Every year, the Social Security Administration receives billions of dollars in free funding from unexpected sources: illegal immigrants.
The group paid an estimated $25.7 billion in Social Security taxes in 2022, according to a recent analysis by the Institute on Taxation and Economic Policy, a left-leaning tax research group. Unauthorized workers cannot receive retirement or other Social Security benefits unless they change their immigration status, so the billions of dollars they funnel into the program are effectively subsidies to U.S. beneficiaries. It functions as gold.
President-elect Donald J. Trump has vowed to implement the nation's largest mass deportation program ever and restrict legal routes to immigration. It is difficult to predict whether the next administration will be able to follow through on its most aggressive promises, such as bringing home the estimated 11 million undocumented workers currently in the United States.
But if the White House implements the policy, economists expect it to create a widespread drag on the economy, according to actuaries at the Social Security Administration, which sends benefits to 68 million Americans each month. This could result in an annual loss of approximately $20 billion to Social Security's cash flow. , the total amount last year was $1.5 trillion.
Social security has been facing a lack of funding for many years, due in part to demographic changes. Declining birth rates mean fewer people are paying into the program, thousands of baby boomers retire every day, and retirees receive benefits for a longer period of time.
“America's demographic realities are becoming increasingly difficult for funding programs like Social Security,” said Shai Akabas, executive director of the economic policy program at the nonprofit Bipartisan Policy Center. “Net internal migration is one of the factors that is actively resisting this trend and helping to fill the gap left by an aging workforce.”
The trust fund that pays Social Security retiree benefits is expected to be depleted in 2033, when tax revenues will cover 79% of scheduled benefits. That means if Congress doesn't do anything, beneficiary checks will be cut by 21%. (While there is debate about the best approach to strengthening the program, there is hope that legislators will take some action.)
Significant changes in immigration policy could have ripple effects on social security. Because America's birth rate is so low, net immigration is projected to drive population growth and account for all population growth starting in 2040, according to a 2024 report from the Congressional Budget Office.
“A decline in the immigrant workforce would likely worsen Social Security's financial position in the short term, and would likely result in a more significant decline elsewhere than in Reform will be necessary.” “However, the broader issues of immigration policy and border security require careful consideration beyond the impact on Social Security programs.”
To see how different levels of immigration, legal and otherwise, can change the program's finances over the long term, take a look at the Social Security Administration's most recent Annual Management Committee Report. Sho. Retirement and disability benefits will be paid for 75 years starting in 2024. (Social Security shortfalls are often measured as a percentage of total payroll covered by the program or of all wages subject to payroll taxes covered by the program) Dedicated funding source. )
The Trustees' best estimate assumes a population of 1.24 million net immigrants each year. At this rate, an additional 3.5 percent of taxable payroll would be required for the program to become fully payable. However, if annual net immigration were to fall to 829,000 (that low estimate), the program's long-term funding shortfall would worsen by about 10 percent (from 3.5 percent to 3.9 percent of taxable payroll).
But if net immigration were to increase to nearly 1.7 million people a year, the funding gap would improve by 10 percent (to 3.1 percent of salaries).
In other words, for every 100,000 net immigrants each year, the funding gap improves by 0.09 percent of taxable payroll.
“Most of these individuals are early in their careers and begin contributing to Social Security immediately, even if they do not claim benefits for years into the future,” the Bipartisan Policy Center report said. said. “This has a net positive effect on the social security system.”
Undocumented workers still owe taxes on income earned in the United States, and it is estimated that at least half of them file federal tax returns. However, even if they contribute to payroll taxes, they are not allowed to collect many other deductions, including Social Security benefits and the Earned Income Tax Credit, and all taxpayers and their dependents are not eligible for effective social insurance. You are required to have a security number.
Employers typically must use Form I-9 to verify a prospective worker's identity and work eligibility and collect documentation as evidence. Because people generally need a Social Security number to get a job, undocumented workers who receive a salary instead of being paid in cash, for example, use a fabricated Social Security number, someone else's number, or a number that was previously valid. It is possible. Had work permit status.
But when you file your tax return, you use a different number: the nine-digit Individual Taxpayer Identification Number, known as an ITIN. The Internal Revenue Service helps people who are ineligible or do not have Social Security numbers, such as certain spouses of student visa holders and employment visa holders, to legally file tax returns and comply with tax laws. The system was established in 1996 to achieve this goal.
While undocumented workers may fear that obtaining an ITIN will be used to deport them, there are safeguards that prevent the IRS from sharing taxpayer information with other federal agencies. Congress would need to take legislative action to change this.
Undocumented workers often file tax returns to demonstrate good moral character, which can help in immigration cases involving deportation or a path to citizenship.
“They want to integrate into American society, and this is an important way to do that,” said Sarah Lora, associate clinical professor and director of the low-income clinic at Lewis & Clark Law School. said. “There is almost no respect for the tax system,” she said, referring to the attitude of undocumented taxpayers she helped file.
The Institute on Taxation and Economic Policy estimates that undocumented workers paid a total of $96.7 billion in federal, state, and local taxes in 2022, with one-third of that going toward payments for social insurance programs, including Social Security. The money was earmarked for payroll taxes. Medicare and unemployment taxes.
“It is well known that undocumented workers contribute to the solvency of major social insurance programs through tax payments,” said Carl Davis, research director at the Institute on Taxation and Economic Policy.
