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Want to Reduce the National Debt? Find More Workers

Friday, 05 July 2013 11:18 By James Kwak, Baseline Scenario | News Analysis
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Why do some people oppose immigration reform? One conservative objection is that we should follow rules and punish lawbreakers (not to mention all the other arguments that have to do with protecting a white, Protestant, English-speaking nation). That fits nicely with the Strict Father worldview identified by George Lakoff. Another common conservative objection is that we can’t afford more immigration because it would increase deficits and the national debt; that also fits with the tough-minded, austerity-loving ethos of modern conservatism. The little problem is that more immigrants, and more legal immigrants, are unambiguously good for the economy and for the federal budget deficit.

This is the conclusion of two reports put out by the Congressional Budget Office this week: one a cost estimate of the bill currently in the Senate, the other an expanded estimate incorporating additional economic impacts of the bill. The bottom line is that the bill would make the economy 5.4 percent bigger in 2033 than it would be otherwise; per capita GNP would be 0.2 percent higher and wages would be 0.5 percent higher in 2033. Finally, immigration reform would reduce aggregate deficits by about $200 billion* over the first decade and about $1 trillion in the second decade.

A lot of this is simply obvious. More immigrants mean more workers mean more economic output. Legalizing undocumented immigrants means higher tax revenues from existing output. Some is slightly less obvious. Relaxing caps on immigration means more skilled workers, leading to technological innovation and higher productivity (hence higher average wages).

But what about the costs? Conservative Republicans have been painting the picture of people who come to the United States simply to live off of government programs without contributing tax revenues to fund those programs. In fact,the CBO went ahead and did a cost estimate for the second decade specifically because Republicans were arguing that the true costs wouldn’t show up until then, once immigrants qualified for benefits.

But that’s not how our current social insurance programs work. The two major programs, Social Security and Medicare, require ten years of qualifying work, with accompanying payroll tax contributions.** So for the most part, you can’t qualify for benefits without paying into the system for some period of time.

More importantly, most people immigrating to the United States are working age (or their children: they come here looking for jobs. (And if they are already retired, they won’t qualify for Social Security or Medicare.) From the standpoint of our social insurance programs, this is what we want. For example, I am paying into Social Security, but my father is benefiting from it; that’s how it works in a pay-as-you-go system. But new immigrants represent a one-time bonus: they pay in for decades before anyone in their family benefits. For the more than forty years that my immigrant father worked, he paid payroll taxes, while his parents were not collecting benefits.

Once the immigrants retire and start collecting benefits, their families become nor better and nor worse, from a fiscal standpoint, than all the families that were here already. But social insurance programs never have to pay back the net benefit they gain from that first immigrant generation. It’s free money.

More immigration is not just what our society and our economy need. It’s what the federal government’s balance sheet needs. If people want to oppose immigration reform because they don’t want to sanction past rule-breaking, that’s up to them. But they can’t oppose it on fiscal grounds.

 

* This amount could be reduced by $22 billion in discretionary spending required by the bill. However, under current law that discretionary spending would have to be offset someplace else because of the spending caps set by the Budget Control Act of 2011 (the debt ceiling compromise).

** The number is less for disability insurance,but in any case is not zero.

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