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OH NO! Not ANOTHER Ron Paul Diary! Well, yes, and a rather arcane subject, to boot. But there's a method to this madness, based on the premises that (a) everything is connected, (b) the universe is a fractal, and (c) you can sometimes learn the most by examining seemingly secondary matters where the BS defenses are weaker. Furthermore, picking apart a far right movement candidate is important for the larger purpose of reflecting, yet again, on the lack of symmetry between left and right in America today. Part 1 lays out the basics of the issue. Part 2 gets into how Ron Paul completely misrepresented it, taking the the exact opposite of his his usual anti-tax position.
Arguably Ron Paul's greatest bugaboo is cutting taxes. As a doctor, quite frankly, I wouldn't be surprised if someday he didn't recommend cutting taxes as a cure for the common cold. So imagine my surprise when I discovered a tax cut he's opposed to!
Well, I wasn't really surprised. You see, the tax cut was for Mexicans, Mexican-Americans, Americans working in Mexico, and the companies that employ them. And when it comes to Mexicans-or anything hinting of them-Ron Paul has a tendency to, well, let's just say that he claims he's not a racist. But actions speak louder than words. And here is one blindingly clear example where Ron Paul opposes cutting taxes. In fact, he can't even bring himself to accurately describe what he's even talking about. So I'll have to do it for him.
The issue at hand is what's called a "Totalization Agreement," that harmonizes the payroll tax-collecting policies between two countries that both have social insurance systems (like Social Security). Such agreements started in Western Europe, where the phenomena of citizens from one country working in another has long been a common one. Without such agreements it was commonplace for both individuals and the companies that employed them to be taxed by both governments.
Clearly, this is not fair. Anyone can see that. Anyone except Ron Paul, that is. Here we have a classic example of the kind of situation that Paul is always railing against-an unfair tax burden-but unlike many of the situations where he imagines that burdens are unfair, or simply assumes it, for no clearly defensible reason, this situation is so obviously unfair that it only needs to be described to be seen as unfair. All of which leads us to question his purported motivation in raising the issue of "unfair tax burdens" in so many other situations. If that was really his concern, he would be championing the cause of totalizaiton with every country in the world. Instead, he is bitterly opposed to a proposed totalization agreement with Mexico. And that smells just a wee bit like racism to me.
But, go ahead, jump to the flip, and smell for yourself.
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| Totalization Explained
Totalization agreements do two simple things:
(1) arrange things between two governments so that people and businesses don't suffer from double taxation, and
(2) arrange things between two government so that if people pay into two different social security systems, they can get credit for paying into both.
But don't take my word for it. Here's what the Social Security webpage on totalization agreements has to say:
U.S. International Social Security Agreements
Introduction
Since the late 1970's, the United States has established a network of bilateral Social Security agreements that coordinate the U.S. Social Security program with the comparable programs of other countries. This article gives a brief overview of the agreements and should be of particular interest to multinational companies and to people who work abroad during their careers.
International Social Security agreements, often called "Totalization agreements," have two main purposes. First, they eliminate dual Social Security taxation, the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. Second, the agreements help fill gaps in benefit protection for workers who have divided their careers between the United States and another country.
Of course, we can see what the problem is for Ron Paul-or at least one of them: it's that damn New World Order, lettin' foreigners work here, and maybe even worse, lettin' Americans work abroad where they can get their heads filled with all kinds of funny ideas.
But, still, he's always claiming that he's not against anyone. It's just the Bavarian Illuminati and whatnot that he's opposed to. The people are just fine, he's not prejudiced against anyone, he insists. And here are clear cases of double taxation. He ought to be outraged. What's more, the website goes on to explain, the US has been doing something about it for several decades now:
Agreements to coordinate Social Security protection across national boundaries have been common in Western Europe for decades. Following is a list of the agreements the United States has concluded and the date of the entry into force of each. Some of these agreements were subsequently revised; the date shown is the date the original agreement entered into force.
| Country | Entry into Force | | Italy | November 1, 1978 | | Germany | December 1, 1979 | | Switzerland | November 1, 1980 | | Belgium | July 1, 1984 | | Norway | July 1, 1984 | | Canada | August 1, 1984 | | United Kingdom | January 1, 1985 | | Sweden | January 1, 1987 | | Spain | April 1, 1988 | | France | July 1, 1988 | | Portugal | August 1, 1989 | | Netherlands | November 1, 1990 | | Austria | November 1, 1991 | | Finland | November 1, 1992 | | Ireland | September 1, 1993 | | Luxembourg | November 1, 1993 | | Greece | September 1, 1994 | | South Korea | April 1, 2001 | | Chile | December 1, 2001 | | Australia | October 1, 2002 | | Japan | October 1, 2005 |
The webpage goes on to explain:
The Problem of Dual Coverage
Without some means of coordinating Social Security coverage, people who work outside their country of origin may find themselves covered under the systems of two countries simultaneously for the same work. When this happens, both countries generally require the employer and employee or self-employed person to pay Social Security taxes.
Dual Social Security tax liability is a widespread problem for U.S. multinational companies and their employees because the U.S. Social Security program covers expatriate workers--those coming to the United States and those going abroad--to a greater extent than the programs of most other countries. U.S. Social Security extends to American citizens and U.S. resident aliens employed abroad by American employers without regard to the duration of an employee's foreign assignment, and even if the employee has been hired abroad. This extraterritorial U.S. coverage frequently results in dual tax liability for the employer and employee since most countries, as a rule, impose Social Security contributions on anyone working in their territory.
Dual tax liability can also affect U.S. citizens and residents working for foreign affiliates of American companies.
As an example of how these programs work, the Social Security webpage "Totalization Agreement with Italy" (linked to from the table above) contains the following chart (slightly reformatted), clearly showing its purpose and how it works to place both individuals and companies under just one set of national tax laws-either Italy's, the United States', or in some cases, whichever the taxpayer chooses:
II.A. Summary of Agreement Rules | The following table shows whether your work is covered under the U.S. or Italian Social Security system. If you are covered under U.S. Social Security, you and your employer (if you are an employee) must pay U.S. Social Security taxes. If you are covered under the Italian system, you and your employer (if you are an employee) must pay Italian Social Security taxes. Part III explains how to get a form from the country where you are covered that will prove you are exempt in the other country. | |
| You are a U.S. national working in Italy: | Coverage and Taxes |
|---|
| U.S. | - For an Italian (or other non-U.S.) employer
| Italy | - As a self-employed person
| U.S. | | You are a U.S. national working in the U.S.: | Coverage and Taxes |
|---|
| U.S. | - As a self-employed person
| U.S. | | You are an Italian national working in the U.S.: | Coverage and Taxes |
|---|
- For an Italian employer (or Italian-controlled business)
| You may elect either U.S. or Italian coverage (see Part II.B) | - For a U.S. (or other non-Italian) employer
| U.S. | - As a self-employed person and you are a resident of the United States
| U.S. | | You are an Italian national working in Italy: | Coverage and Taxes |
|---|
| Italy | - For a U.S. employer or as a self-employed person and you are a resident of the United States
| You may elect either U.S. or Italian coverage (see Part II.B) | | You are a dual U.S./Italian national working in Italy: | Coverage and Taxes |
|---|
| In employment or self-employment covered under both systems | You may elect either U.S. or Italian coverage (see Part II.B) | You are a dual U.S./Italian national working in the U.S.: | Coverage and Taxes |
|---|
- In employment covered under both systems
| You may elect either U.S. or Italian coverage (see Part II.B) | - As a self-employed person
| U.S. | You are a third country national regardless of the employer: | Coverage and Taxes |
|---|
| U.S. | | Italy |
Mexico Is Different-But Only Within Limits
While the proposed totalization agreement with Mexico is similar to that already in force with other countries, there is a difference just because of the composition of people who would be covered. By far, the largest number of people affected between Mexico and the US are Mexican nationals who have immigrated to the US, who have worked a portion of their lives in both countries. These people are covered in other agreements, but they are a relatively minor piece of the puzzle for most countries. Not so for Mexico and the US. If someone has worked legally 9 ½ years in the US, and 35 years in Mexico, they have paid into both systems, but cannot collect a penny from US Social Security. If they've worked illegally 10 years in the US and 35 years in Mexico, they have almost certainly paid into both systems (undocumented immigrants commonly use fake Social Security cards that pay into the system, but cannot collect benefits).
As the Center for Budget and Policy Priorities explains:
Social Security coverage is lower among elderly Hispanics for several reasons. Although undocumented workers frequently pay taxes into the Social Security system (under false or non-work status Social Security numbers), many of these workers, who are disproportionately Hispanic, will never collect Social Security benefits based on these contributions. The presence of undocumented workers lowers Hispanic participation rates.
The Social Security system, through its ten-year work requirement, also lowers coverage rates for Hispanic workers who are here legally. To qualify for Social Security retirement benefits, a worker must contribute to the Social Security system for at least ten years (40 quarters). This creates a cliff in the system that can adversely affect workers with short work histories. Despite the fact that they have contributed payroll taxes, those who work for less than ten years in covered employment receive no retirement benefits (unless there is a "totalization" agreement in effect with an immigrant's native country; see footnote 22), while someone who works exactly ten years can receive substantial benefits.
New immigrants, of which there are many in the Hispanic community, tend to have relatively short work histories in the United States and thus would tend to be disproportionately harmed by the way the threshold is structured. [22]
And:
22] This is not the case for citizens from the 20 countries with which the United States has "totalization" agreements in effect. Under these agreements, the United States coordinates Social Security benefits with the public pension systems that exist in those countries. Work in both countries can be counted toward the ten-year eligibility requirement for Social Security benefits, although to be eligible for "totalization" a worker must be employed in the United States for, at least, a year and a half. Initial Social Security benefits are then pro-rated, reflecting the number years of employment in the United States. Currently, Chile is the only Latin American country with which the United States has a totalization agreement that is in effect. The United States has signed such an agreement with Mexico, but the President has yet to submit it for Congressional review.
Thus, what is different about Mexico is not the framework of the agreement, but simply how many people we might expect to affected. Because of immigration, we can expect a larger percentage of people covered by a US/Mexico totalization agreement to be those who have paid into both systems, working first in Mexico, then in the US, compared to other countries. Still, what matters from a broad policy perspective is simply how equitable and costly the agreement will be. And here, the Social Security Administration explains that the costs will be minimal:
An agreement with Mexico- An agreement with Mexico would save U.S. workers and their employers about $140 million in Mexican social security and health insurance taxes over the first 5 years of the agreement.
- An agreement would also fill the gaps in benefit protection for U.S. workers who have worked in both countries, but not long enough in one or both countries to qualify for benefits.
- Mexico is the second largest trading partner with the U.S. Agreements are already in effect with Canada, the largest trading partner with the U.S., and 19 other countries.
- With Mexico, the U.S. now has signed agreements with eight of its top ten trading partners. Many of these agreements have been in effect for nearly two decades. The two exceptions are China and Taiwan. By law, the U.S. could not enter into agreements with these two countries because they do not have generally applicable social security systems that pay periodic benefits or the actuarial equivalent.
Costs of an agreement with Mexico- Social Security actuaries estimate that a totalization agreement with Mexico would have a negligible long-range effect on the Trust Funds.
- Costs to the U.S. Social Security system are estimated to average about $105 million per year over the first five years. These costs are for additional benefits to eligible U.S. and Mexican workers and reduced Social Security tax contributions under the dual taxation exemption.
- To put this in perspective, in 2002, costs to the U.S. system for the existing agreement with Canada were about $197 million.
Caveats
Now, we have to keep in mind that this is the Bush Administration we're talking about. So we shouldn't necessarily simply accept these figures. But neither should we ignore them. Rather, we should look for the best possible critical analysis-and we should look for potential fixes for any problems encountered that will preserve the common-sense benefits already found in dozens of other totalization agreements.
Indeed, in September 2003, the Genaral Accounting Office (GAO) issued a report [PDF] on the proposed agreement, along with a highlight of its findings [PDF]. This report was issued in response to a request by by Clay Shaw, Jr., Chair of the Subcommittee on Social Security in the Committee on Ways and Means and James Sensenbrenner, Jr., Chair of Committee on the Judiciary.
The highlights noted:
Why GAO Did This Study
Totalization agreements foster international commerce, protect benefits for persons who have worked in foreign countries, and eliminate dual social security taxes that employers and their employees pay when they operate and reside in countries with parallel social security systems. Because Mexicans are believed to represent a large share of the millions of unauthorized workers present in the United States, a totalization agreement with Mexico has raised concerns that they would become newly eligible for social security benefits. To shed light on the possible impacts, you asked GAO to (1) describe the Social Security Administration's (SSA) processes for developing the agreement with Mexico, (2) explain how the agreement might affect the payment of benefits to Mexican citizens, and (3) assess the cost estimate for such an agreement."
So, the very sorts of things that made the Mexico/US totalization agreement potentially different spurred Congress to ask the GAO for this report.
What GAO Found
SSA has no written policies or procedures it follows when entering into totalization agreements, and the actions it took to assess the integrity and compatibility of Mexico's social security system were limited and neither transparent nor well-documented. SSA followed the same procedures for the proposed Mexican agreement that it used in all prior agreements. SSA officials told GAO that they briefly toured Mexican facilities, observed how its automated systems functioned, and identified the type of data maintained on Mexican workers. However, SSA provided no information showing that it assessed the reliability of Mexican earnings data and the internal controls used to ensure the integrity of information that SSA will rely on to pay social security benefits.
The proposed agreement will likely increase the number of unauthorized Mexican workers and family members eligible for social security benefits. Mexican workers who ordinarily could not receive social security retirement benefits because they lack the required 40 coverage credits for U.S. earnings could qualify for partial social security benefits with as few as 6 coverage credits. In addition, under the proposed agreement, more family members of covered Mexican workers would become newly entitled because the agreements usually waive rules that prevent payments to noncitizens' dependents and survivors living outside the United States.
The cost of such an agreement is highly uncertain. In March 2003, the Office of the Chief Actuary estimated that the cost of the Mexican agreement would be $78 million in the first year and would grow to $650 million (in constant 2002 dollars) in 2050. The actuarial cost estimate assumes the initial number of newly eligible Mexican beneficiaries is equivalent to the 50,000 beneficiaries living in Mexico today and would grow sixfold over time. However, this proxy figure does not directly consider the estimated millions of current and former unauthorized workers and family members from
Mexico and appears small in comparison with those estimates. The estimate also inherently assumes that the behavior of Mexican citizens would not change and does not recognize that an agreement would create an additional incentive for unauthorized workers to enter the United States to work and maintain documentation to claim their earnings under a false identity.
Although the actuarial estimate indicates that the agreement would not generate a measurable long-term impact on the actuarial balance of the trust funds, a subsequent sensitivity analysis performed at GAO's request shows that a measurable impact would occur with an increase of more than 25 percent in the estimate of initial, new beneficiaries. For prior agreements, error rates associated with estimating the expected number of new beneficiaries have frequently exceeded 25 percent, even in cases where uncertainties about the number of unauthorized workers were less prevalent. Because of the significant number of unauthorized Mexican workers in the United States, the estimated cost of the proposed totalization agreement is even more uncertain than in prior agreements.
In short, there's good reason to run a more rigorous analysis, and perhaps consider revising the agreement accordingly. This is not to say that the current agreement would be a disaster-but "not being a disaster" is a pretty low standard to have, and we ought to do better.
Specifically, the GAO concluded:
What GAO Recommends
GAO recommends that SSA (1) establish a formal process to identify and assess risks of proposed agreements, (2) make future reports to the Congress on these agreements more consistent and informative, and (3) work with the Office of the Chief Actuary to improve the cost estimates for agreements. SSA disagreed that additional processes were needed to assess risks, but it agreed that cost estimates should be more consistent and that it should regularly re-examine the accuracy of its estimates.
Months before the GAO issued this report, however, part of the underlying problem was resolved-the problem having to do with undocumented workers being eligible for benefits if they moved back to Mexico. This problem was eliminated-not in the totalization agreement, but in the underlying law, which was being revised in Congress over this same period of time with a variety of different measures combined into an omnibus revision bill. This change was added to the bill in April, 2003, and was signed into law 11 months later (March 4, 2004) as the "Social Security Protection Act of 2004". The signing announcement explained:
Prohibit Benefits to Persons Not Authorized to Work in the United States- Would provide that the payment of Title II benefits based on the earnings of any noncitizen would be precluded unless (1) the noncitizen had ever been issued an SSN indicating authorization to work in the United States, or (2) the noncitizen, at the time any quarters of coverage are earned, was admitted to the United States under a B1 visa (for business purposes) or D visa (crew member--e.g., for an airline).
- Would be effective with respect to Social Security numbers issued on or after January 1, 2004.
This was a significant-but by no means "break the bank" expensive-oversight in the underlying law that was not addressed in the original totalization agreement. Instead, it was addressed where it should have been--the underlying US law. By changing the underlying law, the "Social Security Protection Act of 2004" removed the problem, not just from the proposed totalization agreement with Mexico, but from all other such agreements, past, present and future. This provision was not part of the bill as originally introduced to the House on February 12, 2003, but it was added before the House approved its final version, and was part of the package throughout its consideration by the Senate, after which it was signed into law.
This is what sensible, responsible government processes look like.
This is what Ron Paul cannot stand. He thrives on hysterical, wild-eyed accusations. Especially when furriners (particularly dark-skinned ones) are involved. Which brings us to...
Ron Paul's Hysterical Attacks
But that's where Part 2 begins. Positing in a few hours, giving you time to digest all the above, and post questions and comments below. |
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