Minyanville.com, Winter, 2013. This article was written with Oliver Pursche, of Gary Goldberg Financial Service. It was part of a series of articles developed under an agreement with minyanville.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week.

Whether or not you think we avoided the fiscal cliff, kicked the can down the road, put a Band-Aid on a broken leg, or whatever, you probably don’t miss hearing about it. And I’m not going to torture you with a Monday morning quarterback analysis of it either.

I will tell you this however: There is a way to avoid having these difficult national spasms in the future and the attendant tax on our collective attention. In my forthcoming book, Immigrants: Unleashing the Economic Force at our Door, I examine ways in which we can use immigration to attack the thorny discussions about the growth of entitlement spending. An excerpt follows.

Entitlement growth over the past 50 years has been astronomical – up 727%, after adjusting for population growth and inflation. In 1960, government outlays for Social Security, Medicare, Medicaid, and other entitlements amounted to roughly one-third of the federal government’s outlays; in 2010 entitlement spending had grown to represent roughly two-thirds of outlay. In 1950 the United States had a population of 152 million. By 2010, the US population grew to just under 312 million people, and it is projected to reach 438 million by 2050. Although our overall population has grown, it has done so unevenly. Since World War II our birth rate has remained somewhat steady, averaging about two children per household. However, as a whole, our nation has grown older and continues to do so.

Some experts are referring to my generation, people in their 40s and 50s, as the “sandwich generation” – because we are supporting our children and our parents or grandparents. Economists refer to the ratio of the working age population (age 18 to 65) to the young (under age 18) plus elderly (over age 59) as the “dependency ratio.” By 2030, the year that children born in 2012 will turn 18, the dependency ratio could reach 73, meaning that 73 out of 100 Americans will be dependent on the remaining 27 within the working age group. By way of comparison, in 1950 the dependency ratio was below 40, and reached 59 by 2005.

As our political leaders continue to wrangle with entitlements, they are, in my view, missing the large and restorative role that immigration reform can play. Specifically, developing a deliberate and comprehensive immigration policy, more than any other set of reforms and policy steps, has the potential to reshape our entire nation.

By focusing on the economic benefits immigrants can bring to the United States, we can:
• Strengthen and regain America’s economic and business dominance in the world
• Reduce and eliminate our foreign debts and deficits to permanently balance our budget
• Reverse the decline and restore the solvency of our Social Security, Medicare and Medicaid programs.

To see this notion in action, consider this: The Social Security Trust administrators have incorporated immigration assumptions into their long-term projections. According to their projections, reducing “new” immigration by 25%, the costs for American worker for Social Security taxes would rise nearly 40%. Conversely, by increasing immigration by 25%, the cost of Social Security per American worker would drop by 35%.

Note that embracing immigration produces a favorable spread in costs for the Social Security of all Americans of some 75%. However, I would posit that embracing a focused immigration policy that prizes high skill workers, as opposed to simply embracing working immigrants, would produce an even more helpful and healthful impact on the beleaguered coffers of the Social Security Administration.

Sometimes solving big problems requires a rather simple strategy. In this case it’s the recognition that getting inside our borders for the right to work and live a better life is an asset. To the best of my knowledge there are no Americans washing up on the shores of Cuba, or Texans risking life and limb to get to Ciudad Juarez, or other Americans sneaking into Rwanda in hopes of avoiding mass genocide. If we put this asset to work for our benefit, I believe we can reduce the next cliff to nary a bump in the road.