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The 6 Key Takeaways from the CBO Cost Estimate of S. 744

Immigration reform

SOURCE: AP/Evan Vucci

President Barack Obama speaks about immigration reform, Tuesday, June 11, 2013, in the East Room of the White House in Washington. Comprehensive immigration reform will greatly benefit the U.S. economy.

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The nonpartisan Congressional Budget Office, or CBO, released a cost estimate on Tuesday of S. 744, the bipartisan immigration bill that is currently before the Senate. The CBO findings are clear: Comprehensive immigration reform will be a boon to our economy, and the tax contributions of immigrants will more than pay for any additional costs that arise from this reform. Immigration reform will decrease the U.S. deficit by $175 billion over the next 10 years and by an additional $700 billion over the following 10 years. Simply put, immigration reform pays for itself.

Immigration reform will reduce the deficit

The CBO found that comprehensive immigration reform will significantly reduce future federal budget deficits. Although immigration reform will generate some additional costs in government programs such as Social Security, the CBO found that the increases in tax revenues, primarily paid by immigrants, will vastly outpace these costs, leading to big net gains for the U.S. budget. In fact, for every $1 in spending that results from immigration reform, nearly $2 will be paid in taxes.

Because of these soaring tax revenues and modest cost increases, the U.S. federal budget balance will experience a net improvement of $175 billion over the next 10 years. What’s more, these significant gains only grow over time—over the following 10 years, immigration reform will shrink the budget deficit by an additional $700 billion, so that by 2033 the U.S. federal budget will shrink by a cumulative nearly $900 billion.

Immigration will be a boon to the states

In addition to the benefits the federal government will receive from S. 744, states will be better off as well. Using the CBO’s estimate of the increase in Social Security contributions (as mentioned later in this column), we calculate that state tax revenues will increase by an estimated $748 billion by 2033. The CBO’s findings reaffirm other reports, which concluded that states stand to gain significantly from legalizing the undocumented population. In Florida, for example, the cumulative increase in gross domestic product, or GDP, would be $55.3 billion, and undocumented immigrants would pay $3.1 billion more in taxes over 10 years.

American workers will benefit from immigration reform

Bringing undocumented immigrants out of the shadows and creating a sensible immigration system will benefit all American workers. The CBO analysis found that by 2033 the wages of all U.S. workers will increase by 0.5 percent due to the economic growth induced by immigration reform. And these wage gains are just the tip of the iceberg for American workers.* In a supplemental report, the CBO identified that when the broader macroeconomic effects of immigration reform are taken into account, such as the rising productivity of workers, U.S. GDP would increase an additional 3.3 percent by 2023 and 5.3 percent by 2033. Moreover, given that the CBO determined that unemployment would not rise as immigration reform increased the labor force, this significant economic growth would create millions of new jobs all across the country.

Immigration reform will strengthen Social Security and other social programs

Many opponents of immigration reform have claimed that providing an earned pathway to citizenship and fixing our broken immigration system would greatly increase the cost of social programs and burden federal and state budgets. The CBO score, however, indicates that just the opposite would occur. On the whole, the added costs of all government programs will be just 56 percent of the increase in taxes, meaning that the taxes paid by immigrants would more than cover all the additional expenditures for all social programs combined.

The Social Security system, for example, would receive an additional $214 billion in taxes by 2023, and $700 billion more by 2033, far exceeding the additional outlays for the program due to immigration reform. Similarly, the increased costs of the Affordable Care Act will comprise just 18 percent of the additional tax revenues raised by immigration reform.

Legalization is the driving force behind the net gains under S. 744

It is clear from the CBO score that comprehensive immigration reform will bring about significant economic gains for all Americans and the country as a whole. Equally clear is the fact that legalizing undocumented immigrants and putting them on a pathway to earned citizenship is the main reason the United States stands to reap such large net economic benefits.

The CBO identifies that the $460 billion increase in tax revenues that will occur in the first 10 years of immigration reform is due in large part to undocumented immigrants coming out of the shadows, working “on the books,” and paying taxes. But while they are responsible for a large share of the revenue gains under S. 744, the CBO estimates that the newly legalized will account for less than 10 percent of the additional costs associated with S. 744. The CBO’s findings therefore indicate that the net economic gains from immigration reform are greatest when the largest number of people can travel the path to earned citizenship.

The positive economic gains are even greater than the CBO estimates

Because the CBO’s analysis incorporates only the direct effects of S. 744 on “the U.S. population, employment and taxable compensation,” many of the broader positive economic impacts of the bill are not captured in the analysis. The CBO accounts, for example, for the fact that legalizing undocumented immigrants leads to higher tax revenues, due to undocumented immigrants going on the books and experiencing a rise in their wages. What the CBO does not account for, however, is the additional tax revenues and economic growth that stem from undocumented immigrants spending their increased earnings throughout the economy, which leads to an increase in GDP and earnings for all Americans. When these economic ripple effects are taken into account, the gains to our country are even greater than the CBO estimates. The CBO acknowledges as much by noting that there will be additional gains that they have not calculated and that these unaccounted-for macroeconomic effects will further reduce deficits by at least $300 billion by 2033.

Other research has found that as immigrants spend their extra earnings throughout the economy on things such as homes, cars, and laptops, it drives business demand and creates economic prosperity. The increased earnings from the newly legalized immigrants will boost the U.S. economy by more than $800 billion and increase the earnings of all Americans by $470 billion over 10 years. This additional spending will also support the creation of 121,000 additional jobs on average each year over 10 years.

Conclusion

The CBO score puts to rest the economic and budgetary arguments against passing immigration reform. The question now is whether Congress will come together to do the right thing for the country and whether it will maximize the number of people who can complete the path to citizenship, thus maximizing the economic benefits. America cannot afford anything less.

Robert Lynch is the Everett E. Nuttle professor of economics at Washington College. Patrick Oakford is a Research Assistant in the Economic and Immigration Policy departments at the Center for American Progress.

* The CBO does say in its analysis that in the first decade, average American wages will fall by 0.1 percent, but they are clear that this drop has to do with the fact that new immigrants will enter the labor force and work at slightly lower wages, which brings down the overall average. The CBO explicitly states that, “The estimated reductions in average wages … do not necessarily imply that current U.S. residents would be worse off, on average, under the legislation than they would be under current law.”

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