Immigrants Provide Huge Benefits To U.S. Taxpayers
Compelling new research finds immigrants, including those with less than a high school degree, provide enormous fiscal benefits and a significant subsidy to U.S. taxpayers. The research has implications for legislation to admit more employment-based immigrants and immigration more broadly.
The most well-regarded fiscal estimates have found immigrants are a net positive for taxpayers. However, some of those estimates concluded that immigrants with less than a high school degree were not, on average, net contributors to government coffers. (Note: A group can be economically beneficial, such as by increasing the supply of productive labor and performing tasks that make others more productive, even if not a net tax contributor.) New research corrects a flaw in earlier analyses that underestimated the fiscal benefits of immigrants, including immigrants with less than a high school degree.
Economist Michael Clemens, a senior fellow at the Center for Global Development and an economics professor at George Mason University, has produced new fiscal estimates on the impact of immigrants likely to change the way economists analyze the entry of immigrants for tax and budget purposes.
In a paper for the Centre for Research and Analysis of Migration at University College London, Clemens notes the most influential method “simply counts the direct fiscal flows to and from individual immigrants by education level.” He points out this method “omits substantial indirect, dynamic effects of immigration.”
Clemens makes a “simple adjustment” to these estimates. The adjustment? “It is to include conservative estimates of tax revenue from capital income caused by an immigrant worker’s presence in the economy.” (Emphasis added.)
“Omitting tax revenue from capital contradicts economic theory if the firms that employ immigrants are profit-maximizing,” according to Clemens. “Intuitively, after a firm has set its demand for labor and capital to maximize profits, suppose it raises its labor demand by one to hire an immigrant. Without general-equilibrium shifts in prices or productivity, this increase in labor demand would by definition reduce profits if it occurred without also hiring capital—such as buying an additional computer or renting additional retail space for the worker to use.”
Economist Mark Regets, a senior fellow at the National Foundation for American Policy, agrees with the Clemens approach. “It makes sense that employers would invest in computers, machines and office space when hiring new immigrant workers. That profit-maximizing behavior by companies after hiring the additional immigrant workers would result in additional taxes paid and tax revenue received by governments.”
An average recent immigrant without a high school degree causes a lifetime positive net fiscal balance of $128,000 using the proper measure, according to Clemens. “Including the expected children and grandchildren of the average immigrant without a high school degree, the lifetime positive net fiscal effect is $326,000.” (Emphasis added.)
Clemens explains that by omitting capital tax revenue, an estimate by Blau et al. in 2017—produced as part of a National Academy of Sciences panel—underestimates the positive impact of an average recent immigrant without a high school degree by $381,000. In other words, without taking into account capital tax revenue, Blau et al. had concluded the average immigrant without a high school degree had a (negative) fiscal impact of -$109,000, rather than a positive fiscal impact of $128,000. (Overall, the National Academy of Sciences fiscal estimates on immigrants and their descendants are positive.)
The new fiscal estimate—and approach—by Michael Clemens has relevance to the policy debate over immigration. First, Clemens finds that the entry of individuals without a high school degree is a fiscal boon to natives. Individuals with less education are often a target of immigration critics. In a different study, Clemens found the entry of refugees and asylees are also a net positive for U.S. taxpayers. He concluded in a report that the Trump administration reducing refugee admissions cost the U.S. economy more than $9 billion a year and cost governments at all levels $2 billion a year.
Second, the Congressional Budget Office (CBO) concluded in July 2022 that an amendment on green cards for individuals with Ph.D.s in science and engineering would cost $1 billion over 10 years. As a result, the amendment was not added to the FY 2023 defense authorization bill.
Analysts were puzzled how CBO had reached the $1 billion cost estimate. The new fiscal estimates and approach by Michael Clemens would further call into question the CBO finding that the entry of immigrants, particularly highly educated immigrants, would create a fiscal burden for American taxpayers.