Totalization With Mexico Would Add Billions In New Costs To Social Security

Totalization With Mexico Would Add Billions In New Costs To Social Security

A pending Totalization Agreement with Mexico could add more than 1.6 million Mexicans to the rolls and cost in excess of $207 billion by 2040 according to a new report released by TREA Senior Citizens League (TSCL).  The cost estimate, the first of its kind, was performed for TSCL to provide a more comprehensive picture of the impact a totalization agreement with Mexico would have on the fiscal solvency of Social Security.

In late December of last year, the federal government reluctantly turned over to TSCL the first public copy of the controversial Totalization Agreement with Mexico after TSCL was forced to file two federal lawsuits under the Freedom of Information Act to gain access to the documents.  The agreement has not yet been signed by the President or sent to Congress for final review.

Totalization with Mexico is highly controversial because of the millions of Mexicans who have illegally worked in the United States without authorization.  The agreement raises concerns that millions of such workers and their dependents would become newly eligible for Social Security benefits worsening the long-term solvency of the program.  In addition, substantial new costs could trigger benefit cuts and higher taxes for both retirees and workers.

The Social Security Act requires the President to submit to Congress the text of totalization agreements and a report that includes the estimated number of individuals who would be affected and the estimated financial impact of the agreement on Social Security.  Nevertheless the documents released to TSCL in December of 2006 supplied only an incomplete five-year cost estimate.

That estimate appears to be one prepared by the Social Security's Chief Actuary who projected in 2003 that a totalization agreement with Mexico would have a negligible long-range cost to Social Security.  The Social Security Administration estimated that costs to the U.S. Social Security system would average about $110 million per year over the first five years.  In 2003 the Government Accountability Office (GAO) evaluated that cost estimate and sharply criticized it, saying that "the cost of such an agreement is highly uncertain." The GAO reported that SSA's estimate failed to account for the large number of Mexicans who are or have worked in this country without legal authorization.

TSCL's report entitled "The Cost of Illegal Earnings Under Totalization With Mexico" examines three ways illegal Mexican workers could become entitled to benefits under an agreement with Mexico.  The report concludes, "responsible, comprehensive cost estimates of the totalization agreement with Mexico simply cannot afford to ignore the very large and significant cost of benefits based on illegal, unauthorized work.  Doing so results in highly misleading and incomplete estimates that would jeopardize the future solvency of Social Security, leading to benefit cuts and higher taxes."

To ensure the solvency of Social Security for retirees and disabled who live in the U.S. and pay into the system legally, the study makes the following recommendations:

  • The President should not sign or send the current totalization agreement with Mexico to Congress.  Should the President nevertheless do so, Congress should disapprove the agreement.
  • Congress should enact legislation that would require greater Congressional review and approval of future totalization agreements.
  • Congress should enact legislation that would prohibit the use of work credits based on unauthorized earnings from being used to determine entitlement for Social Security benefits.

Sources: "Proposed Totalization Agreement With Mexico Presents Unique Challenges," GAO, September 2003, GAO-03-993.  "Additional Actions Needed to Prevent Improper Benefit Payments Under Social Security Protection Act," GAO, April 2006, GAO-06-196, page 16.  Question for the Record Submitted to Secretary of State Condoleezza Rice by Congressman Culberson, House Appropriations Committee, released under the Freedom of Information Act to TREA Senior Citizens League, December 22, 2006.

June 2007