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The Fiscal Impact of Immigration
Small-government advocates should oppose amnesty and support selective immigration policies.

Illegal immigrants in Chicago attend a workshop on applying for legal work status, August, 2012.

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Another criticism of the Heritage study is that it does not take into account that the legalized illegal immigrants will do better over time. This is simply false; the Heritage study does assume that incomes will rise both with legalization and over time. But this does not mean that illegal immigrants will come even close to providing a net fiscal benefit to the nation. As the accompanying graph makes clear, even less educated immigrants who have lived in the United States for 20 years have very high welfare use and very low tax liability. Heritage’s findings simply reflect this fact.

Probably the main argument of critics is that the economic benefits we gain from having access to immigrant labor will offset the fiscal costs. There is simply no evidence for this. The National Research Council study mentioned above, which was authored by many of the leading economists in the field, is the only study of which I am aware that tried to measure both the economic impact and the fiscal impact of all immigrants. That study found that the economic gain to the native-born from all immigrants was smaller than the fiscal drain created by all immigrant households. And that finding was for all immigrants, not only illegal immigrants, who have on average just ten years of schooling.

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In a recent paper for my organization, the nation’s top immigration economist, Harvard’s George Borjas, summarizes the economic literature and observes, “Immigration is primarily a redistributive policy.” As Borjas explains, the immigrants themselves may benefit a great deal by coming to America, but the gain to natives from illegal immigration is estimated at 0.06 percent of GDP: six one-hundredths of 1 percent.

To assume that immigration creates large gains to natives, one must invent benefits that are not demonstrated in the academic literature. The worst example of ignoring the immigration literature is a widely cited op-ed piece by former McCain adviser Douglas Holtz-Eakin. I published a long critique of his article here.

The central point of Holtz-Eakin’s “dynamic analysis” is the contention that immigration-induced population growth, by itself, will have a positive impact on the economy and public coffers. But to reach his conclusion, Holtz-Eakin ignores the economic literature showing that immigration only slightly increases the income of natives. He also ignores the literature on development indicating that population growth does not increase per capita GDP growth. Worst of all, he ignores the research that has examined the actual impact of immigration on public coffers, which shows that education at arrival is the key determinant of immigrants’ fiscal impact.

To offset the enormous fiscal costs that the less educated create, illegal immigration would have to dramatically increase the income of natives. There is simply no objective research showing this is the case. Of course, immigration does make the economy larger. But, as Borjas points out, of the increase in the size of economy that immigration creates, “97.8 percent goes to the immigrants themselves in the form of wages and benefits.”

It is true that immigrants came to America 100 years ago and did not create a large fiscal drain. But government was a tiny fraction of what it is today, so the arrival of low-income immigrants could not create a large fiscal drain. Heritage’s study, as well as common sense, makes clear that advocates of smaller government have to oppose amnesty and support very selective immigration policies until the day that government spending is cut dramatically. Otherwise the fiscal cost will be enormous.

— Steven Camarota is director of research at the Center for Immigration Studies in Washington, D.C.



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