A Complex Fiscal Picture
Welfare use. Our findings show that many of the preconceived notions
about the fiscal impact of illegal households turn out to be inaccurate. In
terms of welfare use, receipt of cash assistance programs tends to be very low,
while Medicaid use, though significant, is still less than for other households.
Only use of food assistance programs is significantly higher than that of the
rest of the population. Also, contrary to the perceptions that illegal aliens
don't pay payroll taxes, we estimate that more than half of illegals work "on
the books." On average, illegal households pay more than $4,200 a year in all
forms of federal taxes. Unfortunately, they impose costs of $6,950 per
household.
Social Security and Medicare. Although we find that the net effect of
illegal households is negative at the federal level, the same is not true for
Social Security and Medicare. We estimate that illegal households create a
combined net benefit for these two programs in excess of $7 billion a year,
accounting for about 4 percent of the total annual surplus in these two
programs. However, they create a net deficit of $17.4 billion in the rest of the
budget, for a total net loss of $10.4 billion. Nonetheless, their impact on
Social Security and Medicare is unambiguously positive. Of course, if the Social
Security totalization agreement with Mexico signed in June goes into effect,
allowing illegals to collect Social Security, these calculations would change.
The Impact of Amnesty. Finally, our estimates show that amnesty would
significantly increase tax revenue. Because both their income and tax compliance
would rise, we estimate that under the most likely scenario the average illegal
alien household would pay 77 percent ($3,200) more a year in federal taxes once
legalized. While not enough to offset the 118 percent ($8,200) per household
increase in costs that would come with legalization, amnesty would significantly
increase both the average income and tax payments of illegal aliens.
What's Different About Today's Immigration. Many native-born Americans
observe that their ancestors came to America and did not place great demands on
government services. Perhaps this is true, but the size and scope of government
were dramatically smaller during the last great wave of immigration. Not just
means-tested programs, but expenditures on everything from public schools to
roads were only a fraction of what they are today. Thus, the arrival of
unskilled immigrants in the past did not have the negative fiscal implications
that it does today. Moreover, the American economy has changed profoundly since
the last great wave of immigration, with education now the key determinant of
economic success. The costs that unskilled immigrants impose simply reflect the
nature of the modern American economy and welfare state. It is doubtful that the
fiscal costs can be avoided if our immigration policies remain unchanged.
Policy Implications
The negative impact on the federal budget need not be the only or even the
primary consideration when deciding what to do about illegal immigration. But
assuming that the fiscal status quo is unacceptable, there are three main
changes in policy that might reduce or eliminate the fiscal costs of illegal
immigration. One set of options is to allow illegal aliens to remain in the
country, but attempt to reduce the costs they impose. A second set of options
would be to grant them legal status as a way of increasing the taxes they pay. A
third option would be to enforce the law and reduce the size of the illegal
population and with it the costs of illegal immigration.
Reducing the Cost Side of the Equation. Reducing the costs illegals
impose would probably be the most difficult of the three options because illegal
households already impose only about 46 percent as much in costs on the federal
government as other households. Thus, the amount of money that can be saved by
curtailing their use of public services even further is probably quite limited.
Moreover, the fact that benefits are often received on behalf of their
U.S.-citizen children means that it is very difficult to prevent illegal
households from accessing the programs they do. And many of the programs
illegals use most extensively are likely to be politically very difficult to
cut, such as the Women Infants and Children (WIC) nutrition program. Other
costs, such as incarcerating illegals who have been convicted of crimes are
unavoidable. It seems almost certain that if illegals are allowed to remain in
the country, the fiscal deficit will persist.
Increasing Tax Revenue by Granting Amnesty. As discussed above, our
research shows that granting illegal aliens amnesty would dramatically increase
tax revenue. Unfortunately, we find that costs would increase even more. Costs
would rise dramatically because illegals would be able to access many programs
that are currently off limits to them. Moreover, even if legalized illegal
aliens continued to be barred from using some means-tested programs, they would
still be much more likely to sign their U.S.-citizen children up for them
because they would lose whatever fear they had of the government. We know this
because immigrants with legal status, who have the same education levels and
resulting low incomes as illegal aliens, sign their U.S.-citizen children up for
programs like Medicaid at higher rates than illegal aliens with U.S.-citizen
children. In addition, direct costs for programs like the Earned Income Tax
Credit would also grow dramatically with legalization. Right now, illegals need
a Social Security number and have to file a tax return to get the credit. As a
result, relatively few actually get it. We estimate that once legalized,
payments to illegals under this program would grow more than ten-fold.
From a purely fiscal point of view, the main problem with legalization is that
illegals would, for the most part, become unskilled legal immigrants. And
unskilled legal immigrants create much larger fiscal costs than unskilled
illegal aliens. Legalization will not change the low education levels of illegal
aliens or the fact that the American labor market offers very limited
opportunities to such workers, whatever their legal status. Nor will it change
the basic fact that the United States, like all industrialized democracies, has
a well-developed welfare state that provides assistance to low-income workers.
Large fiscal costs are simply an unavoidable outcome of unskilled immigration
given the economic and fiscal realities of America today.
Enforcing Immigration Laws. If we are serious about avoiding the fiscal
costs of illegal immigration, the only real option is to enforce the law and
reduce the number of illegal aliens in the country. First, this would entail
much greater efforts to police the nation's land and sea borders. At present,
less than 2,000 agents are on duty at any one time on the Mexican and Canadian
borders. Second, much greater effort must be made to ensure that those allowed
into the country on a temporary basis, such as tourists and guest workers, are
not likely to stay in the country permanently. Third, the centerpiece of any
enforcement effort would be to enforce the ban on hiring illegal aliens. At
present, the law is completely unenforced. Enforcement would require using
existing databases to ensure that all new hires are authorized to work in the
United States and levying heavy fines on businesses that knowingly employ
illegal aliens. Finally, a clear message from policymakers, especially senior
members of the administration, that enforcement of the law is valued and vitally
important to the nation, would dramatically increase the extremely low morale of
those who enforce immigration laws.
Policing the border, enforcing the ban on hiring illegal aliens, denying
temporary visas to those likely to remain permanently, and all the other things
necessary to reduce illegal immigration will take time and cost money. However,
since the cost of illegal immigration to the federal government alone is
estimated at over $10 billion a year, significant resources could be devoted to
enforcement efforts and still leave taxpayers with significant net savings.
Enforcement not only has the advantage of reducing the costs of illegal
immigration, it also is very popular with the general public. Nonetheless,
policymakers can expect strong opposition from special interest groups,
especially ethnic advocacy groups and those elements of the business community
that do not want to invest in labor-saving devices and techniques or pay better
salaries, but instead want access to large numbers of cheap, unskilled workers.
If we choose to continue to not enforce the law or to grant illegals amnesty,
both the public and policymakers have to understand that there will be
significant long-term costs for taxpayers.
Summary Methodology
Overall Approach. To estimate the impact of households headed by illegal
aliens, we rely heavily on the National Research Council's (NRC) 1997 study,
"The New Americans." Like that study, we use the March Current Population Survey
(CPS) and the decennial Census, both collected by the Census Bureau. We use the
March 2003 CPS, which asks questions about income, household structure, and use
of public services in the calendar year prior to the survey. We control total
federal expenditures and tax receipts by category to reflect actual expenditures
and tax payments. Like the NRC, we assume that immigrants have no impact on
defense-related expenditures and therefore assign those costs only to
native-headed households. Like the NRC, we define a household as persons living
together who are related. Individuals living alone or with persons to whom they
are unrelated are treated as their own households. As the NRC study points out,
a "household is the primary unit through which public services are consumed and
taxes paid." Following the NRC's example of using households, many of which
include U.S.-citizen children, as the unit of analysis makes sense because the
presence of these children and the costs they create are a direct result of
their parents having been allowed to enter and remain in country. Thus, counting
services used by these children allows for a full accounting of the costs of
illegal immigration.
Identifying Illegal Aliens in Census Bureau Data. While the CPS does not
ask respondents if they are illegal aliens, the Urban Institute, the former
Immigration and Naturalization Service (INS), and the Census Bureau have used
socio-demographic characteristics in the data to estimate the size and
characteristics of the illegal population. To identify illegal aliens in the
survey, we used citizenship status, year of arrival in the United States, age,
country of birth, educational attainment, sex, receipt of welfare programs,
receipt of Social Security, veteran status, and marital status. This method is
based on some very well-established facts about the characteristics of the
illegal population. In some cases, we assume that individuals have zero chance
of being an illegal alien, such as naturalized citizens, veterans, and
individuals who report that they personally receive Social Security benefits or
cash assistance from a welfare program or those who are enrolled in Medicaid.
However, other members of a household, mainly the U.S.-born children of illegal
aliens, can and do receive these programs. We estimate that there were 8.7
million illegal aliens included in the March 2003 CPS. By design, our estimates
for the size and characteristics of the illegal population are very similar to
those prepared by the Census Bureau, the INS, and the Urban Institute.
Estimating the Impact of Amnesty. We assume that any amnesty that passes
Congress will have Lawful Permanent Residence (LPR) as a component. Even though
the President's amnesty proposal in January seems to envision "temporary" worker
status, every major legalization bill in Congress, including those sponsored by
Republican legislators, provides illegal aliens with LPR status at some point in
the process. Moreover, Democratic presidential nominee John Kerry has indicated
his strong desire to give LPR status to illegal aliens.
To estimate the likely impact of legalization, we run two different simulations.
In our first simulation, we assume that legalized illegal aliens would use
services and pay taxes like all households headed by legal immigrants with the
same characteristics. In this simulation, we control for the education level of
the household head and whether the head is from Mexico. The first simulation
shows that the net fiscal deficit grows from about $2,700 to more than $6,000
per household. In the second simulation, we again control for education and
whether the household head is Mexican and also assume that illegals would become
like post-1986 legal immigrants, excluding refugees. Because illegals are much
more like recently arrived non-refugees than legal immigrants in general, the
second simulation is the more plausible. The second simulation shows that the
net fiscal deficit per household would climb to $7,700.
Results Similar to Other Studies. Our overall conclusion that education
level is the primary determinant of tax payments made and services used is very
similar to the conclusion of the 1997 National Research Council report, "The New
Americans." The results of our study also closely match the findings of a 1998
Urban Institute study, which examined tax payments by illegal aliens in New York
State. In order to test our results we ran separate estimates for federal taxes
and found that, when adjusted for inflation, our estimated federal taxes are
almost identical to those of the Urban Institute. The results of this study are
also buttressed by an analysis of illegal alien tax returns done by the
Inspector General's Office of the Department of Treasury in 2004, which found
that about half of illegals had no federal income tax liability, very similar to
our finding of 45 percent.
Methodology
Probably the most important study on the fiscal effects of immigration was
conducted by the National Research Council (NRC) in 1997.1
Our analysis relies heavily on the approach used in the NRC study as the basis
for estimating the fiscal impact of immigration. The NRC actually reported two
different estimates for the fiscal impact of immigration, a household-level
analysis of the current fiscal impact and an intergenerational analysis looking
at immigrants and their descendents over a 300-year period. Our analysis
primarily follows the example of the NRC's household level analysis because we
are interested in estimating the current fiscal impact of illegals on the
federal budget. However, we also report separate estimates for immigrants by
education level as was done in the NRC's intergenerational analysis.
Another important study was conducted in 1998 by the Urban Institute. That study
only estimated tax payments in New York State, including some federal taxes. But
unlike the NRC study, the Urban Institute New York study estimated tax payments
for legal and illegal immigrants separately, though it did not consider service
use. This is one of the only studies today that has examined tax payments by
illegal aliens, and so we rely on some of that study's approach as well.2
Other important studies that have examined the fiscal impact of immigration
include a 2001 study of Florida, a 1997 study of New Jersey (which was included
in the NRC study), and one in 1994 by the Center for Immigration Studies.3
Almost all fiscal studies of immigration attempt to measure the taxes paid by
immigrant households and the services they use. This study follows the same
approach. We also make the same implicit assumption of almost all fiscal
studies, including the NRC's: that if immigrants create a fiscal deficit, then
taxes simply rise to cover the added expenses while services remain the same
rather than taxes staying the same and services being reduced. Whether natives
have to pay more to retain the same level of services or receive less in
services for the same price, the outcome is still bad for them. Conversely, if
illegal immigrants pay more in taxes than they use in services then this would
be a clear benefit for natives because they could receive the same level of
services but pay less in taxes.
Data Source and General Principles
Data Source. This report relies on the March 2003 Current Population
Survey (CPS) collected by the U.S. Census Bureau. The March data, also called
the Annual Social and Economic Supplement, includes an extra-large sample of
minorities and is considered one of the best sources of information on the
foreign-born.4 The foreign-born are defined as
persons living in the United States who were not U.S. citizens at birth.5
For the purposes of this report, foreign-born and immigrant are used
synonymously. The Survey includes most legal immigrants and is thought to
capture roughly 90 percent of the illegal alien population. We use the term
illegal alien or illegal immigrant to mean those who responded to the survey who
are in the United States without authorization. All other foreign-born persons
are referred to as legal immigrants, including those with Permanent Residence,
those who are naturalized American citizens, and those living in the United
States on long-term temporary visas, mainly guest workers and foreign students.
The CPS asks respondents about their income and program use in the calendar year
prior to the Survey, so all fiscal estimates in the study are for 2002.6
Almost all past research on the fiscal impact of immigrants has relied on CPS or
Decennial Census data, including the NRC and the Urban Institute studies.
Information about actual taxes collected by the federal government by source
comes from the Office of Management and Budget.7
Information on actual federal expenditures on means-tested programs comes from
the Congressional Research Service.8 Information on
other expenditures comes from a variety of government publications.9
Identifying Illegal Aliens. The CPS does not ask the foreign-born if they
are legal residents of the United States. However, the Urban Institute, the
former INS, and the Census Bureau have used socio-demographic characteristics in
the data to estimate the size of the illegal population. To determine who are
legal and illegal immigrants in the survey, this report uses citizenship status,
year of arrival in the United States, age, country of birth, educational
attainment, sex, receipt of welfare programs, receipt of Social Security,
veteran status, and marital status. We use these variables to assign
probabilities to each respondent. Those individuals who have a cumulative
probability of one or higher are assumed to be illegal aliens. The probabilities
are assigned so that both the total number of illegal aliens and the
characteristics of the illegal population closely match other research in the
field, particularly the estimates developed by the Urban Institute.
This method is based on some well-established facts about the characteristics of
the illegal population. For example, it is well known that illegals are
disproportionately male, unmarried, under age 40, have few years of schooling,
etc. Thus, we assign probabilities to these and other factors in order to select
the likely illegal population. In some cases we assume that there is no
probability that an individual is an illegal alien. If an individual reports
that he is U.S.-born or a naturalized citizen of the United States, then he is
assumed not to be an illegal alien. Someone who reports that he is veteran or
receives veteran benefits is also assumed not to be an illegal alien. Those
individuals who report that they personally receive Social Security benefits,
cash assistance under Temporary Assistance to Needy Families (TANF),
Supplemental Security benefits (SSI), or who are enrolled in Medicaid are also
assumed not to be illegal aliens. However, other members of a household headed
by an illegal alien can receive these programs, mostly the U.S.-born children of
illegals. It is worth noting that our findings show that only a tiny fraction of
households headed by illegals receive cash welfare programs or Social Security
benefits. However, a large share of children in illegal alien households use the
school lunch program or are enrolled in Medicaid. Our methodology allows for
such a possibility.
We estimate that there were 8.7 million illegal aliens in the March 2003 CPS. It
must be remembered that this estimate only includes illegal aliens captured by
the March CPS, not those missed by the survey.10 By
design this estimate is very similar to those prepared by the Census Bureau, the
former Immigration and Naturalization Service (INS), and the Urban Institute.11
Although it should be obvious that there is no definitive means of determining
whether a respondent in the survey is an illegal alien, the findings in this
study are consistent with previous research. For example, the Urban Institute
estimated that in 2002 Mexicans accounted for 57 percent of the illegal
population; our method finds 58 percent in 2003. Using 2003 data, we estimate
that 88 percent of illegals arrived after 1990; the Urban Institute estimated 85
percent using 2002 data.12 Our results also produce
estimates that are similar in other areas, such as age and workforce
participation.
Unit of Analysis. We divide households between those headed by illegal
aliens and all others. In reference to its fiscal estimates, the NRC states,
"Since the household is the primary unit through which public services are
consumed and taxes paid, it is the most appropriate unit as a general rule and
is recommended for static analysis."13 Because our
study is also focused on "static analysis," or current fiscal effects of illegal
aliens, we also examine taxes paid and services used by households based on the
nativity and legal status of the household head. Like the NRC study, we define
households as all persons living together who are related. Persons living with
individuals to whom they are unrelated or who live alone are considered their
own household. This definition could also be referred to as a "family," but
following the NRC's example, we call it a household.
In their study of New Jersey, Deborah Garvey and Thomas Espenshade also used
households as the unit of analysis because "households come closer to
approximating a functioning socioeconomic unit of mutual exchange and support."14
Another reason for using households is that Census Bureau surveys are collected
by household, making households the most appropriate use of the survey. Even so,
it must be remembered that grouping by household, even the modified definition
of household used in the NRC study and this report, means that many children
born in the United States to illegal aliens are included in illegal alien-headed
households even though these children are U.S. citizens by virtue of being born
here. This seems perfectly reasonable since the presence of these children in
the United States is a direct result of their parents having been allowed to
enter and remain in the United States. Thus, counting services used by these
children allows for a full accounting of the costs of illegal immigration.
Marginal vs. Average Costs. Like the NRC, we assume that average costs
equal marginal costs. That is, an additional person or household using a program
or service costs the same as those already using the service. This, of course,
is not always the case. For example, the addition of a few new students to a
half empty school costs relatively little because the school is already built
and so no additional funding is needed for school construction. In such a
situation the marginal costs of the new students are much less than average
costs for the students already in the school. On the other hand, an additional
group of students added to an already overcrowded school may require a whole new
school to be built, thus making the marginal costs of the additional students
much greater than the average cost. The NRC and others assume that marginal and
average costs are equal and that these two tendencies should balance each other
out over time.
Private vs. Public Goods. Some goods provided by government are pure
public goods; that is, everyone living in the country benefits from receiving
them. At the same time, the cost of providing them does not rise as the number
of people living in the country increases. The most important example of this
type of program is national defense. Like the NRC study, we assume that defense
is a pure public good at the federal level, therefore no costs for providing
defense are assigned to immigrant households. We further assume that, with the
exception of means-tested programs for veterans, which illegals cannot use, all
non-means-tested veterans programs are also pure public good. This means that
the nearly $388 billion spent on defense and veterans programs in 2002 is
assigned only to native households.
Interest on the National Debt and Federal Deficits. Following the example
of the NRC, we do not include interest payments on the national debt in our
calculations of costs because it is impossible to determine what share of the
debt was incurred due to illegals. Obviously, illegal aliens who just arrived in
the country have not contributed at all to past deficits or to the cumulative
total of those deficits -- the national debt. On the other hand, if immigrant
households created a net fiscal burden in past years then they might account for
a disproportionate share of the current national debt. Thus, like most previous
studies, including the NRC, we do not count interest on the national debt as a
cost for either immigrant or native households. This means that the study
measures only the fiscal impact of illegal alien households on what the NRC
calls the "primary" budget. The primary budget is comprised of all tax payments
and all federal expenditures other than interest payments on the national debt.
Because debt interest payments ($170.95 billion) were slightly larger in size
than the federal deficit ($157.80 billion) in 2002, the primary budget had a
$13.15 billion surplus in 2002. However, we exclude from our analysis the $23.7
billion that the Federal Reserve earned from interest on federal reserve
deposits, which come from investing in U.S. government securities. These monies
are in effect the federal government paying itself and, although these monies
are officially considered revenue, we do not count them as such in this report
because we do not include the interest the federal government pays on the
national debt as an expense. As a consequence, there was a $10.5 billion deficit
($85 per household) in the primary budget when interest earned on federal
reserve deposits is excluded.
Economic Impact of Illegal Aliens. Like most studies of this kind,
including the NRC's, ours does not consider how illegal immigration or
immigration more generally might affect public coffers indirectly by its impact
on the economy. There simply is no consensus on the economic impact of
immigration. To the extent that the issue has been studied, the impact on the
nation's economy is generally thought to be trivial relative to the size of the
economy. In addition to its fiscal estimates, the National Research Council
estimated that immigration created a net economic benefit to natives of between
$1 billion to $10 billion in the mid-1990s, or an amount equal to one or
two-tenths of 1 percent of the nation's economy at that time. And these figures
are for all immigrants, not specially for the one-fourth of the foreign-born who
are illegal aliens. Moreover, the same study found that immigration reduced the
wages of native-born workers who lack a high school education by about 5
percent. Not only would this reduction lower the tax payments of unskilled
natives, but it would almost certainly result in higher use of means-tested
programs by these workers, who roughly correspond to the poorest 10 percent of
the workforce. Thus it is not clear that the economic impact of illegal
immigration would have even a tiny net positive effect on the public coffers. A
more recent study from the National Bureau of Economic Research suggests that
immigration, legal and illegal, has a decidedly negative impact on the income of
all Americans.15 If that study is correct and there
is a net loss for native-born Americans, then the tax payments of immigrants are
much lower, while their use of services is higher as result of their lower
incomes. Because the actual economic impact is probably modest relative to the
overall size of the U.S. economy and there is little agreement on whether the
effect is positive or negative, we follow the example of almost all other
studies and focus on the direct taxes and services illegals pay and use.
Estimated Tax Payments
All studies of this kind involve estimating payroll and other taxes paid by
households based on their characteristics: primarily income, number of
dependents, and home ownership. In this study, all taxes collected by the
federal government are assigned to households. There is general agreement that
excise taxes and payroll taxes, including those paid by employers such as
unemployment, are ultimately borne by households. However, there is some debate
about who actually pays coporate income tax--consumers or owners of capital. In
this study we follow the example of the Office of Management and Budget and
assume that owners of capital pay corporate income tax. All tax payments are
adjusted to reflect actual total taxes collected by the federal government from
each source for the year.16 We assign all taxes to
U.S. residents and ignore the small share of persons living outside of the
United States who pay federal taxes.
Payroll Taxes. There are four main payroll taxes collected by the federal
government: income, Social Security, Medicare, and Unemployment Compensation.
The Current Population Survey contains income tax and Social Security tax
liabilities calculated by the Census Bureau for all tax-paying units in the
Survey. In short, the Census Bureau uses data from the American Housing Survey,
the Income Survey Development Program, and the Internal Revenue Service and
combines this information with CPS data to create simulations of tax liabilities
for all persons reporting income.17 We use the tax
liability estimates from the Census Bureau to calculate federal income and
Social Security tax liability for each household.18
We calculate both Medicare and Unemployment tax as a share of earning. Again,
both the employee and employer share are assigned to households because previous
research indicates that even the employer share of payroll taxes is ultimately
borne by workers.
Corporate Income Tax. There is some debate about who actually pays
corporate income taxes--owners of capital or consumers. The Office of Management
and Budget in its estimates of the tax burden on American households distributes
corporate income taxes based on each household's share of capital income, and we
do the same in this study. We calculate corporate income tax as a share of
interest and dividend income as reported in the CPS.
Excise and Estate Taxes. In addition to payroll taxes, the federal
government collects taxes on a number of goods, mainly tobacco, alcohol,
transportation fuels, and tires. We follow the NRC study's approach and allocate
tobacco and alcohol taxes based on the number of people of drinking and smoking
age in each household. Excise taxes, mainly the telephone tax and those
collected for the highway and airport trust funds, are allocated as a share of
household income. All tariffs collected on foreign goods are also assumed to be
borne by consumers and are therefore allocated as a share of household income.
Like the NRC study, we also allocated estate taxes to native households and to
immigrant households that have been in the country for more than 20 years. Since
the methodology we use to identify illegal aliens assumes that the vast majority
of illegal aliens have been in the country for less than 20 years, the
contributions of illegal aliens are very small.
Tax Compliance. While illegal aliens are assumed to pay their share of
non-payroll taxes, payroll taxes collected by employers or income and other
taxes paid by the self employed are a different matter. There is some research
to indicate that only about half of illegal aliens are "paid on the books."19
That is, income and other taxes are withheld from their pay. In their study of
New York State, Jeffrey Passel and Rebecca Clark assumed 60 percent compliance.
In their study of New Jersey, Clark and Zimmermann assumed a 56 percent
compliance rate.20 New York and New Jersey are
somewhat unusual because a smaller fraction of each state's illegal population
is employed in agriculture than is true nationally, a sector where being paid
off the books is very common. However, we follow the same basic approach and
assume that 55 percent of illegal aliens are paid on the books. We implement
this by reducing the Income Tax and Social Security, Medicare, and Unemployment
Tax of illegal households to 55 percent of their estimated tax liability.
Assigning Costs by Household
The CPS asks respondents a host of questions about their use of means-tested and
non-means-tested federal programs. Like the NRC study and virtually all other
studies on this topic, we use these results to estimate immigrant and native use
of federal programs. Because the CPS began asking many more questions about use
of public services in 2001, we are able to make specific estimates for a larger
number of programs than was possible at the time of the NRC study, which relied
on the 1995 CPS and 1990 Census. It should be remembered that the March 2003
CPS, the data source used in this study, asks questions about use of federal
programs in the calendar year prior to the Survey, therefore all estimates
reported here are for 2002. In that year expenditures in the primary federal
budget totaled $1.84 trillion.
Social Insurance. We use the results in the CPS to estimate household
receipt of Social Security, Medicare, and Unemployment Compensation. We assume
that illegals receive no federal disability because these payments primarily go
to federal workers or coal miners with black lung. For Social Security, we use
responses in the CPS on the amount received. The same is true of Unemployment
Compensation. The Survey also asks about receipt of Medicare. (Contrary to the
common perception, persons under age 65 can qualify for Medicare, mainly those
with end-stage renal disease.) For Medicare, we assigned average costs of the
program to those who indicated they received it. As already indicated, we assume
that persons getting Social Security cannot be illegal aliens. However, in a few
cases members of their family can use these programs. As a result, costs for
these two programs for illegals are extremely low relative to the rest of the
population, but not zero.
Food Stamps and Cash Assistance. The CPS asks respondents the size of the
payment they receive from the following programs: Supplemental Security Income,
Temporary Assistance to Needy Families (TANF), cash assistance for low-income
veterans, food stamps, low-income energy assistance, and higher education
assistance. We use the payments respondents report to directly estimate average
cost by household. Because food stamp values are reported in the CPS using the
standard definition of household, and because we use a modified definition of
household, food stamp values received by households with multiple families are
divided based on the size of the each family in the household.
Other Non-Cash Means-Tested Programs. The Survey also asks about receipt
of the Women Infants and Children program (WIC) and Free School Lunch program21
and whether someone lives in public housing or receives a rent subsidy. For WIC,
public housing, and rent subsidies we assigned average costs of each program to
households receiving it. For Medicaid, the Census provides estimates by
disability status for all beneficiaries in the CPS. Again, it should be
remembered that only federal costs of the program are considered in this study.
For social services provided by the TANF program, we assigned costs evenly to
households based on receipt of TANF. For government subsidized daycare, which
relatively few illegals use, we assign average costs for households that
indicated in the CPS that they receive child care services. College students in
non-illegal households are assumed to be getting Stafford student loans if the
household income is less than $75,000 a year. For illegal households, student
loans are assumed only if the college student himself is an American citizen.
Thus, while there are a few college students from illegal alien households
receiving student loans, the number is extremely small. Illegal alien households
are assumed to impose no costs on programs designed only for refugees. The same
is true for programs for low-income veterans because our methodology assumes
that all persons who indicate they are veterans cannot be illegal aliens.
The Earned Income Tax Credit. Based on income and other family
characteristics, the Census Bureau provides estimated payments for the Earned
Income Tax Credit (EITC), which it includes in the public use files of the CPS.
We assume that natives and legal immigrants receive their EITC payments, but for
illegal aliens we assume that only the 55 percent who are paid "on the books"
can receive the program. Furthermore, we assume that one-fourth of those who are
paid on the books and who also qualify for the program actually get it. To
implement this, we reduce the Census Bureau's estimated EITC payments by 86
percent for illegal alien households. It should be noted that, officially, a
valid Social Security number is required to collect the EITC. However, a
Treasury Department Inspector General for Tax Administration report found that a
small number of illegals without valid Social Security numbers did receive the
EITC.22 Using this approach we estimate that
illegal households only account for 1.5 percent of the total costs of the EITC.
However, if they received the payments they qualify for based on their income
and number of dependents they would account for more than 10 percent of the
program's total costs.23
The ACTC. In addition to the EITC, there is the Additional Child Tax
Credit (ACTC), also called the refundable portion of the Child Tax Credit, which
pays out a total of $5 billion a year to low-income workers with children. To
estimate the cost of this program, we assign benefits to all native and legal
immigrant households that have earnings over $10,000 and no federal income tax
liability, based on the number of children under age 16 in the household. For
illegals, we further assume that only 40 percent of those households that
qualify based on our analysis of the CPS actually get the ACTC. This is much
higher than for the EITC because illegals are explicitly allowed by law to get
the credit. Thus they can receive the credit even if they do not have a stolen
identity and Social Security number. If they don't have a valid SSN, they can
still get the credit by obtaining an Individual Taxpayer Identification Number (ITIN)
from the IRS, which is not difficult, and filing a return using the ITIN. The
2004 report by the Treasury Department Inspector General for Tax Administration
mentioned above found that, in 2001, 203,000 tax forms filed by illegals got a
cash payment from the Child Tax Credit using an ITIN. These illegals received a
total payment of $161 million in that year--even if the SSNs on their W-2 forms
were not valid.
This amount indicates that about 30 percent of illegals we identified in the CPS
receive benefits from the program. We adjust this up to 40 percent because the
Inspector General's report did not attempt to estimate receipt of the program by illegals who use stolen identities and Social Security numbers to file their
returns; only use of the ITIN was considered. This adjustment has the effect of
increasing the total cost of the program for illegals to $216 million in 2002.
Primary and Secondary Education. We allocate almost all of the federal
funds for public education by household based on the number of school-age
children in each household. The only exceptions are programs designed to assist
schools that have a large number of children whose parents are migrants and
those funds that specifically go to children with limited English. For programs
designed specifically to improve the education of low-income children whose
parents work in agriculture--mainly the Chapter I Migration Education Program --
we assign costs based on whether the household head works in agriculture and the
number of school age children in the household. To allocate federal funds for
children with limited English, we use the 2000 Census to calculate the share of
school-age children who reported that they spoke English less than very well.
The 2000 Census showed that 29.2 percent of school-age children in immigrant
households (legal and illegal) spoke English less than very well, compared to 2
percent of those in native households. We assume the same percentages existed in
2002 and assigned costs accordingly.
Uninsured. Research by Jack Hadley and John Holahan indicates that
federal expenditures for the uninsured totaled $21.03 billion in 2002.24
We exclude from this total the $3.98 billion estimated to have been spent by the
Department of Veterans Affairs on those without health insurance. (Illegals
cannot receive health care from the VA and veteran benefits of this kind are
treated as a pure public good in this analysis, so they are assigned only to
native households). This means that $17.05 billion was spent by the federal
government on the uninsured, not counting treatment from the VA. We then
allocate these costs to households based on the number of uninsured persons per
household.
INS, Federal Prisons, and Courts. We assign the net costs of the
Immigration and Naturalization Service (expenditures minus fees the service
collected), by household based on the distribution of immigrants (legal or
illegal) who indicated they arrived after 1980.25
It should be noted that not all of the net costs of the INS are attributable to
immigrant-headed households because some post-1980 immigrants live in native
households. We estimate that about 8 percent of post-1980 immigrants live in
households headed by natives and as such, native households account for 8
percent of the net costs of the INS.26 We do not
include costs for running the immigration functions of the Department of State
because this system is paid for by fees. As for the the federal prison system,
it keeps track of whether inmates are citizens of the United States or not. In
2002, nearly 29 percent, or 39,000 inmates in the federal prison system were
non-citizens. Based on prior research, we estimated that 59 percent of this
total are illegal aliens.27 This translates into 17
percent of the federal prison population and thus 17 percent of the $4.1 billion
prison budget can be attributed to illegal alien households. For the cost of
administering the federal court system, we again assume that 17 percent of the
costs are attributable to illegal households. This estimate is probably too low
because non-citizens in 2001, the last year for which data is available,
accounted for 38 percent of those arrested by federal agencies and 34 percent of
those actually convicted in federal courts.28 This
is significantly higher than the 29 percent of the prison population they
represent. Nonetheless, we assign only 17 percent of the $4.7 billion federal
court system budget to illegals in order to make our estimates more
conservative.29 As is the case for the federal
prison system, when later in this report we estimate costs for households headed
by legal immigrants we assume that 16 percent of the costs of the federal courts
are due to households headed by legal immigrants (naturalized and unnaturalized).
All Other Expenditures. Using the results from the methodology described
above, we are able to estimate almost $1.1 trillion in federal spending, or 58
percent of the primary budget. In addition to specific programs, we account for
$388.1 billion, or another 21 percent of the primary 2002 federal budget, that
went to spending on defense and non-means-tested veterans programs. As already
noted, only native households are assigned costs for defense and veterans
programs because they are assumed to be pure public goods and as such legal and
illegal immigrants impose no costs on these programs. The remaining $386
billion, or 21 percent of the primary budget, is assigned to all households
equally. This totals $3,115 per household. These expenditures include highway
and infrastructure maintenance, parts of the criminal justice system not
accounted for already, subsidies to business, state aid, and all other services
provided by the federal government. This is the same approach used by the NRC
and almost all studies of this kind. It should be noted that allocating costs
equally to all households may tend to underestimate the costs of illegals
because illegal households are 17 percent larger on average than other
households. All other things being equal, more people per household should mean
higher average expenses. But we ignore this and assign costs equally to all
households.
Adjustment for Under-Reporting in the CPS
Under-Reporting of Program Use. It is well established that respondents
tend to understate both their income and use of social services in the CPS. This
problem is well known by the Census Bureau and has been studied for some time.30
To correct for this problem, we adjust all social programs to reflect actual
federal expenditure. This is based on the assumption that immigrants and natives
are equally likely to under-report their use of social services. The NRC study
also seems to have controlled for this problem.31
Adjustments of this kind may tend to understate program use by immigrants
because they may be more reluctant to report use of means-tested programs in a
government survey than other members of society out of a fear that this might
constitute grounds for deportation. But we ignore this problem and assume that
under-reporting rates are the same for all persons. As mentioned earlier,
controlling all costs to actual expenditures has the added advantage of allowing
us to estimate the costs of illegals not counted in the CPS. In effect, those
who are counted are assigned costs for those who are missed by the survey. The
same is true for non-illegal aliens who are missed by the survey. This means our
cost estimates are for all illegals, even those the survey misses.
Under-Reporting of Income and Taxes. For tax payments, we adjust upward
the income tax estimates calculated by the Census Bureau to reflect actual tax
receipts. However, following the example of the Urban Institute in its study of
New York State, we do so only for households with incomes of over $200,000 a
year. This adjustment is based on the assumption that it is high-income
households who under-report their income. While the Urban Institute first
adjusted income for those with high income and then recalculated taxes, by
adjusting tax receipts our approach has the same effect. For Social Security, we
adjust payments for all taxpayers, not just those with high incomes, because
only the first $84,900 of earnings was subject to the tax in 2002. Thus,
under-reporting by high income earners does not matter. As is the case with
costs, controlling all tax payments to the actual tax totals received by the
federal government allows us to estimate the tax payments of illegals not
counted in the CPS. In effect, those who are counted are assigned costs for
those who are missed by the survey. The same is true for non-illegal aliens who
are missed by the survey. This means that our tax estimates for all illegal and
non-illegal households reflect the total taxes these populations pay, even those
not counted by survey.
1 The National Research Council report entitled, "The
New Americans: Economic, Demographic, and Fiscal Effects of Immigration" can be
ordered or read online at http://www.nap.edu/books/0309063566/html
2The Urban Institute study is entitled "Immigrants in
New York: Their Legal Status, Incomes, and Taxes," by Jeffrey S. Passel and
Rebecca L. Clark. A summary of the report can be found at
http://www.urban.org/url.cfm?ID=407432
3The Florida study was conducted by the University of
Florida and is entitled, "Facts about Immigration and Asking Six Big Questions
for Florida and Miami-Dade." Information about the study can be found at http://www.bebr.ufl.edu/Articles/bosmig.pdf.
The 1997 study of New Jersey is entitled "State and Local Fiscal Impacts of New
Jersey's Immigrant and Native Households," and can be found in the edited volume
"Keys to Successful Immigration: Implications of the New Jersey Experience,"
edited by Thomas J. Espenshade, Urban Institute Press. Washington DC. The Center
for Immigration Studies study is entitled "The Costs of Immigration: Assessing a
Conflicted Issue," by David Simcox, John Martin, and Rosemary Jenks.
4The survey is considered such an accurate source of
information on the foreign-born because, unlike the decennial census, each
household in the CPS receives an in-person interview from a Census Bureau
employee. The 217,000 persons in the Survey, 23,000 of whom are foreign born,
are weighted to reflect the actual size of the total U.S. population. However,
it must be remembered that some percentage of the foreign born (especially
illegal aliens) are missed by government surveys of this kind, thus the actual
size of this population is almost certainly larger. The CPS data used in this
study was provided by Unicon Research.
www.unicon.com
5This includes naturalized American citizens, legal
permanent residents (green card holders), illegal aliens, and people on
long-term temporary visas such as students or guest workers, but not those born
abroad of American parents.
6We supplement this data, where needed, with
estimates derived from the 2000 Census because the Census contains several
important pieces of information not found in the CPS, such as if a person speaks
English well. We use this data to apportion the costs of providing for students
who have limited English. The CPS, in contrast, does not ask a question about
language.
7 Tables from the OMB showing taxes collected by
source and year can be found at
http://www.whitehouse.gov/omb/budget/fy2004/hist.html
8 "Cash and Noncash Benefits for Persons with Limited
Income: Eligibility Rules, Recipient and Expenditure Data, FY2000-FY2002,"
November 25, 2003. RL32233. Complied by Vee Burke.
9 Federal expenditures on primary and secondary
education programs come from the Census Bureau report, "Federal Aid to States
for Fiscal Year 2002," which can be found at
http://www.census.gov/prod/2003pubs/fas02.pdf. Expenditures on Social
Insurance Programs (Social Security, Medicare, and Unemployment Compensation)
come from the OMB's web site,
http://www.whitehouse.gov/omb. Figures for non-citizens in federal prisons
come from the Federal Bureau of Prisons web site,
http://www.bop.gov/fact0598.html#Population. The INS 2002 budget comes from
the Department of Justice web site and can be found at:
www.usdoj.gov/jmd/budgetsummary/btd/1975_2002/2002/html/page104-108.htm
10 Since all of the costs are controlled to the
actual total taxes collected and total expenditures, our method has the effect
of controlling for the undercount of illegal aliens, legal immigrants, and even
natives.
11 The INS report that estimated seven million
illegals in 2000, with an annual increase of about 500,000, can be found at
http://uscis.gov/graphics/shared/aboutus/statistics/Illegals.htm. The
Census Bureau report with an estimate of eight million illegals in 2000 can be
found at
www.census.gov/dmd/www/ReportRec2.htm (Appendix A of Report 1 contains the
estimates). The Urban Institute is the only organization to release figures for
the size of the illegal population based on the CPS. Urban estimates that, in
March of 2002, 8.3 million illegal aliens were counted in the CPS, with an
additional one million being missed. Assuming continual growth in the CPS, there
were between 8.6 and 8.8 million in the March 2003 CPS. Urban's estimates based
on the March 2002 CPS can be found at
http://www.urban.org/url.cfm?ID=1000587. Additional information was provided
by Jeffery Passel of the Urban Institute in a May 24, 2004, telephone interview.
12 The fact that our results match those from the
Urban Institute is not an accident because the probabilities assigned to
variables such as citizenship status, year of arrival in the United States,
country of birth, or any of the other variables discussed above, are designed to
match the results of previous research in this area.
13 "The New Americans," pp. 255-256.
14 "Keys to Successful Immigration: Implications of
the New Jersey
Experience," p. 143.
15 The NBER paper, authored by David E. Weinstein
and Donald R. Davis, can be found at
www.columbia.edu/~drd28/Migration.pdf.
16Actual taxes collected by source can be found at
OMB's web site,
http://www.whitehouse.gov/omb
17 A detailed discussion of how the Census Bureau
estimates tax payment can be found in Census paper P60-186RD, "Measuring the
Effect of Benefits and Taxes on Income and Poverty: 1992."
18 In the case of Social Security, estimated tax
payments from the Census Bureau are roughly doubled to reflect employer
contributions.
19 See David North and Marion F. Houstoun,
"Characteristics and Role of Illegal Aliens in the U.S. Labor Market," 1976,
Washington, D.C.: Linton and Co.; and Louis Rea and Richard Parker, "Illegal
Immigration in San Diego Country: An Analysis of Costs and Revenues," 1992.
Report to the California State Senate Special Committee on Border
Issues.
20 "Immigrants in New York: Their Legal Status,
Incomes, and Taxes;" "Undocumented Immigrants in New Jersey: Numbers, Impacts
and Policies" in "Keys to Successful Immigration: Implications of the New Jersey
Experience." Edited by Thomas Espenshade, 1997, Washington, D.C.: Urban
Institute Press.
21 Although the CPS does not specifically ask about
the breakfast program, we assign costs for this program to households based on
use of the lunch program.
22 The Treasury Department Inspector General for Tax
Administration report, # 2004-30-023, can be found at
http://www.treas.gov/tigta/2004reports/200430023fr-redacted.html
23 There are two ways an illegal alien could have a
Social Security number that allows him to file a return and get the EITC: First,
a stolen or otherwise aquired number and matching name from someone authorized
to work in the United States. Second, some illegal aliens have been issued
Social Security numbers. This can include illegal aliens who have an application
pending with the immigration service, such as asylum applicants. Even thought
the individual is illegally in the country and the application has only a small
chance of ever being approved, some are still given work authorization. As IRS
publication 596 states (page 6), Social Security numbers that are "Valid for
Work only with INS authorization" can receive the EITC. The person need not be a
legal resident of the United States. While it is unknown how many illegal
immigrants have illegally acquired Social Security numbers, the number is likely
to be significant. If roughly half of the 5.7 million illegals in the 2003 CPS
who hold jobs are paid on the books, then this means that roughly three million
illegals have provided employers with a SSN or perhaps an Individual Taxpayer
Identification Number (ITIN) that was accepted. The ITIN is not supposed to be
used by employers to pay payroll taxes, but this restriction may not be
completely enforced.
24 In a February 2003 study in Health Affairs, which
can be found at
http://www.healthaffairs.org, Hadley and Holahan estimated that the federal
government spent $19.9 billion for the uninsured in 2001. An updated study for
the Kaiser Family Foundation, which can be found at
http://www.kff.org, estimated the figure was $23.5 billion in 2004. To
estimate costs in 2002, we assume a constant rate of growth of 5.7 percent
between 2001 and 2004, meaning that federal expenditures totaled $21.03 billion
in 2002. Hadley and Holahan's two studies indicate that care provided directly
by the federal government, such as the VA, increased at an annual rate of 2.4
percent. As a result, we estimate that veterans expenditures in 2002 were $3.98
billion.
25 This is based on the assumption that the costs of
administering the INS in 2002 were due to the presence of immigrants in the
country either as legal immigrants who need a variety of services or as illegal
aliens who are the subject of enforcement.
26 We also use statistics for the Coast Guard
interdiction program which can be found at
http://www.uscg.mil/CG_2004_html/goals.html#migrant
27 According to the Justice Department, non-citizens
comprised 28.8 percent of the federal prison population in 2002. Figures can be
found at
http://www.bop.gov/fact0598.html#Citizenship. An unpublished paper by
Rebecca Clark and Scott Anderson from the Urban Institute, entitled "Illegal
Aliens in Federal, State, and Local Criminal Justice Systems," indicated that 57
percent of non-citizens in 1996 were illegal aliens and the share was increasing
by 0.4 percentage points a year in the mid-1990s. Thus, by 2002, about 59
percent of non-citizens were likely illegal aliens. This means that 23,000
(22,978), or 17 percent, of the federal prison population were illegals. When
later in this report we estimate costs for households headed by legal immigrants
we assume that 11.8 percent (28.8 percent - 17 percent) of non-citizens in
federal prisons are legal immigrants, and 4.5 percent of the federal prison
population are naturalized U.S. citizens, which is their share of the nation's
total population. This means that 16 percent of federal prisoners are legal
immigrants (naturalized and unnaturalized).
28 Information on those in federal courts can be
found in the Compendium of Federal Justice Statistics:
http://www.ojp.usdoj.gov/bjs/abstract/cfjs01.htm
29 The costs of the federal court system can be
found at
http://www.uscourts.gov/ttb/mar03ttb/budget.html
30 See Appendix F in "Measuring the Effect of
Benefits and Taxes on Income and Poverty: 1992" from the U.S. Census Bureau for
a discussion of under-reporting of income and receipt of redistribution
programs.
31 Footnote 32 on page 278 of the NRC report
indicates that households that received redistribution programs like Social
Security are identified in the CPS and then assigned the average benefit level.
This would seem to control for under-reporting.
Findings
Demographic Overview
Characteristics of Illegal Households. Table 1 reports demographic
information for households headed by illegal immigrants and all other
households. Not surprisingly, it shows that on average households headed by
illegal aliens have much lower average incomes and are somewhat larger in size
than the average household in America. The lower income reflects not simply
their legal status, but more importantly the fact that such a large share of
illegals have little formal education. An estimated two-thirds of illegals who
are household heads lack a high school diploma. This is important because it
means that even if the illegal aliens were legal residents, their income still
would be dramatically lower than the rest of the population. There is no single
better predictor of income in the modern American economy than one's education
level. As a result, a large share of illegals are likely to remain poor even if
given legal status. Table 1 also shows the share of households in which at least
one person works. A much larger share of illegal households had at least one
person working in 2002 than non-illegal households. Thus, any costs associated
with illegal aliens do not reflect low rates of employment.
Illegal Household Use of Services. The lower portion of Table 1 shows the
percentage of illegal households receiving Social Security and means-tested
programs. There are very large differences in program usage between illegals and
the rest of the population. Just as important, illegals' use of different types
of programs vary enormously. Only a tiny fraction of illegal households use
Social Security or cash welfare programs compared to other households. One
source of public dissatisfaction with illegal immigration is that some Americans
believe that many illegal aliens are getting cash welfare payments. Table 1
shows that this is not the case. However, the share using Medicaid and food
assistance welfare programs is quite high and substantially more than the share
of non-illegal households.
It must be remembered that, for the most part, illegal households using programs
like free school lunch or Medicaid are receiving these benefits on behalf of
U.S.-born children, who under current law are awarded citizenship at birth. Of
course, the costs of providing services to these children are very real for
taxpayers and result from illegals having been allowed to enter and stay in the
country. And having the federal government feed or provide medical care to their
children is an enormous benefit to illegal aliens. Thus, in considering the
consequences for public coffers, counting the costs of these programs is
necessary, otherwise one would gain a very false sense of illegal immigration's
present costs. Nonetheless, the fact that it is the U.S.-born children receiving
the benefits is still important, because it means that barring illegals from
using programs would not significantly reduce costs. Their citizen children
would continue to receive them. On the other hand, if the illegal families were
made to return home, the costs would be eliminated.
Estimated Tax Payments
Payroll Taxes. Table 2 shows a breakdown of the estimated tax payments
and services used by illegal alien-headed households. (More details about
illegals' payment of specific taxes and use of specific programs use can be
found in the Appendix on p. 39.) In terms of tax payments, the table shows very
large differences between illegal households and other residents. The largest
difference is in federal income taxes. Illegal households pay only about
one-fifth as much as other households. This is not surprising given their much
lower incomes and larger family size. By design, households with modest incomes
and large size are supposed to pay relatively little in taxes. This, coupled
with the fact that only a little over half of illegals make payroll
contributions, is the reason their payments are very low relative to other
taxpayers. For taxes other than income tax, the difference between illegal
households and all others is not quite as large. Because Medicare and
unemployment are more regressive in nature than federal income tax, the
contribution of illegals for these two taxes is about 37 percent that of other
households' contributions. And for Social Security, which is even more
regressive, illegals pay 40 percent of the average household's contribution.
It must be remembered that tax payments in the table are based on the assumption
that only 55 percent of illegals pay payroll taxes, comprised of income tax,
Social Security, Medicare, and unemployment insurance. If all of their income
were subjected to taxation, illegals' tax payments would rise significantly. Of
course, if they paid all of their payroll tax liability, this would imply that
they have legal status, which would also dramatically increase use of public
services. This issue will be discussed later in this report.
Excise and Other Taxes. For excise and estate taxes, which are the most
regressive, illegals pay 55 percent as much as other tax payers. In Table 2,
estate and excise taxes are grouped together. Because illegals are very young on
average, they pay very little in estate taxes. If only excise taxes are
considered, the average tax payment of illegal households is 69 percent that of
all households. Thus, there are significant differences in the relative size of
payments illegals make to the various programs. The more regressive the tax, the
closer the relative payments of illegal households are to the rest of the
population. While the tax payments made by illegal aliens are much smaller on
average than those of other households, illegals still do pay billions of
dollars in taxes to Washington. In 2002, illegal households paid a total of
nearly $16 billion to the federal government. The far right column in Table 2
shows that illegal alien tax payments constitute about 0.9 percent of all taxes
collected. Because persons in illegal households constitute 3.6 percent of the
nation's total population, their tax payments are clearly less than their
representation in the population as a whole. This fact by itself does not mean
that they create a fiscal deficit, because the net effect of illegal households
on public coffers also depends on their use of public services, which is
discussed below.
Costs by Household
Social Security and Medicare. The lower half of Table 2 reports the
estimated costs illegals impose on public coffers. The table shows that, in
general, illegal households use much less in almost every type of service. In
the case of Social Security and Medicare, illegal households use about
one-twentieth as much as other households. And they account for less than
two-tenths of 1 percent of the total cost of these very large programs.
Moreover, it is also clear that illegals pay substantially more in Social
Security and Medicare than they use, creating a net benefit for these two
programs of over $1,800 a year per illegal alien household. This calculation
actually understates the benefit illegals create for the trust funds of these
two programs because Table 2 includes costs for Medicare part B, which is paid
for by general funds. If only Medicare part A (the part of Medicare covered by
the trust fund) and Social Security are considered, illegal households create a
net benefit well in excess of $7 billion dollars a year for the trust funds of
these two programs.
Welfare Programs. Table 2 shows that illegal households receive much less
in cash assistance welfare programs. As already discussed, persons in illegal
households comprise 3.6 percent of the total population, but their use of cash
welfare accounts for 0.3 percent of costs for these programs. For food
assistance programs, however, illegal households actually receive more of this
type of program than non-illegal households, accounting for 5.6 percent of
federal costs for these programs. This is mainly due to heavy use of the WIC and
school lunch programs. For Medicaid, illegals receive less than other
households, but their use of this very expensive program is still significant.
It's worth noting that although Table 1 showed a larger share of illegal
households using Medicaid, figures in Table 2 show that on average they receive
a lower payment. This mainly reflects the fact that it is typically only the
U.S.-born children in the illegal households who are on Medicaid, while in other
households with low incomes both parents and children can qualify for the
program. Table 2 also shows that illegal use is much lower for all other welfare
programs. But the table still shows that illegal households do use these
programs to some extent.
Other Transfers to Households. For other transfers to households, the
$442 illegal households are estimated to receive is about half of what
non-illegal households get and certainly much less than their share of the total
population. The programs included under this category are listed at the bottom
of the table. Eligibility and use vary a great deal. For example, illegal aliens
who work in the United States illegally are explicitly allowed to receive the
Additional Child Tax Credit, which pays out a total of $5 billion a year to
low-income workers with children. On the other hand, programs such as student
loans can only be used by the tiny number of citizen children in illegal
households who are enrolled in college. As is the case with most means-tested
programs, illegals use considerably less than other households, but their use is
not zero. Overall, illegal households account for less than 2 percent of the
costs of these programs.
Prisons, Schools, the Uninsured, and Immigration. There are four areas
where the estimated costs illegal households impose are much larger than for
other households--treatment for the uninsured, federal aid to schools, federal
prisons/courts, and the immigration system. Figures for the uninsured simply
reflect the fact that such a large share of illegal aliens and their children
lack health insurance. With more than half of persons in illegal households
lacking health coverage, illegal households account for a very large share of
the costs of treating the uninsured. As for schools, although they are primarily
paid for by state and local governments, the federal government now provides
more than $28 billion for primary and secondary education. Moreover, Washington
gives schools some assistance in paying for children with limited English and
for the children of agricultural workers. Not surprisingly, illegal households
account for a disproportionate share of these programs. Illegal households
impose very significant costs on the federal education budget, however, mainly
because illegal households have more school-age children on average. The costs
for the federal prison and court system are also significant because, although
persons in illegal households account for about 3.6 percent of the nation's
total population, illegals now account for almost one-fifth of those in federal
prison and others processed by the federal courts. Thus, they impose costs on
that system that are disproportionally high relative to their share of the total
population. This is also true for the immigration system. As indicated in the
methodology section, the costs of the immigration system are assigned based on
the distribution by household of post-1980 non-citizens. This probably
understates the costs of illegals to the immigration system because enforcement
alone, which is directed specifically at illegal aliens, accounts for two-thirds
of the immigration budget. Nonetheless, it is certainly not surprising that
illegal aliens account for a large share of the costs of the immigration system
because so much of that system is focused specifically on them.
Balance of Tax and Cost
Illegals Create Large Net Costs. The bottom portion of Table 2 adds
together the total tax payments and costs illegals impose on the federal budget.
When defense spending is not considered, illegal households are estimated to
impose costs on the federal treasury of $6,949 a year or 58 percent of what
other households received. When defense spending is included, their costs are
only 46 percent those of other households. However, they pay only 28 percent as
much in taxes as non-illegal households. As a result, the estimated net cost per
illegal household was $2,736. Whether one sees this fiscal deficit as resulting
from low tax payments or heavy use of services is a matter of perspective. As
already discussed, illegal households comprise 3.6 percent of the total
population, but as Table 2 shows they account for an estimated 0.9 percent of
taxes paid and 1.4 percent of costs. Thus, both their payments and costs are
significantly less than their share of the total population. Since they use so
much less in federal services than other households, it probably makes the most
sense to see the fiscal deficit as resulting from low tax payments rather than
heavy use of public services.
Total Deficit Created by Illegals. If the estimated net fiscal drain of
$2,736 a year that each illegal household imposes on the federal treasury is
multiplied by the nearly three million illegal households, the total cost comes
to $10.4 billion a year. Whether one considers this to be a large sum or not is,
of course, a matter of perspective. But, this figure is unambiguously negative
and certainly not trivial. It is also worth remembering that these figures are
only for the federal government and do not include any costs at the state or
local level, where the impact is likely to be significant.
The Fiscal Implications of
Amnesty
So far we have only considered the current fiscal impact of illegal alien
households. In the following section we run two different simulations to
estimate what would happen if illegal aliens in the United States were
legalized. We assume that any amnesty that passes Congress will have Legal
Permanent Residence (LPR, colloquilly known as a "green card") as a component.
It is true that President Bush's amnesty proposal in January 2004 envisioned
temporary worker status for illegal aliens. At present, however, every major
legalization bill in Congress provides illegals with LPR status at some point in
the process. Moreover, because Republicans are divided between those favoring
enforcement of immigration laws and those who want an amnesty, any legalization
must have significant Democratic support to pass. But Democrats have made clear
than they can only support an amnesty that gives permanent residence. While a
two-step legalization -- one that grants temporary status before permanent
residence -- is certainly possible, such a system would still result in permanent
residence. Politically, it seems almost certain that any amnesty that actually
passes Congress will award LPR status to illegals. But even if one makes the
very unlikely assumption that an amnesty will be a pure guestworker program, the
net fiscal deficit imposed by illegals indicates that unskilled workers who are
not permanent residents still create large fiscal costs. As we have seen, this
is partly because of their U.S.-born children, partly because like all people
they necessarily place some demands on government, and partly because their
low-income results in very low tax payments. All these things would still be
true of unskilled guest workers.
General Impact of Amnesty. It is important to consider the likely
outcomes of any amnesty: First, there should be a significant increase in tax
compliance. (In the simulations below we assume that compliance rises from 55
percent to 100 percent.) Second, the average income of illegals should rise, as
they would be freer to make decisions about employment and less likely to be
exploited by employers. Third, use of public services will increase as the
now-legal immigrants are eligible for many services from which they were barred
as illegals. The actual size of these changes and their impact on the fiscal
bottom line are explored below. It is also very important to realize that, if
legalized, illegal aliens would not simply become just like legal immigrants in
general because illegals are much less educated on average than legal
immigrants. To run our legalization simulations we use the characteristics of
illegals who are household heads and then assume that if they were legalized,
they would pay taxes and use services like legal immigrant households headed by
persons with the same characteristics.
Simulation One. We first report the education levels and country of birth
of illegal households based on the education and country of the household head.
Figure 1 reports the Mexican and non-Mexican share by education level of the
illegal alien population. We divide illegals by their education level because,
as already discussed, the single most important determinant of one's income, and
thus service use and tax payments, is education. This was one of the most
important conclusions of the aforementioned NRC study. We further divide them by
whether they are Mexican because all research, including this report, indicates
that about 60 percent of illegals are from that country. Moreover, the NRC study
found significant differences between households headed by Latin American
immigrants and those from the rest of the world. Figure 1 reports the
distribution of illegal alien household heads by their educational attainment
and if they are Mexican. We then assume that if illegals were legalized they
would use services and pay taxes like all legal immigrants with the same
characteristics.32
Simulation Two. In the second simulation we again divide the illegal
population by education and whether they are Mexican, but this time we assume
that they would pay taxes and use services like legal immigrants who arrived in
1986 or after. That is, we again use the results from Figure 1 and assume that
if legalized, they would use services and pay taxes like legal immigrants who
have the same characteristics, but have arrived since 1986. The reason we assume
that they would be like post-1986 legal immigrants is that illegals themselves
are almost all post-1986 arrivals, the year the last amnesty for illegals was
passed. Illegals are much more like recently arrived legal immigrants then they
are like legal immigrants in general, who are older and have higher income but
also use programs like Social Security. In addition, we exclude persons from the
main refugee-sending countries because it is well established that refugees have
the highest rates of public benefit receipt of any group of immigrants. These
countries include: Poland, the former Yugoslavia, the Former Soviet Union,
Afghanistan, Cambodia, Iraq, Laos, Vietnam, Nicaragua, Cuba, and Ethiopia. This
second simulation is probably the most plausible.
Fiscal Impact of Legal Immigrants. Table 3 shows estimated federal taxes
paid and services used in 2002 for legal immigrant households by education level
and whether a person is from Mexico. The left side of the table is the basis for
Simulation 1 and shows all legal immigrants regardless of when they arrived; the
right side of the table shows the same figures for post-1986 non-refugees. One
interesting finding of the table is that estimated tax payments are higher for
all categories of legal immigrant households than the roughly $4,200 paid by
illegal households in Table 2. The only exception is for post-1986 Mexicans
without a high school education. Thus, those who contend that legalization would
increase tax revenues are probably correct. Almost every category of legal
immigrant pays more in taxes than do illegal households. Unfortunately, the
table also shows that, in every case, total federal costs are also higher than
the roughly $6,900 a year reported for illegal households in Table 2. Thus,
those who are concerned that legalization would increase costs are also almost
certainly correct.
(Click on Table for
a larger version)
As expected, Table 3 shows that there is very wide variation in public service
use and tax payments between groups. Overall service use and tax payments by
household closely correlates with education levels of household heads. In both
simulations, those with more than a high school degree are a large net fiscal
benefit to the federal government, while those with only a high school education
or less are a net fiscal drain. This is true whether the legal immigrant is from
Mexico or not. It is also true whether one considers all legal immigrants or
only post-1986 non-refugees. The difference between immigrants by education is
truly enormous. For example, looking at households headed by post-1986
non-refugees, a legal immigrant without a high school degree creates a fiscal
deficit on the federal government of more than $15,000 a year if he is Mexican
and almost $11,000 if he is from the rest of the world. Conversely, for those
with more than a high school degree, the benefit is over $5,000 a year if they
are Mexican and more than $12,000 for non-Mexicans. The same pattern holds when
all immigrant households are considered, regardless of year of arrival. Without
question, the education level of legal immigrants is a key determinant of their
fiscal impact. However, being from Mexico seems to matter as well.
Legalization Would Dramatically Increase Costs. Using the education
levels and the share that is Mexican found in Figure 1 and combining them with
the results from Table 3, we can then estimate the likely impact of
legalization. Table 4 reports the estimated federal taxes paid and services used
by legalized illegal alien households assuming they would pay taxes and use
services like households headed by legal immigrants with the same
characteristics. The first simulation assumes that illegals would pay federal
taxes and use services like all legal immigrants with the same education level,
regardless of when they arrived, while the second simulation assumes that they
would have the impact of post-1986 legal non-refugee immigrants. Both
simulations show that legalization would increase the net fiscal costs
dramatically. Simulation 1 shows that the net fiscal costs to the federal
government would increase from $2,736 to $6,022 per household. Simulation 2
shows the net fiscal cost would be even larger, increasing to $7,668 per
household. Although net costs rise, estimated tax payments increase dramatically
with legalization. They more than double in Simulation 1 and increase by 77
percent in Simulation 2. However, costs rise significantly as well. In both
cases costs more than double, creating an average net fiscal deficit per
household that is significantly more than that estimated for illegal alien
households.
Interestingly, total costs per household are roughly the same in both
simulations. In Simulation 1, legal immigrants are making significantly more use
of Social Security and Medicare, while in Simulation 2 use of welfare,
education, and other transfers to households are much higher. This reflects the
different age structure of post-1986 immigrants compared to all immigrants. In
effect, one can see Simulation 2 as the more immediate impact of a legalization,
while Simulation 1 reflects the likely fiscal impact of legalized aliens in the
long term. Either way, the results indicate that legalization would cause the
net fiscal burden on taxpayers to increase substantially. It should be noted
that, although legalization would substantially increase costs, this does not
mean that legal immigrants overall are net drain on the federal government. It
also worth noting that if only the relatively small share of illegal aliens with
more than a high school degree were legalized, then there would be no fiscal
deficit. But since so many illegals have only a high school degree or less,
legalizing all illegals would create a large fiscal deficit.
Would Welfare Reform Hold Down Amnesty Costs? In 1996, Congress passed
the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA),
which barred some legal immigrants who arrived after 1996 from using certain
welfare programs. Since many legal immigrants used in Simulation 2 to estimate
the costs of amnesty arrived before 1996, perhaps our estimates overstate the
costs, at least with regard to welfare programs. Table 5 provides a detailed
breakdown by program for all of the costs estimated in this study. The table
shows that legalization under Simulation 2 would increase costs by a total of
$8,173 per household. (The same total found in Table 4) Of that increase,
$5,588, or about 68 percent, is the result of increased costs due to cash
payments from TANF, SSI, and in-kind benefits received from food stamps and
Medicaid, the four main programs covered by PRWORA. While certainly a large
share of the costs, it still leaves an increase of $2,585 per household in non-PRWORA
covered programs.
More importantly, analysis of the CPS shows that households headed by recently
arrived legal immigrants actually do make significant use of these welfare
programs. Table 6 reports estimated use of these four programs for households
headed by legal immigrants from Mexico and the rest of the world, excluding
refugee countries. The table shows that, in 2002, households headed by a legal
immigrant from Mexico who arrived in 1996 or later and who lacks a high degree
received $7,900 on average from these four programs and those with only a high
school degree received $3,817.33 For post-1996
households headed by legal non-refugees from countries other than Mexico without
a high school degree, the figure is $5,464 per household, and for those with
only a high school degree the figure is $2,462. By contrast, the figure for
illegal aliens is only $860 per household.
Table 6 also shows that if we assume that illegal households, once legalized,
would use welfare like non-refugee legal immigrants who arrived in 1996 or later
with the same education, then welfare costs would be $5,430 per household, very
similar to the $5,588 in Simulation 2. It must be remembered that, as originally
shown in Table 3, legal immigrants with little education make very extensive use
of welfare programs because their incomes are very low and because they receive
these programs on behalf of their U.S.-born children. This is especially true
for Medicaid, by far the costliest program. Welfare reform has not changed these
basic facts. Given this reality, it is very difficult to see how a dramatic rise
in welfare costs could be avoided if there was a legalization.
Amnesty Would Increase Incomes. Although the net fiscal burden would
increase dramatically as a result of a legalization, this does not mean that the
income of illegals would remain unchanged. Table 4 shows a dramatic increase in
payroll taxes and this partly reflects increases in household income that would
occur if illegals were legalized. In fact, analysis shows that whether they are
Mexican or not and no matter what their educational attainment, legalization
would significantly increase the income of illegal aliens. Figure 2 reports the
estimated income of legalized illegal households under Simulations 1 and 2. Like
the estimates in Table 4, they are based on the assumption that, if legalized,
illegal households would have average incomes like their legal counterparts
controlling for whether the household head is Mexican and for education levels.
Under Simulation 1, their income would be 29 percent higher, and under
Simulation 2 incomes are 15 percent higher. Of course, the much higher incomes
in Simulation 1 partly reflect the longer time that all immigrants have lived in
the United States and not simply the fact that they have legal status. But
Simulation 2 shows that even when analysis is confined to more recent arrivals,
incomes still increase substantially. While our overall conclusion indicates
that legalization would increase fiscal costs, perhaps the improvement in the
income and economic well being of illegal households could be used to justify
legalization. Certainly, Figure 2 indicates illegals would likely benefit
significantly from obtaining legal status.
Comparisons to Other Studies
There is always some uncertainty associated with any fiscal estimate of
immigrants, especially illegal aliens. However, the overall results of this
study are consistent with other work that has looked at this question.
NRC Study. As mentioned at the beginning of this report, the 1997 study
by the National Research Council (NRC) is probably the most sophisticated report
ever to examine the impact of immigration on public coffers in the United
States. While that report did not consider the legal status of immigrants, it
did divide immigrants by education. The overall findings of that report showed
that the education level of immigrants was critically important in determining
their income, tax payments, service use, and resulting net fiscal impact. They
found that during his lifetime an immigrant without a high school education
imposed a net fiscal drain on taxpayers of $89,000; for those with only a high
school degree it was $31,000. The NRC study also found that for those immigrants
with more than a high school degree the fiscal benefit was $105,000. While we
report estimates for only legal immigrants for a single year, our analysis by
education found in Table 3 is strongly supported by the NRC's findings.
Urban Institute Study of New York State. One of the few studies to
specifically estimate illegal immigrant tax payments at the federal level by
household was done by the Urban Institute in 1998. That study used the CPS to
estimate 1994 tax payments for illegal households in New York State, including
some federal taxes. Although our study is designed to measure the fiscal impact
of immigration at the national level, we ran separate estimates for federal tax
payments for illegal-headed households in New York State so we could compare
them to those of the Urban Institute. The Urban Institute only examined federal
income tax, Social Security, and unemployment insurance, and we did the same. We
estimated that the average illegal household in New York State paid $5,538 in
these three taxes in 2002, compared to $4,568 estimated for tax year 1994 by the
Urban Institute. Adjusted for inflation between 1994 and 2002, this is $5,463 or
only 1.4 percent less than our estimate for 2002.34
Of course, illegal immigration to New York State and the federal tax code has
changed since 1994. Nonetheless, our average estimates are very similar to those
developed by the Urban Institute when adjusted for inflation.
Treasury Department Report. The results of our study are also buttressed
by an analysis of illegal alien tax returns done by the Inspector General's
Office of the Department of Treasury in 2004.35
That study found that 55 percent of illegal aliens who filed income tax returns
using tax identification numbers had no federal income tax liability. While
higher than the 45 percent estimated in this study, it must be remembered that
this figure was only for those who filed tax returns using a tax identification
number. These are all individuals who expected refunds, otherwise they would not
have gone to the trouble of getting tax identification numbers and filing a
return. But like our estimates, the Inspector General's report indicates that
roughly half of illegals have no tax liability, reflecting their very low
incomes and large number of dependents.
32 Although we included them in the costs for
non-illegal households in Table 2, we exclude costs for the small number of
federal programs that specifically aid refugees because if legalized, illegals
should not access these programs.
33 These recently arrived unskilled legal
immigrants are relatively small in number and so the survey should be
interpreted with some caution, but in the case of both Mexicans and
non-Mexicans, use of welfare programs by recently arrived unskilled immigrants
(excluding refugees) is quite high.
34 Table 6 on page 103 of the Urban Institute study
has the estimates by type of tax.
35 The Inspector General's Office of the Department
of the Treasury report # 2004-30-023 can be found at
http://www.treas.gov/tigta/2004reports/200430023fr-redacted.html
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