In a late update today from the BNA Daily Tax Report, the Congressional Budget Office has released estimates of the revenue effects from the pending legislation dealing with illegal immigration. That legislation, which would greatly expand the opportunities for legal immigration status, has proven controversial.
One dimension of the debate involves the fiscal impact of additional legal immigrants. On the revenue side of the ledger, we see the possibility of increased revenues from the income and social security tax systems, which would be realized to the extent that more legal workers are brought within the current compliance systems. For example, illegal workers paid in cash would thus be required to bear applicable tax burdens. However, the employers who pay them, to the extent engaged in business and eligible for business expenses, would presumably increase those expenses, making the net impact potentially less significant. The CBO indicates that total revenues from income and employment taxes will increase by $57 billion through 2017 as a consequence of new immigration laws.
However, the expense side is less rosy. Current tax provisions designed to help families with children and the working poor (i.e., the Child Credit and the Earned Income Credit) present a potential for net drains on the treasury. To the extent that our system has been designed to provide both welfare and revenue raising services, the fiscal impact of allowing additional immigrants from lower-income cohorts is expected to be negative. It will cost $13.7 billion for these refundable credits through 2017.
Other direct spending for social insurance programs, welfare programs, and the like would also increase. These programs will cost an additional $22.7 billion through 2017. Medicaid costs will be the largest contributor. These costs are lower than they could be, however, to the extent that only qualified immigrants are eligible for social welfare programs. To the extent that there is further liberalization on these issues, this amount will increase.
In addition to these entitlement-based programs are discretionary spending items, which include those needed to enforce the provisions of the Act, including law enforcement grants to state and local governments. The CBO estimates these at $43 billion through 2017. However, your guess is as good as mine (or the CBO’s) as to whether Congress will actually enforce these provisions in the future. Based on past performance about enforcing immigration rules, I think there is reason for skepticism.
The bottom line: this legislation will add to the deficit by $30 billion or more through 2017. That is not a lot of money in the big scheme of things. But it also does not take into account all the costs – including costs imposed on the private sector – for compliance and enforcement. It will cost money to begin enforcing laws in a serious way, regardless of the direction that those laws take.
You can find a pdf copy of the CBO report here: http://www.cbo.gov/publications/collections/immigration.cfm