The fiscal effects of immigration

Question:

Should we educate the children of all immigrants and what are immigration's effects on the budget?

Answer (the one accepted by most analysis and economists):

The impact of immigration on public coffers is relatively negligible, either slightly positive or slightly negative, depending on study. Economist George Borjas, an outspoken critic of non-restrictive immigration policy on the pages of the National Review (see Borjas, 2006 & 2007), found that immigration results in "a $16 billion net loss" (1995, p. 9). The largest "net loss of over $40 billion [was] estimated by Huddle (1993)," whereas a 1994 study by Passel and Clark found "that immigrants pay their way in the welfare state and contribute a net of $27 billion to native taxpayers" (Borjas, 1995, p. 9). These studies unambiguously suggest that the net fiscal impact of immigration is rather small (see table 1). In 1994, when the studies by Borjas as well as Passel and Clark were conducted the overall revenue of the U.S. government was $1.56 trillion and the gross domestic product (GDP) an estimated $7 trillion (Executive Office of the President, 2005; Johnston & Williamson, 2005). If Passel and Clark were correct, immigration boosted the federal revenue by 2.7%. If Huddle's worst case scenario was correct, immigration contributed to about 2.7% of government expenditure.[1] Following the 112^th annual meeting of the American Economics Association, economists Miller and Roland (2000) concluded that, "the most important conclusion, on which most analysts agree, is that the overall fiscal consequences of altering the volume of immigration would be quite small and should not be a major consideration for policy" (p. 353).

Table 1: Net fiscal impact of immigration as a share of federal budget and GDP in 1994.

In addition to showing any possible fiscal effects to be miniscule, estimates showing a potential net negative fiscal impact do not necessarily provide a valid justification for a restrictive immigration policy. The initial cost of immigration needs to be viewed as an investment and the, "current concern should not be allowed to obscure the fact that those costs are only one dimension of a broader set of issues" (McCarthy & Vernez, 1996, p. 52). Expenditures on social services for immigrants may be recovered over the course of time, as immigrants climb the socio-economic latter. Miller and Ronald (2000) found that, "[the] net fiscal consequences of a single composite immigrant arriving in 1998... turn positive after 16 years" (pp. 351-352). As it is the low educational attainment and earnings of immigrants that cause the initial strain on public coffers (Capps, Fix, Passel, Ost, Perez-Lopez, 2003), this fiscal pressure subsides with intergenerational socio-economic progress, fueled by state spending. Smith (2002) found that,

2nd and 3rd-generation Hispanic men have made great strides in closing their economic gaps with native whites. The reason is simple: each successive generation has been able to close the schooling gap... Each new Latino generation not only has had higher incomes than their forefathers, but their economic status converged toward the white men with whom they competed. (p. 319)

Much of the progress Latino immigrants' descendants have made is directly related to public schooling and, therefore, to state spending. Trejo (2003) found that the higher earnings of second generation Mexican-Americans, compared to those of their parents, were directly related to being "educated in the United States rather than in Mexico" (p. 487). This conclusion is supported by Bratsberg and Ragan Jr. (2002) who found that, "immigrants... who acquire U.S. schooling earn higher wages then... those without U.S. schooling" (p. 63). As most immigrants, especially those who are undocumented, are from impoverished backgrounds, the use of U.S. tax dollars to advance their socio-economic well-being results in a beneficial redistribution of wealth. The negative impact on the native population is small, but the gains made by the recipients of this social investment, who are from far more impoverished backgrounds, are considerable. Thus, an initial fiscal deficit resulting from immigration is thoroughly justifiable as it perpetuates the common good of humankind.

[1] Huddle's study was published in 1993, but his estimate is compared to 1994 GDP and government budget data, as there was no substantial difference in GDP and government revenue and expenditure between 1993 and 1994.

Sources:

1. Bratsberg, B. & Ragan Jr., J. F. (Winter, 2002). The Impact of Host-Country Schooling on Earnings: A Study of Male Immigrants in the United States. The Journal of Human Resources, 37(1), 63-105. Retrieved November 27, 2007 from JSTOR: http://links.jstor.org/sici?sici=0022-166X%28200224%2937%3A1%3C63%3ATIOHSO%3E2.0.CO%3B2-F
2. Borjas, G. J. (Spring, 1995). The Economic Benefits from Immigration. The Journal of Economic Perspectives, 9(2), 3-22. Retrieved November 27, 2007 from JSTOR: http://links.jstor.org/sici?sici=0895-3309%28199521%299%3A2%3C3%3ATEBFI%3E2.0.CO%3B2-M
3. Borjas, J. D. (May 17, 2007). A lemon in the senate: The immigration bill is a travesty of a mockery of a sham. The National Review. Retrieved November 27, 2007: http://article.nationalreview.com/?q=YzQ1YTE0YjBmOTkzMTczOWNmMzIyZDc0NzgxY2ZkOGM=
4. Borjas, J. D. (April 25, 2006). Immigrants in, wages down. The National Review. Retrieved November 27, 2007: http://www.nationalreview.com/issue/borgas200604250622.asp
5. Capps, R., Fix, M., Passel, J. S., Ost, J. & Perez-Lopez, D. (November, 2003). A profile of the low-wage Immigrant workforce. Retrieved November 27, 2007 from the Urban Institute: http://www.urban.org/UploadedPDF/310880_lowwage_immig_wkfc.pdf
6. McCarthy, K. F. & Vernez, G. (1996). The cost of immigration to taxpayers: Analytical and policy issues. Retrieved November 27, 2007 from the RAND Corporation: http://www.rand.org/pubs/monograph_reports/2007/MR705.pdf
7. Miller, T. & Ronald, L. (May, 2006). Immigration, Social Security, and Broader Fiscal Impacts. The American Economic Review, 90(2), 350-354. Retrieved November 27, 2007 from the JSTOR: http://links.jstor.org/sici?sici=0002-8282%28200005%2990%3A2%3C350%3AISSABF%3E2.0.CO%3B2-O
8. Smith, J. P. (May, 2003). Assimilation Across Latino Generations. The American Economic Review, 93(2), 315-319. Retrieved November 27, 2007 from JSTOR: http://links.jstor.org/sici?sici=0002-8282%28200305%2993%3A2%3C315%3AAATLG%3E2.0.CO%3B2-W
9. Trejo, S. J. (Summer, 2003). Intergenerational Progress of Mexican-Origin Workers in the U.S. Labor Market. The Journal of Human Resources, 38(3), 467-489. Retrieved November 27, 2007 from JSTOR: http://links.jstor.org/sici?sici=0022-166X%28200322%2938%3A3%3C467%3AIPOMWI%3E2.0.CO%3B2-V

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written by Bacchus, April 06, 2008

Good article. Immigrants have always given more than they've taken. Typically, most immigrants have the goal of improving their livelihoods when they come to this country, so they've represented amongst the most progressive sections of our economy.

I think we can also add many other social factors by which they enrich our society as well.

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written by cooldaddy, April 06, 2008

I am just new here, so pardon me if I get your intent wrong. This appears to be posted in answer to the anti-illegal immigrant made by the other side. But since your article nor any of the studies or articles you cited contain the word "illegal", this appears to be an inane attempt to answer that. I love immigrants. I am a legal immigrant. But I waited in line (from Canada). So those who are crossing the border illegally need to get out and get in line.

Of course, you have no positive reports or articles on illegal immigration, because there aren't any. All the ones I have read about illegal show a net loss in revenue when talking about illegal immigration. And the states that have cracked down on their own on illegal immigration are showing an increase in tax collections (legal immigrants like me don't work under the table or don't claim so many exemptions that there are no taxes, I pay taxes) Those states also show a decrease in welfare payments, food stamps payments, bankrupt hospitals and other social programs. Canada may have state provided medical, but you have to be legal to get it or on vacation legally with a legal passport. Visitors have to pay for it.

So, while this is a nice article, it seems not to answer anything about illegal immigration.

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written by Rockstar, April 08, 2008

Yeah, why don't you mention ILLEGAL immigration? Cuz these criminals don't pay taxes, but they sure do drain our social resources and contribute to crime.

It's funny that Liberals are the first to stand up for illegal immigrants breaking the law, but once they move in their neighborhoods, they are the first to move out!

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