USCIS Robs Social Security Fund of $1 Billion a Year

By David North on April 9, 2010

U.S. Citizenship and Immigration Services, late in the Bush administration, issued an emergency ruling that silently robs the Social Security Trust Fund of nearly a billion dollars a year, every year.

This stealth attack may have been reported in the press somewhere, but I doubt it.

As is everything at the murky intersection of immigration and tax policy, the matter is complicated, indirect, and until now totally hidden from public view. Further, USCIS's adamant, continuing refusal to routinely issue statistics on much of what it is doing makes the murk murkier.

Meanwhile, America is getting older, retirees are living longer, Social Security (FICA) contributions are leveling off, and, as a result of all three trends, the once-substantial Social Security Trust Fund is steadily growing smaller. Another billion dollar-a-year hit is not needed.

Here's what happened: The gap is a by-product of a USCIS administrative fiat issued two years ago as that agency changed the rules for a large number of high-tech nonimmigrant workers. While governmental motivation is often not clear, it appears the new rule was not issued primarily to help the workers, but to aid some of the richest corporations in America, such as Microsoft and Goldman Sachs, both major users of H-1Bs.

The change was brought about because Congress had begun to rein in the highly controversial H-1B program which critics, such as my colleague John Miano, say deprives hundreds of thousands of U.S. workers good jobs.

Congress set some mild limits on the program. There is a basic ceiling of 65,000 new admissions a year, plus another allocation of 20,000 new slots for aliens with advanced degrees (usually at the master's level) in science and engineering. There is yet another unlimited allocation of H1-B positions for people working at (not necessarily for) universities. There is no numerical limit on the number of renewed H-1B visas, and they can run for as long as six years.

Meanwhile, USCIS, for decades, has run another nonimmigrant worker program permitting foreign students to work in the U.S. for a year after they receive their degrees. This program is within the F-1 foreign student program and is called Optional Practical Training (OPT).

The Bush Administration, reacting to pleas from the corporate employers who could not get quite as many foreign workers as they wanted, obliged them by extending the OPT program for alien graduates in science and technology for an additional 17 months, making the post-education OPT program last for as much as 29 months. USCIS, as is its wont, refuses to routinely publish hard data it has on the current size of the program, but it did release some estimates as it was born. The Center estimates that the 17-month extension has expanded the nonimmigrant work force by something like 70,000.

To the best of my knowledge, USCIS did not announce at the time that this would have any impact on the Social Security and Medicare funds.

How does this impact Social Security? The work being done by OPT nonimmigrants would otherwise be done by either residents of the U.S. or H-1B workers; members of both groups pay FICA and Medicare taxes. OPT workers, like others on F-1 visas, pay no such taxes. The Center estimates that if the OPT program participants, who are not students and who often hold jobs in the $60-$90,000 a year range, were to be covered by FICA and Medicare it would bring at least $1 billion a year to these hard-pressed government funds. It would take a one-line act of Congress to close the gap.

And this could be done without charging a penny to any American voter. All the taxes would be paid by the foreign workers and their employers.

The estimated billion dollars a year. When the expanded OPT program was announced USCIS said that it would involve about 22,000 workers. Presumably this is an annual figure, and spread out over 29 months (or nearly two-and-a-half years) that would bring it to about 55,000. Given the usual path of expansion of USCIS-run foreign worker programs, let's assume that the 55,000 of two years ago is 70,000 now. (That's an expansion rate of about 13 percent a year.) That produces about 70,000 person-years of OPT employment each year.

USCIS has never, to my knowledge, collected – as it should have done – earnings information on the OPT workers, but since they are employed in place of H-1B workers, we are using data from that program as a rough measure of what the OPT workers are being paid. One array of U.S. Department of Labor data, showing salaries paid to H-1B workers at the 50 largest employers of such workers, shows a median salary of $86,148. Because the big employers probably pay more than the smaller ones, and for estimating convenience, let's round that hefty salary figure down to $85,000 a year.

The sum (70,000 x $85,000) comes to $5,950,000,000, and with Social Security (FICA) and Medicare taxes together being 7.65 percent for the worker and a matching 7.65 percent for the employer, we multiply the salary total by 15.3 percent and find that $910,350,000 is what the government is missing each year.

There may be a couple of balancing factors regarding that estimate. First, were all OPT workers to be taxed at the same rate as H-1B and U.S.-resident workers, such a change would cover an unknown number of OPT workers who were in other than scientific and technical fields, and thus not covered by the USCIS 22,000-a-year estimate. On the other hand, in the course of two and a half years of extended OPT coverage some of the individuals would have passed the fifth anniversary of their arrival in the States and thus would be forced into FICA and Medicare payments by a provision of the federal tax law, even though still in F-1 status. (After five years in the country nonresident aliens become resident aliens in the eyes of the IRS.)

It is time for OPT workers, students no longer, to be covered by FICA and Medicare taxes.