Migrants
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The Social Security Administration (SSA) is projected to receive approximately $25.7 billion in Social Security taxes from immigrants living in the United States illegally.
This significant contribution is noteworthy as these individuals are prohibited from accessing benefits unless their immigration status changes, effectively subsidizing the program for American beneficiaries. The incoming Trump administration has promised to implement sweeping measures for immigration, including a massive deportation initiative and restrictions on legal immigration pathways. As the administration attempts to address the estimated 11 million undocumented immigrants in the country, economists warn of potential adverse effects on the US economy.
Projections suggest that a substantial reduction in the immigrant workforce could lead to Social Security experiencing an annual cash flow deficit of around $20 billion, as asserted by actuaries at the SSA. Social Security, currently providing benefits to 68 million Americans at a total cost of $1.5 trillion last year, has grappled with financial shortfalls exacerbated by demographic changes. Decreasing birth rates result in fewer contributors to the program, while thousands of baby boomers retire daily, increasing the duration of benefit payouts.
Shai Akabas, executive director of the economic policy program at the Bipartisan Policy Center, highlights that demographic changes pose financial challenges for Social Security and that net immigration has positively counteracted these trends by offsetting the effects of an ageing workforce. The SSA's trust fund, which finances retiree benefits, is forecasted to deplete by 2033, at which point available tax revenue would only cover about 79 percent of scheduled benefits.
This scenario underlines the importance of legislative intervention to ensure the program's sustainability. A decrease in net immigration could further complicate Social Security's financial outlook. The Congressional Budget Office reported that net immigration is critical for population growth, predicting that it will account for all population increases post-2040, given the current low fertility rates. Akabas mentions that a decline in the immigrant workforce would likely worsen the financial situation of the Social Security program and necessitate substantial reforms in other areas.
Long-term projections from the SSA's annual trustees report indicate that maintaining a steady annual net immigration rate of 1.24 million is essential for addressing the program's financing shortfall. If net immigration were to fall to 829,000, the shortfall would increase by 10 percent, while an increase to nearly 1.7 million would enhance the program’s financial health by a similar margin. Most undocumented immigrants enter the workforce at earlier career stages, contributing instantly to Social Security, even though they cannot claim benefits for years.
As these individuals are still liable for income taxes, many file federal returns, with estimates suggesting at least half do so. However, due to restrictions on valid Social Security numbers, they are excluded from receiving benefits and other credits, including the earned-income tax credit. Employers are mandated to verify worker identities and eligibility, adding another layer to the complex relationship between immigration policy and Social Security funding.