Cato’s Alex Nowrasteh offers a rather persuasive, 11-point (!) prebuttal to a forthcoming Heritage study on the fiscal cost of low-skill immigration. The Daily Caller’s Matt Lewis blogs that Team Rubio is urging conservatives to embrace a dynamic fiscal scoring approach of the sort Cato prefers. Here are two points from Nowrasteh, in particular, that are worth noting:
Heritage’s report relies on static scoring rather than dynamic scoring, making the same mistake in evaluating the impact of increased immigration on welfare costs that the Joint Committee on Taxation makes when scoring the impact of tax cuts. Instead, Heritage should use dynamic scoring techniques to evaluate the fiscal effects of immigration reform.
For example, Heritage should assume that wages and gross domestic product are altered considerably because of immigration policy reforms. In contrast to that economic reality, immigrant wages, gross domestic product, and government welfare programs are unrealistically static in Mr. Rector’s study.
His study largely ignores the wage increases experienced by immigrants and their descendants over the course of their working lives, how those wages would alter after legalization, and the huge gains in education amongst the second and third generation of Hispanics…
The consensus among economists is that the economic gains from immigration vastly outweigh the costs. In 2007, Mr. Rector incorrectly noted that, “there is little evidence to suggest that low-skill immigrants increase the incomes of non-immigrants.” Immigrants boost the supply and demand sides of the American economy, increasing productivity through labor and capital market complementarities with a net positive impact on American wages. Heritage should adjust its estimates to take account of the positive spill-overs of low-skilled immigration.
Good points. Indeed, most fiscal calculations are snapshots that don’t account for immigrants’ taxes and transfers over their entire lifetimes. As Madeline Zavodny argues, “The direct fiscal impact of the foreign born in a single year is only a small piece of understanding their economic costs and benefits.” You also need to take into account immigration’s effect on economic growth, which could result in more tax revenue. And even using a static approach, immigration overall is a big fiscal winner. Zavodny:
– On average, foreign-born adults pay $7,826 in federal, state, and FICA taxes, while their families receive $4,422 in cash and in-kind transfers from major government programs in a given year.
– For immigrants with a bachelor’s degree, tax payments average $13,039, while their families receive cash and in-kind transfers valued at $3,704.
– And for immigrants with an advanced degree, the average tax payment is $22,554, while their families receive less than $2,300 in cash and in-kind transfers from major programs.
And here is former CBO director Douglas Holtz-Eakin, now with American Action Forum, on the broad fiscal impact of immigration reform:
Immigration reform can raise population growth, labor force growth, and thus growth in Gross Domestic Product (GDP). In addition, immigrants have displayed entrepreneurial rates above that of the native born population. New entrepreneurial vigor embodied in new capital and consumer goods can raise the standard of living.
These channels suggest that any discussion of immigration reform that omits the benefits on economic performance is incomplete. Similarly, there will be direct feedback from better economic growth to more revenues, fewer federal outlays, and “dynamic” improvement in the federal budget.
Traditional “static” budget analyses of immigration reforms’ impacts will be similarly incomplete. A rudimentary analysis of these impacts suggests that in the absence of immigration, the population and overall economy will decline as a result of low U.S. birth rates. A benchmark immigration reform would raise the pace of economic growth by nearly a percentage point over the near term, raise GDP per capita by over $1,500 and reduce the cumulative federal deficit by over $2.5 trillion.