It looks like there was a National Assessment of Adult Literacy (NAAL) survey done in 1992, and again in 2003. There are relevant results obtainable from that.
http://nces.ed.gov/naal/kf_demographics.asp14% fall in the "below basic prose literacy" level, but this doesn't mean all 14% fall in the same category as the 1900 "illiteracy" category which was defined as people who cannot read or write even a simple sentence. It's notable that only 12% fall in the "below basic document literacy", which is the category for reading things like bills and labels etc.
These surveys certainly put a question mark on
the literacy article posted a couple of pages ago that claims 20% of Adult Americans couldn't even read or write a simple sentence in any language in 1993.
One interesting note is that people over 65 are heavily over-represented in the lowest category of "Below Basic Prose Literacy", they made up 15% of the sample, but 26% of the "below basic"s in 2003. And this data shows over 65's improved from 1992 to 2003, rather than declined:
http://nces.ed.gov/fastfacts/display.asp?id=69If a 65+ year old in 2003 (someone born before 1938) is twice as likely to be functionally illiterate as the population average, and people born before 1927 (the 65+ people in 1992) score
even lower then that really puts a dent in those magical 1950's literacy rates. I don't think people "forget" how to be basically literate, but plenty of adults obtain literacy later in life, given the chance. I'd have to assume that a larger percentage of those age groups were actually illiterate in their younger years than now.
Notable is that there was some average slippage from 1992 to 2003, but ALL of it was due to "Hispanics", every other racial demographic improved from 1992 - 2003. This implies it's the influx of young hispanic immigrants with lower educational attainment, which is affecting the overall statistics, rather than a slippage in education standards as a whole.