Legalizing the status of several million immigrants now here illegally may well increase annual budget deficits at least somewhat over the next several decades.
It also would increase the national debt, all other things being held equal, compared with what the deficits and debt would be if current policies continued.
These points may seem like a lot of economistic mealy-mouthing, but they are an accurate takeaway from a Heritage Foundation study of the fiscal effects of amnesty for unlawful immigrants.
Use of the study became controversial because of views expressed elsewhere by Jason Richwine, one of the authors, linking race and intelligence. Republican supporters of current draft legislation to legalize immigrants, including Rep. Paul Ryan, Sen. John McCain and former Gov. Haley Barbour, rushed to repudiate Richwine’s views, as did many others.
There are other problems as well, including that the study’s perceived impacts are not unprecedented in recent U.S. fiscal history and that it fails to consider aggregate benefits to society beyond government budgeting issues.
Nevertheless, the questions linking immigration and deficits raised by Richwine and Robert Rector, the Heritage study co-authors, are relevant, although not overriding: How would legalization of several million immigrants already here affect the fiscal position of the federal government?
The study argues that, over the next 50 years, it would raise the national debt by a net $6.3 trillion compared with what it would be without legalization. This would happen because the newly legalized immigrants would have access to government programs currently denied them, especially Social Security and Medicare, together with means-tested programs like food stamps and Temporary Aid to Needy Families.
The immigrants also would pay more federal taxes. But, the authors argue, since the dominant immigrant groups are Hispanics from Mexico and Central America and thus are part of a population that historically seeks less education and stays in lower-paying jobs, the extra taxes they would pay after legalization would fall far short of offsetting the extra benefits they would receive. Hence the “net” cost of $6.3 trillion.
What should we make of this argument? First of all, be suspicious of any study that makes projections 50 years into the future and then comes up with precise sums like $6.3 trillion, especially when a large portion of the costs involve health programs like Medicare. That program is nearly 50 years old. Since its inception, it would be hard to find any remotely accurate cost projection for its outlays over even 10 years. So a point estimate of exactly $6.3 trillion is obviously a sterling example of the “fallacy of false precision” that should be taken with much salt.
But the question remains: Could this be a group of residents that receives more in benefits from all levels of government than it pays in taxes to the same governments?
Of course it could. And there already are several such groups. Take Walmart employees and others working jobs at or only somewhat above minimum wage. They pay local real estate taxes, either directly as homeowners or embodied in their rent. They pay FICA and perhaps state income taxes on earnings. They may pay some federal income tax, although people earning less than $10 per hour usually owe little if any after credits like the Earned Income Tax Credit.
However, they also use local government services like everyone else. Their children are educated in the public schools. They are more likely to qualify for food stamps, housing subsidies and other means-tested income transfers. They are more likely to use emergency rooms for health care and less likely to pay the bills. And statistically, they are more likely to interact with the criminal justice system, either as victims or perpetrators, costing governments money and resources.
In retirement, they will fall into the low-income group of Social Security recipients that gets very high benefits relative to FICA paid in. And even if their benefits from Medicare are no higher than the average, their low lifetime incomes mean they paid little in absolute value of Medicare withholdings, and thus their benefits will exceed contributions by even more than the national average of about 2.5 to 1.
So yes, we already have a population cohort that is a net “drain” on public treasuries.
Many of the “greatest generation” that came to maturity in the 1940s constituted another such group. Their prime working years were in the era when the maximum one could pay in FICA was low, due both to low rates and a low ceiling on taxable earnings. And the “standard deduction” and zero-bracket amounts for the federal income tax were higher relative to median earnings than more recently. So while federal taxes certainly may have been a perceptible burden, the aggregate number of dollars paid was little for the lowest 60 percent income bracket or so of this generation’s households.
But they retired with full Medicare benefits after having paid Medicare FICA for only a fraction of their working years, and just at a time when medical costs were starting to burgeon. Moreover, they got Social Security benefits that, after the early 1970s increase in benefits and indexing for inflation, were very generous compared with what they had been in the 1950s and 1960s. Deficit hawk Peter Peterson, who was President Richard Nixon’s secretary of commerce and now heads a namesake foundation dedicated to fiscal responsibility, cites research showing that many people retiring from 1985 to 1995 not only got all their FICA contributions back in just a few years, they also got all federal taxes back in five or fewer years.
People retiring since 2000 are not doing as well as that earlier generation, but given the degree to which average Medicare benefits exceed the actuarial value of amounts paid in, many such retirees will end up being net drains on the federal treasury as a whole.
Has our nation been harmed by all of this? Low-wage workers still are a vital part of the economy, just as many illegal immigrants are. The rest of the nation enjoys cheaper goods and services in part because of the availability of cheap labor (here and abroad) for many jobs.
Yes, the accidents of history that gave our parents a good fiscal deal did increase the national debt over the past 35 years. But if they had only gotten out what they put in, we baby boomers would have had to contribute much more to their support or they would have had much less comfortable retirements.
The choice to legalize or not legalize the status of the several million illegal immigrants already here is a very pragmatic one and is not an issue of finding some economic optimum. The question of how it will affect government finance is relevant, but the broader economic question of how it will affect total national income and the incomes of existing citizens and legal residents is a much broader one that the Heritage Foundation study sidesteps. It merits more examination, but that requires another column.