Can immigration save social security?

The Social Security program helps tens of millions of Americans retire after years of paying into the system through their earnings. But the Social Security Administration (SSA) is still facing a funding crunch in the not-too-distant future that could see benefits cut by nearly 20 percent if lawmakers don’t act.

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Social Security is financed through a combination of payroll taxes and government reserve funds and is by far the largest direct expenditure of the US government’s annual budget, reaching $1.3 trillion, or about 5 percent of 2023 GDP. Most workers, whether local or otherwise, pay into the fund at a rate of 12.4 percent split equally between the individual and their employer if they are not self-employed. The trust funds are projected to run out in 2035, and if Congress takes no action, all beneficiaries will face a sudden 17% benefit cut.

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Experts have advocated several methods of raising funds to avoid the impending crisis. Raising the retirement age, increasing tax rates and means testing benefits were all mentioned by experts who spoke to Newsweek in recent months.

But the drop in births, for which Newsweek recently reported, show that in the coming decades, there may be less taxable income to contribute to the pot. Along with the retirement of the baby boomer generation, the number of retirees is expected to grow at an accelerated rate in the coming years.

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According to the government agency, in 2005, 12 percent of the total population was 65 or older, “but by 2080, it will be 23 percent.” In its Trustees 2023 report, the agency reiterated the facts: “The number of retired workers will grow rapidly as members of the post-World War II baby boom continue to retire in increasing numbers. The number of retired workers it is predicted to double in about 50 years also people are living longer and the birth rate is low”.

There is a fix, but its desirability is a matter of opinion depending on where you fall on the political-immigration spectrum. Millions of immigrants living in the US contribute taxes through their income just like any American citizen. But will increasing the number of foreign-born workers contributing to the US tax system help save the SSA from an uncertain future?

Reasons why immigration will help

Expert bodies have said that increased levels of immigration will have a positive impact on SSA’s coffers.

“Putting aside perspectives on the policy debate regarding immigration policy, it is important to note that an increase in immigration leads to a decrease in the deficit of the Social Security program,” the American Academy of Actuaries (AAA) said in a report. of 2020.

AAA has said that immigration would have a positive impact on Social Security funds for two reasons. Since immigrants tend to be young, they immediately pay taxes into the system that funds the SSA. Furthermore, “immigrant women tend to have higher birth rates than US-born women, raising the overall US fertility rate, which extends the positive effect of taxation to future generations.”

Doug Roller, founder of Crossroads Financial Group, said Newsweek that by allowing more immigrants into the workforce, “there will be a larger pool of individuals who contribute economically through their work, thereby supporting retirees through Social Security programs and other mechanisms.” Simply put: More taxes collected means more money to fund the federal government and its programs.

“Immigration is a controversial issue that often divides public opinion, and the decision to use immigration as a solution to demographic challenges such as an aging population is not without political implications,” continued Roller. “Some may see increased immigration as helpful in addressing demographic issues, while others may see it as a threat to employment opportunities for native-born citizens.

“The long-term effects of relying on immigration to balance demographic changes must be carefully considered. While it may provide short-term benefits in terms of labor force participation and economic growth, there may be cultural or social implications that need to be addressed.”

Illegal immigration

Much political discussion about immigration statistics focuses on asylum seekers and undocumented migrants, particularly those who cross the US-Mexico border into southern states. While most foreign-born workers who entered the country legally pay Social Security taxes from their first day on the job, illegal immigrants and asylum seekers are often seen as a drain on U.S. benefits systems, especially by those in the right of the political spectrum.

“Biden’s border invasion will KILL Medicare and Social Security for elderly Americans. If millions of Biden migrants are allowed to stay as Joe Biden intends, they will cost taxpayers TRILLIONS, and Medicare and Social Security will be squeezed and collapsed !” US presidential candidate and former president Donald Trump said on Social Truth earlier this year.

But research organizations have found that illegal immigration actually benefits the social security system.

“Illegal immigration clearly benefits the Social Security and Medicare trust funds,” the nonpartisan Center for Immigration Studies said in 2023. “Illegal immigration improves the finances of Social Security and Medicare for one simple reason: Although illegal immigrants generally do not are eligible to collect Social Security and Medicare benefits, many still pay taxes into the system.

Dr. Shayak Sarkar, a law professor at the University of California Davis School of Law, said Newsweek: “Immigrants already in the United States are contributing to SSA even without work authorization, and others with work authorization are strangely prohibited from contributing. Some undocumented immigrant workers make Social Security contributions through payroll taxes deducted from their paychecks. their paychecks – even if you never file a Social Security claim.”

Sarkar said including more foreign workers in the taxes that help pay for Social Security benefits will help provide additional funding.

“There are immigrants who are lawfully in the United States who are nevertheless prohibited from contributing to Social Security. While H-1B and H-2B — both generally non-agricultural workers — generally pay into Social Security, H -2A – agricultural workers So this asymmetry is strange, but it can be a help to employers of non-citizen farm workers, who can pay less for the work without having to pay into social security.

How much would immigration help?

In its 2023 trust report, the SSA projects immigration as a fiscal positive for the Social Security system over a 75-year horizon. It is estimated that there will be a 75-year Social Security shortfall of 3.61 percent of taxable payroll under their midway immigration expectations.

But this number fluctuates from 3.21 percent with a high immigration rate to a deficit of 4.02 percent in case of low immigration.

So it’s unlikely that immigration alone will “save” Social Security from bankruptcy as such. Stephen Kates, chief financial analyst for RetireGuide.com, said Newsweek that while immigration “can help shore up” Social Security funds, allowing more legal migration “will not be a silver bullet.”

“Increasing the volume of people paying into the social security system will, of course, better support the growth of benefit recipients,” he said. “However, there are not enough immigrants coming to the US to make up the shortfall, and therefore, we cannot count on this as a single solution. Immigration is already creating a rift within the government leadership and this upcoming election likely to be a referendum on current immigration policies.”