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If the past dictates the future, 80% to 90% of today’s US workforce will depend, to some extent, on Social Security income when they retire. This 80% to 90% range reflects the percentage of retirees who rely on Social Security as a “major” or “minor” source of income over 20 years of annual Gallup surveys.

Unfortunately, this program, which is responsible for millions of benefit checks each month, is not on the best financial footing. A very large reason for this is America’s immigration problem.

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Social Security faces a funding shortfall of more than $20 trillion

Since 1940, when the first retirement benefit checks were issued, the Social Security Board of Trustees has published a lengthy annual report that examines the program’s short-term (10-year) and long-term (75-year) prospects. . It’s effectively a simple look at how much Social Security brings in, where that money goes, and how financially sustainable the program is in the short and long term, based on various macroeconomic factors. factors and demographic changes.

A report by the Social Security Board of Trustees has estimated that there will be long-term funding shortfalls for the past 38 years. This means that the current payment schedule, including annual cost-of-living adjustments, is not sustainable over the next 75 years. The 2022 trustees report projected a $20.4 trillion cash shortfall by 2096.

If the program is responsible for lifting more than 22 million people (including more than 16 million seniors) out of poverty each year, this means that this projected shortfall in funding is not tantamount to Social Security’s bankruptcy or insolvency. If you qualify for retirement benefits or other protections, such as survivor’s or disability benefits, you will receive a monthly check when you are eligible.

However, the Trustees’ report projects that Old Age and Survivors Insurance Trust Fund benefits may need to be cut by 23% by 2034 unless something is done to fix Social Security’s shortfalls. This would mean that hundreds of dollars in monthly benefits would be taken out of the checks of 48.6 million retired workers over approximately 11 years.

This cash shortage is a function of more than half a dozen problems. Some are well-known, such as the continued departure of baby boomers from the workforce, which is straining the employee-benefit ratio. Others, such as historically low birth rates, mostly fly under the radar.

But it’s America’s worsening immigration problem that may be the biggest concern.

A large American flag hangs behind a barbed wire fence.

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Social Security has a huge immigration problem

Take a look at social media message boards and you’ll find one point of view often repeated. that undocumented workers receiving benefits are to blame for Social Security’s financial shortfalls. In general, US immigration is a common scapegoat for why America’s main pension program is struggling.

But this school of thought couldn’t be more wrong.

The problem with Social Security is not that too many immigrants are flocking to the United States. Rather, it’s that net legal immigration has been declining for a quarter of a century. Since 1998, the net migration rate to the U.S. has declined every year, falling by a total of 57%, according to the United Nations.

Most people who immigrate to the US legally tend to be younger, which is an extremely important point. These are people who will spend decades in the workforce contributing to Social Security through the payroll tax. The 12.4% payroll tax on earned income (wages and salaries) is responsible for about $981 billion (90.1%) of the $1.088 trillion in revenue collected in 2021.

Interim Expenditure Model for the 2022 Trustee Report. The “intermediate cost model” is what the Trustees see as the most likely outcome, based on an average annual total net immigration of 1,246,000 people. Between July 1, 2012 and June 30, 2017, fewer than 955,000 net migrants entered the U.S. annually, according to the World Bank. If net migration to the US continues to fall, or even stabilizes at these reduced levels, it is only certain that Social Security’s funding shortfall will grow.

But wait, there’s more

In addition to the need for a steady flow of legal immigrants to the US, it is equally important to address the misinformation that undocumented workers are a barrier to the traditional Social Security program. When I say “Traditional Social Security,” I’m talking about paying retirement, survivor, and disability benefits.

The culprit of the myth most likely has to do with combining traditional Social Security with Supplemental Security Income (SSI). SSI sometimes provides income to asylum seekers.

Although the Social Security Administration oversees both programs, traditional Social Security and SSI are funded differently. While SSI is funded from the general funds of the US Treasury, traditional Social Security generates most of its revenue from payroll taxes on earned income, with taxation of benefits and interest earned on asset reserves playing a lesser role. The point is that they are two separate programs.

Undocumented workers can’t get a Social Security number, which means they can’t collect retirement benefits and can’t take advantage of the program’s other protections, such as long-term disability and survivor insurance protections.

Furthermore, a study by the New American Economy found that undocumented workers paid $13 billion in payroll taxes in 2016. These undocumented workers either used a friend or family member’s Social Security number to get a job, or their employer failed to properly vet the worker. Either way, more than 1% of annual Social Security earnings come from undocumented workers, but not a cent of traditional Social Security benefits will be returned to those workers.

Social Security absolutely has an immigration problem, but it may not be what you thought.

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