Immigration’s Impact On Public Coffers

PRESS RELEASE: Reprint of A Recent Publication From The Center For Immigration Studies in the U.S.

Immigration's Impact on Public Coffers

Testimony Prepared for the House Ways and Means Committee

July 26, 2006

Steven A. Camarota
Director of Research, Center for Immigration Studies

There is general agreement that the fiscal impact of immigration depends largely on the education level of the immigrants in question. Immigrants with a lot of education pay more in taxes than they use in services, while those with little education tend to have low incomes, pay relatively little in taxes and often use a good deal in public services. In the case of illegal aliens, the vast majority have little education, and this is the key reason they create fiscal costs. Illegal families often receive benefits on behalf of their US-born children. As a general proposition, the large scale immigration of less-educated immigrants (legal or illegal) creates significant funding problems for social programs, including those for retirees, even though the immigrants work.

Key Findings of Research:
The Fiscal Impact of Immigration Generally

The National Research Council (NRC)1 estimated that immigrant households create a net fiscal burden (taxes paid minus services used) on all levels of government of $20.2 billion annually.

The NRC estimated that an immigrant without a high school diploma will create a net lifetime burden of $89,000, an immigrant with only a high school education it is negative $31,000. However, an immigrant with education beyond high school is a fiscal benefit of $105,000.

Estimating the impact of immigrants and their descendants, the NRC found that if todays newcomers do as well as past generations, the average immigrant will be a fiscal drain for his first 22 years after arrival. It takes his children another 18 years to pay back this burden.

The NRC also estimated that the average immigrant plus all his descendants over 300 years would create a fiscal benefit, expressed in todays dollars of $80,000. Some immigration advocates have pointed to this 300-year figure, but the NRC states it would be absurd to do so.

Illegal Immigration

The Center for Immigration Studies (CIS) estimates that in 2002 illegal alien households imposed costs of $26 billion on the federal government and paid $16 billion in federal taxes, creating an annual net fiscal deficit of $10.4 billion at the federal level, or $2,700 per household.

Among the largest costs, were Medicaid ($2.5 billion); treatment for the uninsured ($2.2 billion); food assistance programs such as food stamps, WIC, and free school lunches ($1.9 billion); the federal prison/court systems ($1.6 billion); and federal aid to schools ($1.4 billion).

If illegal aliens were legalized and began to pay taxes and use services like households headed by legal immigrants with the same education levels, CIS estimates the annual net fiscal deficit would increase to $29 billion, or $7,700, per household.

The primary reason illegal aliens create a fiscal deficit is that an estimated 60 percent lack a high school degree and another 20 percent have no education beyond high school. The fiscal drain is not due to their legal status or unwillingness to work.

Illegal alines with little education are a significant fiscal drain, but less-educated immigrants who are legal residents are a much larger fiscal problem because they are eligible for many more programs.

Many of the costs associated with illegal aliens are due to their US-born children who have American citizenship. Thus, barring illegal aliens themselves from federal programs will have little impact on costs.

Focusing just on Social Security and Medicare, CIS estimates that illegal households create a combined net benefit for these two programs in excess of $7 billion a year. However, they create a net deficit of $17 billion in the rest of the budget, for a total net federal cost of $10 billion.

Funding for Retirement Programs

Immigration has only a very small impact on the aging of society because although immigrants arrive relatively young, and have higher fertility than natives, they age like everyone else, and the differences with natives are not large enough to fundamentally alter the nations age structure.

In 2000 the average age of an immigrant was 39, which is actually about four years older than the average age of a native-born American.

If all post-1980 immigrants and all the children they have had are excluded from the 2000 Census, the working-age (15 to 64 years old) share of the population would be 65.9, almost exactly the same as the 66.2 percent when they are all included.

Looking to the future, Census Bureau projections indicate that if net immigration averaged 100,000 to 200,000 annually, the working-age share would be 58.7 percent in 2060. If net immigration averages roughly 900,000 to one million, it would still be 59.5 percent.

The Social Security Administration (SAA) projections show that, net annual legal immigration of 800,000 a year over the next 75 years versus 350,000 a year would create a benefit equal to less than 1 percent of the programs projected total expenditures.

As for the programs deficit, net annual legal immigration of 350,000 a year versus 800,000 would increase the dollar value of the actuarial deficit by just 6.6 percent over the next 75 years.

It is not clear that even this small benefit exists, because SSA does not take into account the lower average earnings and resulting lower average tax payments of legal immigrants.

SSA also does not consider the Earned Income Tax Credit (EITC), which is explicitly designed to give back Social Security tax payments to low-wage earners. Legal immigrants use the EITC at significantly higher rates than natives.

If illegal aliens are legalized and began to receive the EITC at the same rate as legal immigrants with the same education, CIS estimates that costs for the Credit would increase 10-fold.