Utah News keelee-mccain January 15, 2025 0 Comments

The Role of Unauthorized Immigrants in Financing Social Security

Undocumented workers contribute significantly to funding programs like Social Security, even though they are ineligible to collect benefits. In 2022, they paid an estimated $25.7 billion in Social Security taxes, according to a report by the Institute on Taxation and Economic Policy (ITEP), a left-leaning research organization. This contribution, from workers who cannot claim Social Security benefits without a change in immigration status, effectively acts as a subsidy for American beneficiaries.

The financial contributions from undocumented workers come as the United States grapples with ongoing debates about immigration policy. President-elect Donald Trump pledged to carry out a large-scale deportation program, with plans to reduce legal immigration pathways. If his administration moves forward with these policies, economists predict significant economic repercussions, including an annual loss of about $20 billion in cash flow to the Social Security system, according to actuaries at the Social Security Administration. This could further strain the program, which already faces long-term financial challenges due to demographic shifts, such as lower birth rates, the aging of the Baby Boomer generation, and the increasing number of retirees who draw benefits for longer periods.

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Impact on Social Security’s Financial Health

The Social Security Old-Age and Survivors Insurance (OASI) Trust Fund, which finances retirement, spousal, and survivor benefits, is projected to run dry by 2033. At that point, tax revenues would be sufficient to pay only 79% of scheduled benefits, meaning a 21% cut for recipients unless Congress intervenes.

In recent years, immigration, both legal and unauthorized, has helped offset the effects of an aging workforce and declining birthrates. “Net immigration into the country is one factor that has positively pushed against that trend and helped fill the gap left by an aging work force,” said Shai Akabas, executive director at the Bipartisan Policy Center. Without continued immigration, including from undocumented workers, the Social Security program could face even greater financial difficulties.

How Immigration Affects Social Security

The Congressional Budget Office (CBO) projects that net immigration will drive population growth in the U.S., with immigration accounting for all population growth starting around 2040. Immigration helps stabilize the working-age population, which contributes to funding social insurance programs like Social Security.

A 2024 report from the CBO shows how changes in immigration rates could impact the program’s finances over the next 75 years. The Social Security Administration’s estimates assume 1.24 million net immigrants per year. If this number were to drop to 829,000 (the low estimate), the program’s long-term funding shortfall would worsen by 10%, requiring a 3.9% share of taxable payroll to cover the gap. On the other hand, if net immigration were to rise to nearly 1.7 million annually, the shortfall would improve by 10%.

Undocumented workers are also contributing significantly to Social Security’s solvency, though they cannot claim benefits. These workers are required to pay Social Security taxes on income earned in the U.S. Even though they are ineligible for benefits, many undocumented workers file federal tax returns using an Individual Taxpayer Identification Number (ITIN), which allows them to comply with tax laws. These taxes make up part of the overall contributions that help sustain Social Security, Medicare, and other social insurance programs.

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The Role of ITINs and Tax Filing

Undocumented workers who use an ITIN to file taxes contribute to Social Security without the ability to access the benefits in the future. While some fear their ITIN could be used to track them for deportation, there are legal protections that prevent the IRS from sharing taxpayer information with immigration authorities. This allows undocumented individuals to show good moral character, which may help them in immigration proceedings.

According to the ITEP, undocumented workers contributed a total of $96.7 billion in federal, state, and local taxes in 2022. Approximately one-third of this amount went toward payroll taxes for social insurance programs. “It is well established that undocumented workers contribute to the solvency of major social insurance programs through their tax contributions,” said Carl Davis, research director at ITEP.

Conclusion

While undocumented workers cannot access the benefits of Social Security, their financial contributions play a crucial role in sustaining the program. A shift in immigration policy, particularly a reduction in the number of undocumented workers, could have significant long-term implications for Social Security’s financial health. Lawmakers will need to carefully consider these effects as they address the program’s future funding challenges.

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Keelee McCain is a junior at Weber High School. This is her second year on staff, this year as Assistant to the Chief. She does have a life (probably) but she can't think of anything to write in here, so she's probably just going to ramble now. She has an orange cat who she likes better than any human. If you see her being quiet or not sitting on top of a desk, there is something very wrong. In her free time she enjoys harassing her favorite teachers and sleeping. Her life plans include making it through high school and leaving. Happy lifeing.