The Congressional Budget Office (CBO) just released ‘An Update to the Budget and Economic Outlook: 2024 to 2034’, in which it addresses how the recent surge in US immigration is helping to reduce the federal deficit. Some tidbits:
CBO estimates that net legal and illegal immigration of people is 8.7 million greater over the 2021–2026 period than it would have been if net immigration had remained at its otherwise expected level, allowing that much uncertainty surrounds those projections.
As a result of the immigration surge, CBO estimates federal tax revenues will be higher by $1.2 trillion over the period of 2024-2034 and outlays for mandatory programs and net interest on the federal debt will be higher by $0.3 trillion. Therefore, on net, the increase in immigration is projected to lower deficits $0.9 trillion over that period.
Most of the $1.2 trillion increase in revenues over the 2024–2034 period comes from individual income and payroll taxes paid by immigrants on their earnings, assuming initially lower-than-average but increasing income over that period.
CBO’s estimate is also based on its assessment that about half of immigrants in the surge will be authorized for work and will be as likely to pay taxes on their income as the rest of the population.
Immigrants who work without authorization will pay some taxes but less than the rest of the population.
These projections include the effects on taxes paid and federal benefits received by immigrants and their children, as well as the effects stemming from changes to the economy, such as higher productivity and interest rates.
Research has generally found that increases in immigration tend to raise federal revenues more than federal costs but tend to increase the costs of state and local governments more than their revenues. CBO expects that general finding to hold in the case of the immigration surge, but more analysis is needed.
CBO also expects that the surge will increase state and local costs for education and health care. State and local revenues will also increase from collections of income and sales taxes, although such collections will be smaller than those by the federal government.
In addition to those direct effects on taxes paid by people in the surge, CBO noted that the surge in immigration leads to more economic activity, which in turn boosts income from labor and capital as well as tax revenues from all sources. For example, profits might rise for businesses that employ immigrants or that see increased demand for their products because of the immigration surge.
The largest increase in spending on benefits for recent immigrants will be for tax credits to purchase health insurance through the marketplaces established under the Affordable Care Act. Other spending increases will be on benefits such as the earned income tax credits, Medicaid, Supplemental Nutrition Assistance Program, Supplemental Security Income, Social Security, Medicare, and assistance for higher education.
But, again, after accounting for increased government spending, the surge in US immigration will still lead to a net gain in tax revenue. Of course, the US needs to do more to control illegal immigration. All immigrants should be fully vetted before being allowed in. And we need to better manage immigrant numbers and destinations, to ensure that local communities and housing markets are not overwhelmed. But given the drop in fertility and ongoing labor shortages, the US should welcome many more immigrants for the foreseeable future.