Can immigration save Social Security?

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

Social Security is funded through a combination of payroll taxes and government reserve funds, and is by far the largest direct expense of the U.S. government’s annual budget, amounting to $1.3 trillion, or about 5 percent of the 2023 GDP. The majority of workers, whether native or otherwise, pay into the fund at a rate of 12.4 percent divided 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 no action is taken by Congress, all beneficiaries will face a sudden 17 percent benefit cut.

Experts have touted several methods for shoring up the funds to avert the impending crisis. Raising the retirement age, raising tax rates and means testing for benefits have all been mentioned by experts who have spoken with Newsweek in recent months.

But falling birth rates, about which Newsweek recently reported, indicate that in the coming decades, there may be less taxable income to contribute to the pot. Coupled with the retirement of the baby boomer generation, the number of retirees is expected to increase at an accelerated rate in the coming years.

According to the government agency, in 2005, 12 percent of the total population was age 65 or older, “but by 2080, it will be 23 percent.” In its 2023 Trustees 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 is projected to double in about 50 years. People are also 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 spectrum—immigration. Millions of immigrants living in the U.S. contribute taxes via their income just like any American citizen. But will increasing the numbers of foreign-born workers contributing to the U.S. tax system help save the SSA from an uncertain future?

Reasons immigration will help

Expert bodies have said heightened levels of immigration will have a positive impact on the SSA’s funding coffers.

“Setting aside the perspectives in 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 2020 report.

The AAA has said that immigration would have a positive impact on Social Security funds for two reasons. As immigrants tend to be young, they immediately pay taxes into the system that funds the SSA. What’s more, “immigrant women tend to have higher birth rates than U.S.-born women, increasing the overall U.S. fertility rate, which extends the positive tax-paying effect into future generations.”

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

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

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

Illegal immigration

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

“Biden’s border invasion is going to OBLITERATE Medicare and Social Security for American seniors. If the millions of Biden migrants are allowed to stay as Joe Biden intends, they will cost taxpayers TRILLIONS of dollars, and Medicare and Social Security will buckle and collapse!” U.S. presidential candidate and former President Donald Trump said on Truth Social earlier this year.

But research organizations have found that illegal immigration actually benefits the Social Security system.

“Illegal immigration unambiguously benefits the Social Security and Medicare trust funds,” the non-partisan Center for Immigration Studies said in 2023. “Illegal immigration improves the finances of Social Security and Medicare for a simple reason: although illegal immigrants are generally not eligible to collect Social Security and Medicare benefits, many still pay taxes into the system. These taxes function as free contributions to the trust funds, as long as the illegal immigrants remain ineligible for benefits.”

Dr. Shayak Sarkar, professor of law at the University of California Davis School of Law, told Newsweek: “Existing immigrants already in the United States are contributing to the SSA even without work authorization, and others with work authorization are oddly barred from contributing. Some undocumented immigrant workers make Social Security contributions through payroll taxes deducted from their paychecks—even if they will never ultimately make a claim for Social Security.”

Sarkar said that enveloping more foreign-born workers into the taxes that help pay for Social Security benefits will help provide additional funds.

“There are immigrants who are lawfully in the United States that are nonetheless barred 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 do not. That asymmetry is odd but can be a boon for employers of noncitizen farmworkers who can pay less for labor by not having to pay into Social Security. Rectifying this asymmetry could help Social Security and workers.”

How much immigration would help?

In its 2023 Trustee’s Report, the SSA forecast 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 that number fluctuates from 3.21 percent with a high immigration rate to a 4.02 percent deficit in the event of low immigration.

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

“Adding to the volume of people paying into the Social Security system will, of course, better support the growth in benefit recipients,” he said. “Despite this, there are not enough immigrants coming to the U.S. to offset the shortfall, and therefore, we cannot count on that as a single solution. Immigration is already creating some contention within governmental leadership, and this upcoming election is likely to be a referendum on the current immigration policies.”