The Corner

Economy & Business

The Super-Long-Term Fiscal Effects of Immigration

In response to Lunchtime, Election Day

On the home page today, Steven Camarota summarizes the mammoth new report by the National Academies (NAS) on immigration’s economic effects. I want to elaborate on the report’s 75-year projection of how new immigrants and their descendants will impact government budgets. Obviously any such projection requires strong assumptions – so many, in fact, that readers may wonder whether the whole exercise is even meaningful. To their credit, however, the NAS authors do not simply pick one budgetary impact estimate and then expect everyone to consider it gospel. Instead, they provide eight different estimates linked to different assumptions. This is a victory for transparency that other government agencies should consider emulating.

Immigrants turn out to have a positive budgetary impact in four of the NAS’s estimates, and a negative impact in the other four, so there are equal opportunities for cherry pickers! Let’s dig into the varying assumptions behind those eight estimates. The first concerns the future trajectory of taxing and spending. The NAS produces one set of estimates based on what it calls “business as usual,” which means that patterns of taxes and spending stay basically the same as today, with upward growth simply tracking productivity. Its alternative forecast is the CBO’s long-term outlook, which incorporates future budgetary changes called for in current law – even if those changes are probably not going to happen, such as adherence to discretionary budget caps. Because deficits are even more unsustainable with “business as usual” than they are with the CBO outlook, the CBO makes immigrants look more positive, but which forecast is more reliable is an open question.

Another issue is whether immigrants increase the cost of public goods. Immigrants clearly impact congestible goods — for example, more immigration means more construction and maintenance of parks, roads, etc. — but what about “pure” public goods such as national defense? My feeling has always been that defense spending is unaffected by more immigration, which is what Robert Rector and I assumed in our 2013 study of illegal immigration. Nevertheless, the recent terror attacks by immigrants in New York and Minnesota have me reconsidering. In addition to ramping up internal security as a response, some analysts (including NR’s editors) have called for military action abroad to reduce attacks here at home. That certainly sounds like immigration spurring defense spending to me, though how to model it I’m not sure. In any case, immigrants have a more negative impact when the NAS assigns them an equal share of defense costs.

Finally, what kind of immigrants do we expect in the future? Half of the NAS’s estimates assume that future immigrants will have the same average characteristics as the current immigrant population, while the other half assume that the U.S. continues to receive the slightly younger and better educated immigrants that we’ve had the last few years. The recent immigrants have a more favorable fiscal impact, but whether trends will continue under the current system is anyone’s guess.

Fortunately, the skill mix of immigrants is one area that does not have to be a complete unknown. The federal government is free to change immigration policy at any time, so why not select the most desirable immigrants now rather than just waiting to see what the current system brings us? In all eight of the NAS’s scenarios, immigrants without a high school degree have a negative long-term impact. Immigrants with only a high school degree have a negative impact in seven out of eight scenarios. College graduates, by contrast, have positive impacts across the board. So despite the varying assumptions and wide-ranging findings, the NAS’s long-term fiscal analysis does have a consensus take-away: Low-skill immigration results in a net cost for taxpayers, while high-skill immigration produces a net gain. That’s a lot of work for a not-too-surprising finding.


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