National Data | Immigrants Causing One Fifth Of Federal Deficit

[Peter Brimelow writes: Ed Rubenstein delivered this talk, under the title “Government Deficits and Immigration”, to the Writers’ Workshop on October 2, 2011. The Writers’ Workshop, one of many creations of the amazing Dr. John Tanton, is held annually in the Washington D.C. area. Videos of the 2010 Workshop presentations are here; videos of the 2009 presentations (which include me on hate crime legislation) are here. We’ll link to Ed’s talk when it becomes available].

I have good news and bad news on the federal deficit front.

The good news: it has been worse. At the end of WWII the federal deficit was more than twice as high relative to Gross Domestic Product [GDP].

The bad news: this is the first economic recovery since World War II in which the deficit has not declined as a share of GDP. It was 10% of GDP in 2009 and is projected to be 11% in FY2011, which ended on Friday.

We’ve had weak recoveries before. George W. Bush’s first three years were essentially jobless. But he managed to reduce the federal budget imbalance by two-thirds (as a share of GDP) during his economic expansion.

This time, it is different.

This is also the first recovery in our post war history in which immigration has exceeded job creation.

The nexus between immigration, unemployment, and the federal deficit may be one of the greatest stories never told.

There have been surprisingly few comprehensive studies of immigration’s fiscal impact. The most extensive and authoritative analysis is still the National Research Council’s study The New Americans: Economic, Demographic and Fiscal Effects of Immigration, published in 1997.

The NRC analyzed fiscal impact of immigrant and native-born households in the state of California. (Using households rather than individuals as the basic unit of analysis insures that the benefits received by U.S.-born children of immigrants are included as a cost of immigration.) 

The NRC found that the average immigrant household received $3,700 more in federal benefits than they paid in federal taxes—i.e., they generated a deficit of $3,700 per year. (The NRC also found serious fiscal impact and the state and local level, but I’m leaving that aside for now).

That was 15 years ago. When I updated the NRC figures to reflect subsequent spending and revenue growth, I found the deficit is now about $17,000 per immigrant household. There are about 13 million such households in the U.S. Well, when you do the math—13 million times $17,000—you get a federal “immigration deficit” of $220 billion.

That is the fiscal deficit attributable to immigration. It equals about 17% of the entire federal deficit.

That is a big chunk. It’s roughly equal the annual interest now paid on the national debt. 

It’s sobering to realize that 15 years ago the entire federal deficit was less than one-half of 1% of GDP.

In fact, the NRC study found that native-born households generated a federal fiscal surplus—paying more taxes than they received in benefits. In other words, the entire deficit was due to immigrants and their U.S.-born children. This is no longer the case. Today’s deficit is too large to be ascribed to any narrowly defined group.

It’s no longer just an immigration problem. It’s not even a poverty problem: in this economy many middle-class households pay less tax than they receive in federal services.

It’s a population problem. We are all culpable.

As I see it, the country’s fiscal deterioration has a lot in common with its environmental and ecological deterioration. They are both exacerbated by population growth. 

If we do not cut entitlements, or raise taxes, or restore economic growth—and at this point in time there is little prospect of achieving those things—the deficit will rise in lock-step with population growth.

But if this is true, a more restrictive immigration policy is the best way to control future deficits. Eighty percent of U.S. population growth between now and mid-century will be from new immigrants and their U.S.-born children.

This is not a politically inspired factoid from a “nativist” group. It’s from the Census Bureau.

According to the Census, if immigration policy remains unchanged U.S. population will reach 439 million by mid century. That’s an increase of about 129 million from today’s level.

By contrast an immigration moratorium –zero net foreign inflow– will cut population growth to 26 million over this period.

The bottom line: a long-term moratorium will reduce population by 103 million below the level that we would have had under current immigration policy.

One hundred and three million fewer people means a lower GDP—but a higher per capita GDP. We might have labor shortages. (What our unemployed workers wouldn’t give for a labor shortage!) Employers would find it necessary to invest in labor-saving plant and equipment, thereby raising the productivity of the remaining workforce.  High productivity means higher incomes and a lower deficit per household.

So a moratorium would trigger two deficit-busting trends: 1) a smaller population, and 2) a richer population. My research shows that the population impact alone will reduce the 2050 deficit by about 30% below the level that we would have under current immigration policy.

Unfortunately, the Open Borders crowd still doesn’t get it. Many still see immigration as a solution rather than a cause of our fiscal crisis. How many times have you heard it said that immigrants can save Social Security?

Sure, new immigrants are generally younger than natives. They pay payroll taxes long before they collect benefits.

But they are also poorer than the native-born. Over the course of their lifetimes, most immigrants will receive more Social Security benefits than they pay in Social Security taxes. This merely reflects the fact that that Social Security is a progressive entitlement: low income workers receive larger benefits relative to their wages and payroll tax contributions than high income workers

So Rick Perry was right: Social Security is a Ponzi scheme—at least as far as immigration is concerned. Ever-larger numbers of new immigrants will be needed to pay for the retirement benefits of earlier immigrant cohorts.

Many legal immigrants enter the country years at fairly advanced ages. These folks do very well by Social Security. Some work for as little as ten years and yet receive 70 to 80 percent of the benefit received by comparable native-born workers who have contributed to the system over their entire working lifetime.

George Borjas, the Harvard economist, finds that Social Security is an important factor in the decision to come to this country. Older immigrants know that if they do not work long enough to qualify for Social Security, a safety net of welfare programs is there for them.

And these are the legal immigrants!

 Workers here on temporary work visas are an even larger drain on Social Security. Many pay no Social Security taxes whatsoever. That is the result of so-called “Totalization Agreements” under which foreign workers can have their payroll taxes sent to their home country’s retirement program instead of Social Security. These agreements were designed to eliminate double taxation that would occur if a worker were obliged to pay into both retirement systems.

Most of the time the Totalization tax is far less than what would have been paid to Social Security. The balance goes to the worker when he returns to his home country. The U.S. employer also saves money since he is paying into a system far less expensive than Social Security.

We don’t have totalization agreements with India or China—for the simple reason that these countries have no public pension systems. So in theory, Indian and Chinese workers here on temp visas should pay Social Security taxes. But in fact, many of them pay no Social Security, no Medicare, no personal income tax. They are brought in by Indian or Chinese contractors who “loan” them to U.S. companies that do not want to add employees to their payrolls. These folks can get a paycheck with no deductions.

Now for State and local governments: their budgets are even more vulnerable to immigration.  The NRC found, for example, that the value of state and local services received by immigrant households exceeded their revenue payments by 45%; at the federal level the difference was 25%.

Public education is the major reason. Immigrant households are younger and they have more children than natives. They are less likely to send their kids to private schools. Their kids are less likely to graduate on time and more likely to need remedial education—especially in English.

Today, about one in 5 public school students are immigrants or the U.S.-born children of immigrants. That means nearly 10 million students are here because of immigration. Thanks to the 1982 Supreme Court’s decision Plyler v Doe, this total includes more than 1 million children of illegal immigrants. [ note: Not the American-born children of illegals, but children and youths who are themselves illegally present in the United States.]

The federal government requires public schools to include ESL or Bilingual Education (BE) programs in their curriculum to accommodate the needs of the non-English speaking students, regardless of their legal status.  Nearly 4 million public school students—8% of total enrollment—are in remedial English classes that can cost as much as $1,700 per pupil more than mainstream classes.

Under current immigration policy, I estimate K-12 enrollment will increase by 55% over the next 40 years. An immigration moratorium would cut this growth to 10 percent. We would have 23 million fewer students to educate.

We currently spend about $12,000 per pupil per year educating public school students. Multiplying this by the 23 million enrollment cut yields a $260 billion savings—a reduction of nearly 30% in public education expenditures.

This is a conservative estimate. I did not adjust for the extra costs associated with immigrant students or the rising enrollment gap between immigrant and native students.

I agree with those who say that the deficit crisis will never be resolved until we create jobs and reduce unemployment.

But it’s time we connected the dots, and realize that unemployment and the deficit share a common ancestor: population growth fueled by immigration.

An immigration moratorium could be the best way out. It may be the only way of avoiding economic decline in the United States.

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.