Saturday, June 22, 2013

The CBO's Immigration Study And Its False Surplus

The analysis by the Congressional Budget Office of the Senate immigration bill spells out the methodology for calculating the budgetary effects of immigration legislation: Increased immigration will have a positive budgetary effect if the average immigrant adds more to the pot in taxes than he or she takes away in benefits.
Insofar as Congress is supposed to act in the general interest, state and local taxes and benefit costs must be added to make the calculation complete.

Whether immigration produces deficits or surpluses depends on factors including immigrant income (and taxes paid thereon), number of children and age. Currently, a family of two parents and three school-age children (immigrant or otherwise) earning $25,000 per year draws some $25,000 more in government benefits than it pays in taxes.
Immigration will add to deficits if the average immigrant family earns $25,000 per year. It will add to surpluses, if it earns $150,000. These are simple facts not subject to dispute.

Will the Senate bill leave us with high or low-income immigrants? The Senate bill does not place quotas on family-based immigration. Moreover, its merit-based immigration (track 2) appears to give preferences to siblings and married adult children over the age of 31. Immigration categories that emphasize skills and education are capped at low levels.

These provisions suggest a long-term predominance of low-income immigrant households — a steady supply of cheap labor for the American labor market. Some may consider this good for the economy, but its budgetary implications are negative.

Now let's turn to the CBO's flawed conclusion that the Senate immigration bill will produce a budgetary surplus in its first decade. (I will not even discuss its projection for the second decade because we cannot predict the composition of immigrant families 20 years hence.)

The source of the CBO's projected surplus is that legalized immigrants will pay Social Security taxes over the first 10 years while receiving virtually no benefits. Only "0.5% (of foreign-born individuals) would qualify (for Social Security) by the end of their 10th year," CBO says.

But the CBO ignores the fact that the immigration reform bill makes Social Security an even worse pyramid scheme than it already is. It counts each year's Social Security contributions by immigrants in the positive column without making provisions for future benefits, which will be about twice what the immigrants contributed over the long term.
Private companies are required by law to make provisions for the funding of pension and health liabilities of their employees. Meanwhile, the federal government, while imposing such provisions on the private sector, can spend current Social Security contributions on other things and hope that no one understands this is a Ponzi scheme. Maybe the federal government hopes that Charles Ponzi will pay these future benefits?

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