How would legalization of undocumented workers affect Social Security benefit claims and Trust Fund solvency?
Executive summary
Legalizing undocumented workers would likely increase both reported payroll-tax contributions and future eligibility for Social Security benefits, producing a mixed but generally modest net effect: higher near-term revenues and a gradual rise in future benefit claims that, according to multiple actuarial studies, tends on balance to improve Social Security’s long‑term finances but does not solve the program’s structural shortfall alone [1] [2] [3]. Analysts disagree on magnitude and timing—some stress that legalization converts “unclaimed” payroll taxes into eventual liabilities, while others emphasize that higher labor-force participation, demographic effects, and continued return migration mean legalization generally helps solvency [4] [5] [6].
1. Why undocumented workers matter to Social Security today
Undocumented workers already contribute materially to the Old‑Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds through payroll taxes—estimates cited by the SSA, advocacy groups, and researchers place annual contributions in the billions (for example roughly $12–$13 billion in earlier SSA/NAE estimates and $26.2 billion cited for 2023 in some analyses), while many of those payers do not currently collect corresponding benefits because of ineligibility or use of false SSNs [6] [7] [8] [9]. The basic mechanics matter: Social Security is funded primarily by a payroll tax on wages, so anyone working in covered employment who pays FICA increases current revenues regardless of immigration status [10] [9].
2. What “legalization” changes mechanically for the Trust Funds
Legalization typically does three things relevant to Social Security finances: it raises formally reported earnings and payroll‑tax receipts, it increases the pool of workers who can legally accrue and later claim benefits, and it can change work incentives and investment in human capital that affect lifetime earnings trajectories [3] [4]. Where undocumented earnings were previously withheld under false or unlinked Social Security numbers, legalization makes it more likely those contributions will be credited to the worker who paid them and therefore potentially result in future benefit claims; conversely, legalization also tends to expand taxable wages and therefore boosts payroll‑tax inflows [4] [11].
3. Net fiscal direction and scale — modest but favorable on balance
Actuarial work by SSA and policy analysts finds that higher immigration and formalization generally improve Social Security’s actuarial balance over 25–75‑year horizons, shrinking long‑run deficits but not eliminating them; for example, one bipartisan analysis showed net immigration scenarios can change the 75‑year actuarial balance by roughly 0.78 percentage points of taxable payroll—nearly one‑quarter of the program’s projected shortfall—depending on migration levels [1] [2] [12]. Several studies and policy centers conclude that because many foreign‑born workers earn lower lifetime benefits on average and some return to their home countries (reducing lifetime claims), their payroll contributions often exceed lifetime benefits, creating net gains to the trust funds even after legalization for many cohorts [2] [4] [8].
4. The counterarguments and important caveats
Not all analysts agree that legalization is an unambiguous fiscal win: the Center for Immigration Studies and others warn that granting permanent status (amnesty) would convert a previously net‑contributor population into eventual beneficiaries and could impose additional near‑term costs, with impact sensitive to immigrants’ arrival age, earnings, and labor‑market participation; sustaining solvency by immigration alone would require far larger flows than current trends [5]. Researchers also caution that immigration’s fiscal benefits are modest relative to the size of Social Security’s structural shortfall and that policy details—eligibility rules for previously taxed but uncredited earnings, pathways to legal status, and return‑migration patterns—critically shape outcomes [5] [12].
5. Policy implications: tradeoffs and practical levers
Policymakers weighing legalization should expect a phased fiscal picture: immediate increases in payroll tax receipts and long‑term increases in some benefit claims, with net actuarial improvements under many scenarios but not a cure for depletion timelines projected by trustees; complementary reforms (tax base changes, benefit redesign, or modest tax increases) would still be required to fully restore solvency [1] [2] [3]. Importantly, legislative design choices — whether prior undocumented earnings are credited, the timing of eligibility, and how status changes affect SSN linkage — will materially alter both the size and timing of fiscal effects [11] [4].
6. Bottom line
Legalizing undocumented workers is likely to strengthen Social Security’s revenue base and, in many realistic scenarios, modestly improve the trust funds’ actuarial balance over decades, but legalization alone is neither a panacea nor a large‑magnitude fix; the net fiscal outcome depends on specifics of policy design, demographic behavior, and return migration, and most experts call for legalization to be one part of a broader package to address solvency [1] [2] [5].