Alien Workers Who Do Not Pay FICA in the Islands and on the Mainland

By David North on January 30, 2012

Suppose you were an elected official, and were facing a situation in which the class of people who voted for you were facing a severe financial penalty when they sought jobs.

Suppose there was a system that gave non-voting aliens on your turf a substantial break in terms of their payroll costs to employers, and that as a result, employers actively favored giving jobs to the non-voters.

You would think that any politician in his (or her) right mind would want to fight the discriminatory system that hurts your supporters. Right?

Wrong! At least in the convoluted world of nonimmigrant workers and the Commonwealth of the Northern Mariana Islands (which lie a few miles north of Guam in the Western Pacific.)

There the governor, Benigno Fitial, once-jailed lobbyist Jack Abramoff's last ally in elective office, has sued the federal government in an effort to eliminate FICA and Medicare taxes on most temporary alien workers; he seems to want local employers to get a major tax break when they discriminate against citizen workers. FICA is usually 6.2 percent on the worker's wages and 6.2 percent on the employer; Medicare is 1.45 percent on the worker and the same on the employer, for a two-system total of 15.3 percent.

Fitial's attorneys have found in the statutes what they think is a FICA-Medicare tax break for alien workers from the Philippines and South Korea; these two nations provide about 75 percent of the nonimmigrant labor force in the CNMI.

I have two problems with this. First, we should give priority to jobs to citizens and green card holders, over nonimmigrant aliens. At the very least, we certainly should let those two groups compete on an even playing field, but Fitial rejects both positions.

Second, this is just another (in this case rather minor) raid on the Social Security and Medicare Trust Funds, which were already in trouble without the numerous successful efforts to reduce the income to these funds.

Politically, Fitial belongs to the Covenant Party, which is far to the right of the Republican Party in these islands (where the Democrats barely exist). He evidently identifies with the islands' employers (who are mostly in the tourism business), as opposed to the unemployed among the indigenous population, which consists of Chamorros and Carolinians, all citizens of the U.S.

The dirty little local secret in CNMI is that the indigenous population avoids private sector jobs like the plague, preferring the softer assignments one can get in the local government. The nonimmigrant workers are something like 70 percent of the private sector workforce, and do all the real work in the islands. As a result of these numbers, Fitial probably is not hurt much politically by siding with the employers and their alien workers.

Incidentally, and this is an outburst of chutzpah of monumental proportions, the now-closed garment sweatshops in CNMI are suing the U.S. government to get a refund of the FICA taxes they paid years ago. Having lost at both the Court of Claims and the Circuit Court of Appeals levels they are seeking a writ of certiorari from the U.S. Supreme Court. (The high court rejects far more writs than it accepts.)

Probably of more significance to the American people than these disputes over small numbers of aliens thousands of miles from here, and relatively small sums of money, is what is happening to the FICA and Medicare tax revenues on a broader basis.

Gov. Fitial's suit, and that of the sweatshops, if either are accepted by the courts, are just two of a number of raids on these funds, some of which are immigration-related and some recession-related.

The biggest raid of them all, supported consistently by President Obama, and often by Congress, deals with FICA taxes for the Social Security Trust Fund. As it currently operates, and probably will throughout 2012, it reduces the workers' part of FICA from 6.2 percent of taxed income to 4.2 percent; this reduction is regarded as temporary by all concerned, but temporary tax cuts, as we all know, are hard to reverse.

This reduction in FICA income is estimated at about $105 billion a year.

In addition there are a series of continuing immigration-created loopholes in the Social Security and Medicare Trust funds. For example, under most circumstances nonimmigrants in these classes do not pay – nor do their employers pay – FICA and Medicare taxes: F-1 and M-1 students, J-1 exchange visitors, H2A farm workers, and Q-1 cultural exchange workers.

On the other hand, H-1B (high tech and professional workers) and H2-B (unskilled non-agricultural workers), and their employers, do pay these taxes.

The size of the tax losses and tax contributions for these two different sets of nonimmigrant workers are not known, but in a blog last year we estimated that an extension of F-1 OPT status, for new foreign graduates in a long list of occupations, by itself cost the Trust Funds $1 billion a year.

If that is the case for a fairly narrow subset of F-1 workers, the FICA losses for all of the nonimmigrant worker programs would probably reach $10 billion a year.

It is surprising that AARP and other groups that advocate for the aging are not raising a fuss about these extraneous deductions from the trust funds for the elderly.