I've heard a lot of people argue that phonics are vastly superior to "whole word" techniques, and maybe that's true -- I'm definitely not an expert, though it is how I was taught English in Australia ~30 years ago.
However, I find it quite hard to believe that it is the most important cause of the modern literacy rate issues in the US. Why? Because "whole word" teaching was the conventional wisdom since at least the 1950s[1,2]! Most articles on the topic reference the book Why Johnny Can't Read (1955) which was written to argue in favour of phonics as a response to (perceived?) child illiteracy at the time and claims (page 1):
> Since the 1920s, most American schoolchildren have been taught to memorize the "appearance" of words, one after another, like Chinese characters, without reference to the sounds of the individual letters that make up each word.
The reintroduction of phonics in the US first started as "balanced literacy" (phonics and "whole word", ideally tailored to students) in the 1990s and "science-based reading" (basically just phonics) properly started in the 2000s[1,2], which means that the argument that phonics would improve reading scores is on quite shaky ground (most children in the US today get taught phonics and most people >40 were probably taught with "whole word" teaching).
[1]: https://wearealigned.org/brief-history-literacy-instruction-...
[2]: https://www.lexialearning.com/blog/the-science-of-reading-vs...