Economics

Immigration and the budget

Image Credit: Shutterstock

Image Credit: Shutterstock

With regard to the recent CBO score of immigration reform — which found that higher immigration would be budget-improving over this decade and the next — Jim Pethokoukis cites National Review’s Reihan Salam, who says:

A focus on lifetime net tax rates, in contrast, looks both to the taxes paid over a working life and public expenditures on retirement and health security programs and human capital investment, among other things.

My own take is that it’s very hard to believe that the average immigrant will pay more in taxes than he receives in government benefits. This need not have much to do with “welfare.” Even considering only contributory social programs such as Social Security and Medicare, the typical immigrant will collect far more than he will pay in.

But this doesn’t necessarily mean that immigration can’t reduce deficits. What matters at any given time isn’t the net lifetime taxes paid by a given immigrant, but total taxes paid and benefits collected in that year. If today’s immigrants will collect far more from Social Security and Medicare than they pay in, those future benefits may be covered out of taxes paid by future immigrants. Yes, it looks like a chain letter or a Ponzi scheme, but it’s potentially sustainable — provided that the future tax rate is sufficiently high, wages are rising, and you’re committed to higher immigration in every future year.

Now, that doesn’t mean it will be sustainable: I suspect that, once new immigrants start collecting retirement benefits in large numbers — which won’t happen until after the two decades CBO looked at — current law Social Security and Medicare taxes just won’t be nearly enough to pay the benefits that have been promised. That’s why we need longer-term scores, at least of the major entitlement programs. But just because each individual immigrant receives more from government than he pays for doesn’t necessarily mean that immigration can’t improve the budget.

2 thoughts on “Immigration and the budget

    • Why should we import yet more poverty? Let Mexico take care of her own instead of shipping them north onto the backs of the US taxpayer.

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