Immigrants Are a Bargain, Fiscally Speaking
(Bloomberg Opinion) -- In a report issued in 2016, a National Academies of Sciences, Engineering and Medicine panel on “The Economic and Fiscal Consequences of Immigration” concluded that, among other things:
On average, individuals in the first generation are more costly to governments, mainly at the state and local levels, than are the native-born generations.
President Donald Trump cited this conclusion in his first address to Congress in February 2017:
According to the National Academy of Sciences, our current immigration system costs America's taxpayers many billions of dollars a year.
This belief that immigrants represent a fiscal burden is widely held. Even amid generally positive and improving attitudes toward immigration in a Gallup poll conducted in June 2017, almost twice as many respondents (41 percent versus 23 percent) thought immigrants made the tax situation worse rather than better.
Here’s the thing, though. Native-born Americans also put great pressure on taxpayers, in the sense that they (we) also cost more in government benefits and services than they generate in taxes. And if you measure the marginal fiscal impact of each additional immigrant, rather than the average (more on that in a moment), or give newcomers credit for the fiscal contribution their descendants are likely to make, immigrants turn out to be better for the nation’s fiscal picture than native-born Americans are.
All this information is in the quite-exhaustive (and, to be honest, a little exhausting) National Academies report, but I have to admit that I wasn’t really aware of it until I recently read a 2017 paper, “New Findings on the Fiscal Impact of Immigration in the United States” by Pia Orrenius, a vice president and senior economist at the Federal Reserve Bank of Dallas who was on the panel that compiled the report. The first thing that caught my attention was this sentence:
It is notable that, with one exception, every generation, immigrant and native, at every level of government, consumes more in public benefits than they contribute in taxes. Because the nation is running a sizable deficit, the entire public represents a net cost on average.
The “one exception” in the particular data table Orrenius was referring to was the marginal fiscal impact of first-generation immigrants, which was positive at the federal level in the year measured, 2013. Marginal fiscal impact excludes interest on public debt that new immigrants played no role in incurring, as well as defense and other foreign spending that presumably isn’t affected by their arrival. This certainly seems like a better way to gauge whether new arrivals will burden taxpayers than the average-cost method. “As an immigration policy maker, you should look at the marginal cost,” Orrenius said when I paid her a visit in Dallas earlier this month.
Even measured in marginal terms, first-generation immigrants remain a big fiscal burden to state and local governments and a modest net burden overall, mainly because they have lots of kids attending school. But people born here represent an even bigger overall burden, because they’re eligible for more government benefits.
Adult children of immigrants (the “second generation” in the above chart) were reckoned to have a bigger negative fiscal impact than other native-born Americans (“third-plus generation”) simply because in 2013 so many of them were young adults just entering the workforce, and thus had lower incomes and generated less tax revenue. But this highlights the limitations of such a one-year snapshot: Second-generation immigrants actually tend to outearn other native-born Americans on an age-adjusted basis. As Orrenius puts it, “You cannot look at the fiscal impact at a point in time and draw any conclusions about the generations.”
To get a better picture, the National Academies panel also looked forward 75 years, using the Congressional Budget Office’s 2014 Long-Term Budget Outlook and counting descendants’ contributions to the fiscal balance. This delivered much more positive numbers all around. The budget outlook has gotten worse since then, so those positive numbers would be a bit smaller, but the overall picture is likely the same: Every immigrant group but those with less than a high school diploma makes a positive fiscal contribution, and every immigrant group but those with only a bachelor’s degree makes a bigger positive fiscal contribution than their native-born peers.
One reason immigrants come off better in this calculation is that their descendants get more education, on average, than the descendants of native-born Americans with equivalent educational backgrounds. That’s been the case for years, and the assumption is that it will continue. Another assumption is that the financial rewards to education will remain high. These seem like reasonable enough assumptions.
The fiscal-policy sections of the National Academies report thus provide ammunition for the argument that illegal immigration is a fiscal drain, as the undocumented immigrant population in the U.S. is quite high on people who never finished high school. It also supports the argument, discussed by my fellow Bloomberg Opinion columnist Noah Smith last week, that U.S. immigration policy should focus more on bringing in skilled foreigners (although immigrants’ education levels have been rising in recent years even without such a policy shift). What it does not support by any reasonable reading is the assertion that “our current immigration system costs America's taxpayers many billions of dollars a year.”
So what’s with that line I cited at the beginning about first-generation immigrants being “more costly to governments”? Well, it’s immediately followed in the National Academies report by the assertion that “immigrants’ children — the second generation — are among the strongest economic and fiscal contributors in the population.” That’s kind of the way the whole report is put together, with multiple different approaches to measuring everything, and thus lots of assertions and evidence that can be cherry-picked to support one view or another about immigration. So here’s my cherry-picked view for the day: Native-born Americans are costing American taxpayers hundreds of billions of dollars a year. Something must be done!
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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