User’s Guide to NAS Report, 4: Long-Run Fiscal Impact

By looking only at expenditures and taxes during a given year, the calculation of the short-run fiscal impact ignores that some of those expenditures actually yield a return. The cost of sending the children of immigrants to school today leads to higher earnings for those children in the future. Plus the aging of the native-born population is creating severe fiscal problems, as there is not enough money to fund the liabilities in Social Security and Medicare unless we drastically raise taxes or cut benefits. Immigration brings in new taxpayers who can fund some of those liabilities in the future.

Chapter 8 of the NAS report presents the calculation of the long-run fiscal impact. To see how this is done, imagine the following sequence of events. An immigrant arrives today, paying taxes and receiving public services. That immigrant has children. Those children may be costly, but they eventually grow up and pay taxes. The children have children, and the process goes on. The panel did this calculation by “tracking” the immigrant and all descendants over the 75-year period after arrival and adding up all the taxes paid and expenditures incurred. The difference between total taxes and total expenditures is the long-run fiscal impact.

Table 8-12 is the key table in the chapter.

nas-table-8-12

The table has two panels. The top panel reports the  long-run impact if we tracked the typical immigrant who arrived between 2011 and 2013, while the bottom panel reports the long-run impact if we tracked the typical immigrant now living in the United States. The tracking of the immigrant who arrived between 2011 and 2013 can be very misleading–just imagine what the fiscal impact would look like if the United States suddenly decided to admit 300,000 refugees and we then tracked that typical immigrant. There are blips in who the immigrants are from year to year, with “good” and “bad” years. To avoid slanting the numbers in any particular direction, it is far preferable to track the average immigrant in the country.

The table uses four different scenarios to calculate the long-run impact. The scenarios differ on what they assume about whether immigrants increase the cost of public goods, and on what they assume about the path of taxes and expenditures over the next 75 years. And the panel helpfully added nice yellow highlights to Table 8-12 that isolate the key number resulting from each scenario.

The long-run fiscal impact is positive only if immigrants do not affect the cost of public goods and we assume that future tax rates and benefit payments will follow the projections made by the Congressional Budget Office (CBO). If you get rid of either of those assumptions, the positive long-term impact of an immigrant contributing a net of  +$58,000 over the next 75 years becomes a loss as large as -$119,000. The role of assumptions in generating the answer leads to several bolded bullet points in the NAS report:

Forward-looking projections of the net fiscal impact of an additional immigrant and descendants generate a relatively wide range of possible results.

The future path of fiscal policy is important for assessing the fiscal impacts of immigrants.

The treatment of spending on public goods is important for assessing the fiscal impact of immigrants.

Let me translate. Assumptions matter, and different assumptions lead to wildly different answers. I think there is an elephant in the room that the NAS report alludes to, but cannot bring itself to say out loud. So I will: All estimates of the long-run fiscal impact are useless!

It is extremely easy to manipulate assumptions and end up with either large positive or large negative long-run impacts. Do you want a large positive number–as some people in the debate surely do? Then pick a year where the new immigrants look particularly “good,” assume that taxes will go up in the future, and ignore public goods. Do you want a large negative number–as some other people in the debate surely do? Then pick a “bad” year, assume immigrants increase expenditures in public goods, and assume that taxes and expenditures stay in their current path for the remainder of this century.

I would also add: Don’t be fooled by the CBO “experts” who claim to know how taxes and expenditures will evolve over the next 75 years. Those same experts couldn’t even predict Obamacare enrollment just a few months ago. What do they really know about taxes and expenditures in the year 2075?

One final point. Table 8-12 also reports the long run fiscal impact for immigrants in each education group. Regardless of scenario, it is obvious that low-skill immigrants impose a fiscal burden in the long run, but that immigrants with at least a college education are fiscally beneficial.

 

Author: George Borjas

I am a Professor of Economics and Social Policy at the Harvard Kennedy School.