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To the Unknown Patrons of the US Social Security Administration

Irina Aervitz - 6/7/2011

In the 19th-century novel “Dead Souls”, by famed Russian author Nikolai Gogol, an enterprising gentleman by the name of Chichikov, in order to raise his social status, came up with a scheme to buy serfs who had died after the last census had been taken.

Before he was exposed, he managed to acquire 400 of those “souls.” Fast forward a century and across the ocean, we see that every year the Social Security Administration (SSA) sends a letter, called the “No Match” letter, to employers who have submitted W-2 forms that could not be matched to an individual’s earnings history. In most cases the contributor’s name did not match the accompanying social security number. The “earnings” from those mismatched Social Security numbers go to the Earnings Suspense File (ESF) – a sort of zombie account, full of our own modern-day representation of “dead souls.”

According to the Government Accountability Office (GAO), the ESF contains about 250 million records as of December 2004, implying error, identity theft, or unauthorized work by undocumented immigrants who present phony SSNs to their employers. These 250 million W-2 forms have accumulated since the start of the program in 1936. Thus, there exists a population of the “dead souls,” roughly the size of the actual US population, which contributed to the US social security fund, but would not be able to claim the benefits unless they become legalized and able to prove their contribution. The Immigration Reform and Control Act of 1986, which was passed in order to deter illegal immigration, set penalties for employers who knowingly hired unauthorized workers. Ironically the Act prompted undocumented immigrants to produce phony documentation, including fake social security numbers.

For the 2003 tax year alone, approximately 8.8 million W-2s (roughly 4 percent of the total), representing $57.8 billion in wages, remained in the ESF. Reportedly, the suspense file grows by $7-10 billion every year. The restaurant and bar industry, as well as the construction industry produce a considerable number of mismatched W-2 forms.

Undocumented immigrants not only pay taxes via bogus SSNs, but many of them file tax reports using Individual Taxpayer Identification Numbers (ITINs). In 1996, the IRS began issuing ITINs to allow those unauthorized immigrants, who cannot normally obtain SSNs, to file their taxes. More than 7 million immigrants have been issued taxpayer numbers between 1996 and 2004. Between 1996 and 2003, such ITINs filers reported nearly $50 billion in tax liability. By 2005, 1.9 million returns were filed using ITINs.

Most undocumented immigrants pay taxes in hopes that some day using the taxpayer numbers will help them secure legal status by demonstrating that they have been living, working and paying taxes in the United States. Those who file their taxes may also receive a tax refund. Currently many file under their ITIN together with the W-2 form that contains an “erroneous” SSN. The IRS credits their wages to the ITIN, so their contribution is recorded, which makes many eligible for a tax refund.

Due to the taxpayer privacy provision in the US tax laws, the IRS does not share the details of the tax filings with the Department of Homeland Security (DHS) for the purposes of penalizing the immigration law violators. The SSA also does not share the ESF details with the DHS. These communication loopholes allow undocumented immigrants to pay taxes on the income that they are technically not supposed to have. The SSA and DHS, however, are now encouraging employers to verify their worker information via a variety of Internet-based tools. The cost-free E-Verify system allows an employer, using information reported on an employee's Form I-9, the employment eligibility verification, to determine the eligibility of that employee to work in the US.

The fact that undocumented immigrants pay taxes voluntarily (using ITINs) or circumstantially (using fake SSNs) produces an utterly polarized debate. Like for legal immigrants, it is a system of taxation without representation, but most importantly, the contributors to the ESF can’t claim the social security benefits until they obtain a legal status in the US. The Senior Citizens League and similarly vested organizations are extremely concerned about the “doomsday scenario” that some day if these ESF contributors get legalized en masse (in case of amnesty or similar legislation) they would come knocking on the door demanding owed benefits. The advocates of the rights of undocumented immigrants stress that since these individuals are contributing to the social security fund they are equally entitled to receive benefits.

According to the Office of Immigration Statistics of the DHS, there were 10.5 million unauthorized immigrants residing in the United States in January 2005. Mexico was the leading source country for unauthorized immigration with nearly 6 million residents in the US in 2005. The Pew Hispanic Center’s indirect estimate of the number of illegal immigrants as of 2006 was from11.5 million to 12 million.

In 2005, the McCain-Kennedy Bill proposed the creation of a new visa category for unskilled workers who had already resided in the US illegally. This work visa proposal offered a path to permanent residence. According to this proposal, unauthorized immigrants would have been required to demonstrate a tax-paying record during their stay in the US, in addition to other requirements, including absence of criminal record, English-language proficiency, medical examination, etc. If similar legislation is proposed within the “comprehensive immigration reform,” part of the battle will be waged over the ESF “treasures.”

The growing calls for comprehensive immigration reform on Capitol Hill are inspired by the objective of tapping into the “Latino votes.” On the liberal side, there is also a growing concern about the exploitation of unauthorized workers. There have been precedents when illegal immigrants sued their employers for unpaid wages and other violations under the US employment law. Furthermore, there is a strong argument for reforming the US immigration system to make it more merit-based to attract international talent. This argument is especially relevant to those who believe that American economic competitiveness is engendered in innovation and entrepreneurship. The conservatives are paranoid about border security, international crime, American jobs, and social benefits that undocumented workers might claim one day. Thus, the debate over immigration is contaminated by deep cleavages of opinion. In the meantime, the ESF keeps growing and the US social security system is being subsidized by unauthorized labor. This absurd state of affairs indeed deserves a place in a piece of fiction!