How Immigration Saves America Money

CBO Immigration Chart

A CBO report released yesterday found that the immigration reform bill would lower the deficit. Ezra unpacks the report:

How? In a word, growth. But in two words, population growth. CBO expects that passage of the bill would mean 10.4 million more U.S. residents in the next decade. To be clear, that’s not a measure of newly legal residents. CBO isn’t counting the newly legalized population — which they estimate at 8 million — as new residents. After all, those people are already here. The 10.4 million number only counts people who wouldn’t otherwise physically reside in the United States.

The basic math of the CBO’s report is that those new workers pay more in taxes than they take in benefits. To be precise, the bill increases government spending by $262 billion but increases revenues by $459 billion. And that’s before accounting for economic growth above and beyond the direct effect on population.

Zeke Miller and Alex Rogers have more details:

The bill would increase inflation-adjusted GDP relative by 3.3 percent in 2023 and by 5.4 percent in 2033. It also shows that average wages for the entire labor force would be 0.1 percent lower in 2023 and 0.5 percent higher in 2033, as the amount of capital available to workers would not increase as rapidly as the number of workers and because the new workers would be less skilled and have lower wages, on average, than the labor force under current law.

Allahpundit is unimpressed by the CBO’s numbers:

 If the entitlement regime is unsustainable long-term now, and you’re suddenly adding a huge population that’s likely to vote on balance to preserve that regime and promote the Democrats who protect it, then in 40 years all of this will be a, er, “net benefit for our economy.” I wonder what the average annual rate of GDP growth needs to be between now and, say, 2050 to make Medicare and Social Security able to shoulder that extra load.

Josh Barro, on the other hand, notes that the “CBO report may actually understate the deficit reduction due to immigration reform”:

Normally, CBO evaluates legislation on a “static” basis, meaning they don’t account for economic changes spurred by policy change. Here, they relaxed that practice to account for the rise in population that the bill would cause. They still did not account for broader economic benefits that immigration reform might produce, such as an increase in productivity or innovation.

And Chait puts the CBO report in context, noting that many of “Obama’s growth initiatives are also wrapped together in social goals, which have instigated political controversy and obscured their growth-generating goals”:

Immigration reform is one such example. Its base of support lies with immigrant communities motivated by its humanitarian goals. But immigration reform is also part of a national human capital strategy. The law would not only attempt to rationalize the currently illegal market for undocumented immigrant labor, it would also dramatically shift the composition of future legalimmigration. Most documented immigrants are currently admitted on the basis of family relationships. The law would alter that so that most were admitted on the basis of their labor skills. (The administration has been influenced by an economic paper finding that higher levels of college-educated immigrants boost innovation.)

Chart from Barro.