Donald Trump has promised sweeping reforms to the immigration system, with a major clampdown already taking place on illegal migration.
Since his inauguration on January 20, the president has wasted no time in executing his plans, ramping up the detention and deportation of migrants, fortifying the U.S.-Mexico border and halting the processing of migrants and asylum seekers.
While there is widespread support for Trump’s policies, it could have a negative impact on retirees across the U.S. by reducing the pool of funding available to pay benefits, increasing costs and contributing to an increase in inflation.
“Long story short? Gutting a major source of tax revenue without a plan to replace it could fast-track financial strain on Social Security and Medicare, and that’s a problem for all of us,” Jean-Baptiste Wautier, financial and global economic policy leader at Wautier Family Office, told Newsweek.
Social Security Funding
Social Security benefits, paid to tens of millions of Americans every month, are funded via payroll taxes and government reserve funds, making it among the largest direct expenditures in the U.S. government’s annual budget. But current projections indicate that the trust funds that shore up benefit payments will be depleted by 2034, and without congressional intervention, all beneficiaries would face an abrupt 20 percent slash in benefits—a major cut in the incomes of millions of retired Americans.
Most workers, regardless of origin, contribute to the fund via payroll taxes at a rate of 12.4 percent, split evenly between the employee and the employer. Immigrant workers have a notable role in funding the Social Security coffers, whether they came to the U.S. legally or not. What is unique about their contributions is that, in many cases, they are not eligible to ever claim the benefits, making it a net positive for Social Security funding.
“Illegal immigration unambiguously benefits the Social Security and Medicare trust funds,” the non-partisan Center for Immigration Studies said in 2023. “Illegal immigration improves the finances of Social Security and Medicare for a simple reason: although illegal immigrants are generally not eligible to collect Social Security and Medicare benefits, many still pay taxes into the system. These taxes function as free contributions to the trust funds, as long as the illegal immigrants remain ineligible for benefits.”
And their contribution is not small: in 2022, immigrants living in the U.S. illegally paid $25.7 billion in Social Security taxes and $6.4 billion in Medicare taxes, the Institute on Taxation and Economic Policy has said.
This could change if Trump’s deportation policies “are enacted at scale,” Meesha Moulton, an immigration attorney in Las Vegas, told Newsweek. “The financial hit to these programs would be immediate.
“With fewer workers paying into the system, the Social Security trust fund, which is already projected to be depleted by 2034, would face an accelerated shortfall.”
Inflation and Growth
Trump’s anti-immigrant agenda could also have a negative impact on the fight against inflation, which reached as high as 9 percent during the pandemic just a few years ago.
“Abruptly losing” undocumented workers, who account for about 4-5 percent of the total workforce in the U.S. and 15-20 percent in industries that employ a high number of illegal immigrants, could be “very disruptive and have a larger inflation impact,” according to Goldman Sachs economists cited by Bloomberg.
Analysts forecast that net immigration to the U.S. will drop to 750,000 annually – a drop from an annualized rate of 1.7 million per year in 2025 – which could reduce potential gross domestic product growth this year by 30 to 40 basis points, Goldman economists said in a research note released on Monday.
The impacts could be wide reaching. “Fewer workers also mean labor shortages, which could increase wages in certain industries, leading to inflation,” Wautier said.
Wautier also explained that because of this “costs could spike, especially in sectors that rely on immigrant labor,” he explained. A case in point is the health-care industry, which according to a 2021 report by the Center of American Progress, employs about 350,000 workers who live in the U.S. illegally.
“So, while the headline might be about deportations, the real story is about the economic chain reaction that could hit everyone’s wallets—especially retirees,” he said.
The post Donald Trump’s Immigration Plans Could Push Up Retirement Costs appeared first on Newsweek.
