The CBO and the Case for Immigration
The nonpartisan Congressional Budget Office has calculated that the immigration reform bill under consideration in the Senate, S.744, would lower the federal budget deficit by $197 billion over the coming decade, and by $700 billion in 2024 to 2033.
Entitled the Border Security, Economic Opportunity, and Immigration Modernization Act, the immigration bill would improve border security and grant provisional work status to undocumented workers. Upon payment of fines and penalties, immigrants would be able to get to the back of the line to receive green cards.
CBO’s cost estimate, spanning two decades, contradicts the results of a Heritage Foundation report by economists Robert Rector and Jason Richwine released in May, which concluded that legalizing undocumented workers would cost America $6.3 trillion over the immigrants’ lifetimes.
The CBO report could not have come at a better time for the bipartisan bill, which is being debated on the floor of the Senate this week and will probably come up for a vote at the end of June, before Congress leaves for the Fourth of July recess.
The report estimates that if the immigration bill passed in its current wording, America would spend an additional $262 billion over the next decade on benefit programs for immigrants.
However, the immigration bill would bring in another $459 billion in revenues, mostly from income, Social Security, and Medicare taxes.
The Heritage report assumed no increased economic efficiency from immigration and no economic mobility. Nor did it discuss numerous benefits to national security from legalizing and making it easier to track America’s 11 million undocumented workers. It assumed the majority of immigrants would receive money from the government and stay poor.
The Heritage Foundation, under the leadership of its new president, former South Carolina Republican senator Jim DeMint, released the document with its eye-popping $6.3 trillion price tag in order in a likely attempt to derail the Senate bipartisan immigration bill.
One of the Heritage authors, Jason Richwine, had to resign after it was revealed that his Harvard PhD dissertation suggested that Hispanics had lower IQs, and so were undesirable immigrants. He wrote, “No one knows whether Hispanics will ever reach IQ parity with whites, but the prediction that new Hispanic immigrants will have low-IQ children and grandchildren is difficult to argue against.”
Now CBO has provided a counterweight to the Heritage study.
In a report accompanying its cost estimate, CBO suggests increased economic efficiency from immigrants. The report states, “Taking account of all economic effects (including those reflected in the cost estimate), the bill would increase real (inflation-adjusted) GDP relative to the amount CBO projects under current law by 3.3 percent in 2023 and by 5.4 percent in 2033, according to CBO’s central estimates.”
It is difficult for economists to measure changes in productivity two years into the future, and estimates 20 years out should be treated with great caution. But CBO’s judgment that immigration will cause beneficial macroeconomic changes bolsters those who favor the bill, and might sway the minds of some uncertain politicians.
The Heritage report was right to address America’s welfare problem. Over 47 million people, the vast majority native-born Americans, are on food stamps almost four years after the beginning of the economic recovery. Means tested benefits, health care under the Affordable Care Act, also referred to as Obamacare, and retiree benefits are increasingly expensive, and these costs need to be brought under control for everyone.
CBO estimates that refundable tax credits for immigrants would cost $127 billion over the next decade, and low-income health programs would cost $112 billion. Costs of Social Security and Medicare ($4 billion) and Food Stamps ($6 billion) are negligible in comparison.
Immigration reform would reduce the deficit even further if America could reform some of these entitlements, including Obamacare, which have crept even further into the middle classes. We should be concerned that benefits are keeping people in poverty and impeding upward mobility for everyone.
Many people want to come to America. Why not require them to purchase a basic catastrophic health care policy as a condition of entry, so they will be insured against major medical expenses? And disallow refundable tax credits for five or 10 years? Rather than reducing numbers of immigrants, as Heritage suggests, America should reduce entitlement programs, or at least not expand them to immigrants.
Neither the CBO reports nor the Heritage report discussed the demographic advantages of immigration. America’s fertility rate is declining, and between 2005 and 2010 the rate was 2.07 children per woman, barely above replacement rate.
Declining fertility rates mean that a shrinking pool of workers is responsible for an expanding group of retirees. China, Japan, and Europe are facing serious economic challenges because their low birth rates are not generating a sufficiently large number of workers to sustain their elderly populations. Immigrants have higher fertility rates than native-born Americans, and can keep the workforce growing, bolstering Social Security and Medicare programs.
One way to understand the benefits of immigration for America is to examine the role of foreigners in start-ups. Start-ups lead to economic growth, and immigrants found new companies in America at greater rates than do the native-born.
America also needs more low-skill workers. Few Americans want careers processing chickens, cleaning hotel rooms, or picking fruit, but low-skill immigrants want these jobs.
CBO’s conclusion that immigrants will generate an additional $459 billion in tax payments over the next decade, reducing our deficit by $197 billion, is welcome news for immigration reform. Let’s hope these figures sway the Senate.
This piece originally appeared in WSJ's MarketWatch
This piece originally appeared in WSJ's MarketWatch