With Payroll Taxes and Migrants It Is Still -- ‘Ems That Has, Gits

By David North on June 27, 2011

A friend called my attention recently to an article in India’s Economic Times regarding India’s generally well-paid nonimmigrant workers and Social Security and Medicare taxes. (The publication is that booming nation’s rough equivalent to our Wall Street Journal.)

The government of India was reported to be seeking to eliminate these taxes on the wages of H-1B workers in the United States “to mitigate the impact of a visa hike last year.” That the visa fees must be paid by employers, not the workers, must have escaped the attention of officialdom.

The Indian request reminded me of the peculiar relationships of different groups of international migrants and the FICA (Social Security) and Medicare tax systems.

Illegal aliens, using illicit Social Security numbers, if they are not working for cash, routinely make contributions to these two government programs, though they are unlikely to benefit from them. (You need to have a government-recognized match between your name and a genuine Social Security number before you can seek benefits.) Most illegals, particularly if they are from this hemisphere, are at or near the poverty level, but they contribute to FICA.

On the other hand, even without India’s intervention, there are classes of much better-paid alien professional workers who are legally entitled to work in the United States without paying any payroll taxes. Further, they are especially attractive to employers because the bosses do not have to pay their share of these taxes, either.

These are J-1 exchange workers in their first two years in the U.S., some of whom work in commercial settings, and F-1 (OPT) workers in their first 29 months after graduation, all of whom are paid several times as much as, say, illegal farm workers from Mexico.

The F-1 (OPT) workers are recent college graduates, at either the bachelor’s level or with advanced American degrees, who can, because of a recent DHS ruling described in an earlier blog of mine, work without paying payroll taxes for an extra 29 months after receipt of the degree provided they have their education in a long list of academic specialties from artificial intelligence through zoology.

Most of these workers are on their way to H-1B visas, where the usual payroll taxes apply, as they should. (Unless the government does something sensible, like raise the retirement age, the Social Security and Medicare Trust Funds will ultimately run dry.)

Meanwhile, to add to the irony, the professional guestworkers who do pay into these funds include a lot of people who eventually secure green cards and stay in the United States legally into retirement. These people will get the full benefits of the system, but the aging farm workers from south of the border will not.

As in so many other spheres of life—‘ems that has, gits.

The request of the government of India was made in connection with the negotiations between their government and ours over a kind of specialized treaty called a Bilateral Totalization Agreement (BTA). These documents relate to people who have worked in two nations, and see to it that their retirement credits are added together, or totalized.

Such agreements make sense when there is a roughly even flow of workers from one nation to another, such as between the United States and Western European nations. But when the flows of workers are mostly one way, as between the United States and India, such agreements can be extremely expensive to the host country.

For the Social Security Administration’s bland description of the proposed BTA with Mexico, thankfully never ratified by the Congress, see here.