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The Truth About Social Security and Immigration
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The Truth About Social Security and Immigration

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As Sen. Bernie Sanders, I-Vt., said in his 2016 book, Our Revolution, "Social Security is the most successful government program in our nation's history." Sanders is absolutely correct. Without Social Security, elderly poverty rates would be more than four times higher than they are today, according to an analysis by the Center on Budget and Policy Priorities.

Furthermore, it's a program that tens of millions of current retirees rely on to make ends meet. A Gallup poll released in April found that 89% of retired workers lean on Social Security as a major or minor source of income. As the program was initially intended, it's helping to provide a financial foundation for those who can no longer do so for themselves.

Image source: Getty Images.

Social Security's financial troubles lead to a lot of finger-pointing

As you may already know, this crucial program finds itself in a heap of trouble. The latest report from the Social Security Board of Trustees estimates that the program could completely exhaust its $2.9 trillion in asset reserves (i.e., the net cash surpluses built up since inception) by 2035. Once these reserves run out, the existing payout schedule, inclusive of cost-of-living adjustments, would no longer be sustainable. According to the Trustees, an up to 24% cut to retired worker benefits may be necessary by 2035 to keep Social Security solvent through 2094.

This rapid financial deterioration in what's been a rock-solid social program has the American public doing a lot of finger-pointing. For instance, baby boomers often get blamed simply for being born. While their presence in the labor force and the payroll tax revenue they provided Social Security was a boon for decades, their retirement from the workforce is weighing heavily on the worker-to-beneficiary ratio. For what it's worth, I believe baby boomers are getting a bad rap as there are a number of demographic changes underway that are adversely affecting Social Security beyond just boomers retiring.

There's also quite a bit of blame levied at undocumented workers and migrants in general for depleting the Social Security program's assets. The belief here is that undocumented workers are illegally receiving Social Security benefits -- and that if they weren't, the program would be in much better financial shape.

Unfortunately, similar to wrongful blame levied on boomers, there's a mountain of myths and misconceptions surrounding Social Security and immigration, legal and otherwise.

Image source: Getty Images.

Legal immigration is paramount to Social Security's success

If you want the truth about immigration, it's that it's an all-around net positive for the Social Security program. Let's first take a closer look at legal immigration.

What you need to know about legal immigration into the U.S. is simple: It's vital to the health of the Social Security program. Not helpful. Not a nice bonus. Vital!

The Social Security program relies on new workers entering the labor force to exceed the number of workers retiring and claiming benefits. Part of this is achieved by Americans giving birth to the next generation of workers. But the other big puzzle piece involves a healthy amount of legal net migration into the U.S. each year. Since most legal immigrants into the U.S. are young, they'll often spend decades in the workforce contributing to Social Security via the payroll tax.

In the 2020 report from the Board of Trustees, the intermediate-cost model (i.e., the model viewed as most likely to happen) assumes an average of 1,261,000 total net immigrants entering the U.S. every year between 2020 and 2094. If the U.S. were to average a smaller number of net legal immigrants into the country, the program's already monstrous estimated funding shortfall of $16.8 trillion over the next 75 years would swell even higher.

This is noteworthy because net legal migration into the U.S. has been plummeting over the previous two decades, as measured by World Bank data in rolling five-year periods between 1997 and 2017. The most recent rolling five-year period featured net legal migration into the U.S. of only 954,806 people per year.

You see, the problem isn't that legal immigrants are coming to America. It's that not enough legal migrants are coming to America and entering the workforce.

Image source: Getty Images.

The truth about undocumented workers and Social Security

Of course, legal immigration only tells part of the story. It's undocumented workers who are often blamed for Social Security's woes. But there are two undocumented worker truths that you should know.

First, undocumented workers aren't allowed to receive a dime in traditional Social Security benefits. That's because traditional benefits, such as retirement, disability, or survivor benefits, are only available to persons who have a Social Security number or a pathway to gain U.S. citizenship. This is to say that it's 100% a myth that undocumented workers are receiving Social Security benefits.

The reason this misconception has been so pervasive for so long is that the public sometimes conflates Supplemental Security Income (SSI) and Social Security benefits. Low-income seniors, disabled persons, the legally blind, and asylum seekers can qualify for a monthly benefit from SSI. Even though the Social Security Administration oversees the SSI program and Social Security, the programs have two completely different sources of funding. In other words, they're not comparable. A noncitizen receiving an SSI payout is not the same as a person receiving a Social Security benefit.

The second thing you should know about undocumented workers is that they're actually strengthening the Social Security program. An analysis from the Social Security Administration's Office of the Actuary in April 2013 estimated that undocumented workers and their employers contributed as much as $13 billion in payroll tax revenue into the program during the 2010 tax year. In many instances, undocumented immigrants are using a fake Social Security number or a friend's Social Security number to be hired by an employer, which is what leads to payroll tax revenue being collected.

Although $13 billion is a drop in the bucket next to the $1.06 trillion Social Security collected in 2019, it's worth noting that the program's net cash surplus for the full year in 2018 and 2019 was only $3.1 billion and $2.5 billion, respectively. You could rightly say that without undocumented immigrants paying into Social Security, the program would have already suffered two years of net cash outflows.

The indisputable truth is that both kinds of immigration have been positive for the Social Security program.

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