The Effects Of Immigration On Social Security

For better or worse, Social Security plays a vital role in keeping millions of people (mostly the elderly) out of poverty in this country. A recent update from the Center on Budget and Policy Priorities finds that 22.1 million people — that’s out of more than 62 million current beneficiaries — are single-handedly pushed out of poverty thanks to their monthly benefit check. This includes just over 15.3 million retired workers.

But as you’re probably well aware, this program, which has been providing a financial foundation for elderly American workers for nearly eight decades, is about to face what could be described as its toughest challenge to date.

Social Security’s biggest challenge since its inception

According to the Social Security Board of Trustees’ 2018 report, released in early June, the program has hit a much-anticipated yet very unwelcome inflection point. Beginning this year and continuing with each subsequent year, the program will expend more than it collects in revenue. Though this net cash outflow will start small (an estimated $1.7 billion in 2018), it’ll grow very quickly in 2020 and beyond. By the time 2034 rolls around, the $2.89 trillion currently held in Social Security’s reserves is forecast to be completely gone.

Now, don’t go writing off Social Security income during retirement just because the program has no excess cash. Even if interest income on its asset reserves disappears as a revenue source, Social Security still has two means of generating recurring revenue: the 12.4% payroll tax on earned income up to $128,400 (as of 2018) and the taxation of benefits for those beneficiaries earning over select income thresholds. Combined, these two recurring revenue sources were responsible for 91.5% of the $996.6 billion collected by Social Security in 2017. In other words, it’s not going to run out of cash, and you will receive a benefit, assuming you qualify for one.

On the other hand, it’s become abundantly clear that the current payout schedule isn’t sustainable, and the Trustees have opined that an across-the-board cut to benefits of up to 21%may be needed to maintain payouts through 2092, without the need for any further cuts. Considering that three out of five seniors rely on their monthly check for at least half of their income, this portion of the Trustees’ outlook is downright scary.

A laundry list of problems

So, what’s to blame for Social Security’s issues? Aside from the mostly unfair blame cast on baby boomers, increased longevity, growing income inequality, and Congressional inaction have their place at the table of blame.

In terms of longevity, the average American is living approximately nine years longer now than they were in 1960. Similarly, more people are living to the eligible claiming age for Social Security (age 62) than ever before. Presumably, improvements in medical care, pharmaceuticals, and healthcare knowledge will only push longevity higher, thereby straining a program that was only designed to provide financial protection to the elderly for a few years when it was created.

Building on the previous point, the wealthy have no financial constraints when it comes to receiving preventative care, medical treatment, or pharmaceuticals. That’s not always the case with lower-income folks. This has created a gap in life expectancies between these income groups, allowing the rich to live substantially longer, on average, than the poor, and thereby collect a disproportionately large amount of Social Security income.

And don’t get me started on how the political divide on Capitol Hill has stalled any chance of fixing Social Security for the long term.

Does immigration hurt or help Social Security?

Another factor that often gets a finger pointed at it by critics is immigration — more specifically, undocumented workers. Peruse social media and, among the fictitious claims that the government raided Social Security, you’re bound to find comments claiming that Social Security is being hurt by legal and illegal immigration into the United States.

But is this the case? Let’s have a closer look.  

The best way to examine this argument is to look at legal and illegal immigration separately. In terms of legal immigration, it undoubtedly helps Social Security over the long run. In fact, the Trustees’ estimates count on a steady level of legal immigration into the United States.

The big reason legal immigration is a net positive for Social Security is that most immigrants to this country tend to be younger. This means that even if these folks earn the prerequisite 40 lifetime work credits needed for a retired worker benefit during their own retirement, they’ll likely work for two, three, or four decades, while also contributing via the payroll tax like all other working Americans. In short, payroll tax revenue from legal immigrants is very much needed to support a growing base of eligible retirees.

Now, what about undocumented workers? They have to have a negative impact on Social Security, right? Actually, wrong.

Undocumented workers, by law, can’t qualify for a Social Security number and therefore are ineligible for a retired worker benefit, as well as disability and survivor’s insurance protection. Unless migrants are on a legal path to citizenship and earning lifetime work credits, they won’t qualify for a benefit from either the Old-Age and Survivors Insurance Trust or the Disability Insurance Trust.

However, this doesn’t mean undocumented workers aren’t contributing in some way to the Social Security program. According to AARP, approximately $12 billion in payroll tax revenue (from either the workers or their employers) was collected in 2010 from undocumented migrants. These workers have absolutely no chance of ever seeing a dime of this money back unless they become U.S. citizens and earn the needed 40 work credits for a retirement benefit.

Don’t confuse SSI with Social Security and its trusts

One final note: Don’t conflate traditional Social Security with Supplemental Security Income (SSI), a program that the Social Security Administration happens to oversee. SSI, which traditionally divvies out monthly payments to the disabled, blind, and elderly over age 65, can also provide benefits to noncitizens who are refugees, asylum seekers, and those lawfully admitted for permanent residence.

However, SSI is funded from the federal government’s general fund, whereas Social Security has its three sources of funding (payroll tax, taxation of benefits, and interest income) and is only allowed to draw payments from the money it has in its trusts and/or its asset reserves. In essence, these are two separate programs, which means undocumented migrants aren’t in any way weighing on the Social Security program.