Washington, DC: Wages paid to nonresident aliens employed within the United States by an American or foreign employer, in general, are subject to Social Security/Medicare taxes for services performed by them within the United States, with certain exceptions based on their nonimmigrant status. Social Security/Medicare taxes are paid back to people after they retire within this country. Social Security is the largest social welfare program in the US, accounting for 37% of the government expenditure and 7% of GDP.
H-1B workers, for instance, in the United States pay Social Security and Medicare taxes, but many that don’t remain as permanent residents are unlikely to see any benefit from those payments., as they leave this country after their visa status ends and do not enjoy the benefits of their contributions after they retire. These temporary workers from India alone are estimated to contribute over $1 Billion in Social Security Taxes per year.
India has urged the United States to set up a high-level committee to look into a range of issues including American Totalization and non-tariff barrier, as also the Social Security Act that discriminates Indians working in the U.S. The previous rounds of talks have taken place over a decade, with no results.
Commerce Secretary Rita Teaotia flagged these issues during her meeting with the U.S. Trade Representative Deputy Ambassador Robert Holleyman in the Indian Capital. She highlighted the “need for setting up a high-level group to discuss India’s concerns on the U.S. Totalization and Social Security Act (how the policy was discriminatory towards Indian workers in the U.S. who ended up losing their social security contributions due to discrepancy in the visa and social security regimes, also indicating recourse to legal remedies),” an official statement said.
India wants early conclusion of the totalization agreement or Social Security Agreement with the U.S. It aims to protect interests of professionals of Indian-origin who contribute more than $1 billion each year to the U.S. social security system. The National Association of Software and Service Companies (Nasscom), an Indian IT industry group, said that Indian firms and their employees are currently paying in excess of $1 billion annually in Social Security taxes and getting no benefit due to the absence of a totalization agreement with the U.S. Depending on what would emerge from negotiations between U.S. and Indian officials, a totalization agreement could also cut payroll costs for Indian IT providers.
Under this pact, professionals of both the countries would be exempted from social security taxes when they go to work for a short period in the other country. The U.S. already addresses the issue under “totalization agreements” with nearly two dozen countries. Those agreements, under which foreign workers pay only the social security-like taxes due their home countries, are mostly with developed countries in Western Europe that have benefit systems roughly parallel to the those of the U.S.
India has a large number of professionals who are making a significant contribution to the U.S. social security system but are leaving the U.S. after five or six years. The benefits don’t kick in for 10 years so they all return [to India] after making a contribution without benefiting in any manner. A totalization agreement would be “mutually beneficial” for U.S. workers in India.
India has signed totalization agreements with other developed countries, which could be used as reference benchmarks; we may have different systems. But the objectives are the same. The US has entered into a Totalization pact with 24 countries.
Daniel Costa, an immigration policy analyst at the Economic Policy Institute, estimates that the affected companies could save 14% on the labor costs associated with H-1B workers. “That would give companies another incentive to hire H-1Bs because that’s an extra 14% of savings,” he added. The net savings for Indian firms would depend on how much they have to contribute to India’s system.
A pact to return social security taxes would be a big blow to the US given the large number of Indian professionals who work for short durations in the US. If the pact does indeed come through, then the US would also be forced to take a hard look on how to reform the immigration system to induce skilled professionals from India to settle down permanently in the country, which would point to a more expedited way to push through Green Cards, primarily.
All peoples throughout all of human history have faced the uncertainties brought on by unemployment, illness, disability, death and old age. In the realm of economics, these inevitable facets of life are said to be threats to one’s economic security.
For the ancient Greeks economic security took the form of amphorae of olive oil. Olive oil was very nutritious and could be stored for relatively long periods. To provide for themselves in times of need the Greeks stockpiled olive oil and this was their form of economic security.
In medieval Europe, the feudal system was the basis of economic security, with the feudal lord responsible for the economic survival of the serfs working on the estate. The feudal lord had economic security as long as there was a steady supply of serfs to work the estate, and the serfs had economic security only so long as they were fit enough to provide their labor. During the Middle Ages the idea of charity as a formal economic arrangement also appeared for the first time.
Family members and relatives have always felt some degree of responsibility to one another, and to the extent that the family had resources to draw upon, this was often a source of economic security, especially for the aged or infirm. And land itself was an important form of economic security for those who owned it or who lived on farms.
Following the outbreak of the Great Depression, poverty among the elderly grew dramatically. The best estimates are that in 1934 over half of the elderly in America lacked sufficient income to be self-supporting. Despite this, state welfare pensions for the elderly were practically non-existent before 1930. A spurt of pension legislation was passed in the years immediately prior to passage of the Social Security Act, so that 30 states had some form of old-age pension program by 1935. However, these programs were generally inadequate and ineffective. Only about 3% of the elderly were actually receiving benefits under these states plans, and the average benefit amount was about 65 cents a day. Wages paid to resident aliens employed within the United States by an American or foreign employer are subject to Social Security/Medicare taxes under the same rules that apply to U.S. citizens.