How the Senate Immigration Bill Shreds the Deficit

Photograph by Dan Herrick

The Congressional Budget Office has determined that the Senate’s immigration-reform bill, as currently written, will cut the deficit by $197 billion (PDF) over the next decade and by about $700 billion by 2033. If passed, the bill would further eat into what’s already a rapidly shrinking budget deficit.

Immigration reform remains a fraught topic, but the economic impact of providing legal status to many of the country’s 11 million undocumented foreign workers would be hugely positive, based on the CBO’s projections. Real gross domestic product would increase by 3.3 percent in 2023 and 5.4 percent in 2033 as a result of the current legislation. Though the bill would increase federal spending by about $262 billion, the government would collect an additional $459 billion in income and payroll taxes because current undocumented workers would begin paying taxes.

The official labor force would grow by about 3.5 percent (6 million people) over the next decade and by 5 percent (9 million people) by 2033—a nice boost to what’s been a fairly stagnant pool over the last few years. The bill would increase the U.S. population by 3 percent (10 million people) over the next decade, and 4 percent (16 million) over the next two decades. That’s not counting the roughly 8 million currently undocumented people that the CBO estimates would be granted legal status. That’s 3 percent more new people.

One of the biggest boosts to the economy would come from the increase in highly-skilled foreign workers. The Senate bill would “significantly increase the annual cap” on temporary visas for highly skilled workers—those with H-1B visas. That’s good news, considering how quickly the supply of those visas get maxed out every year and how big the demand is.

The issue of wages is a little more complicated. Initially, the bill would lower average wages by .1 percent, mostly because low-skilled undocumented workers who’ve been in the shadows for years would suddenly appear on the books. By 2033, though, the CBO estimates the bill would boost wages by .5 percent.

Along with cutting the deficit, the Senate bill would also help immigrants’ ability to close the wage gap with native-born workers, the pace of which has stalled over the past 40 years. According to a new paper by Harvard economist George Borjas,  immigrants who came to the U.S. from 1975 to 1979 arrived making about 31 percent less than U.S. born workers of comparable age. After 20 years, they had cut the gap nearly in half, to roughly 18 percent.

This pace of “economic assimilation” has flattened out over successive generations; among the most recent wave of immigrants, it’s actually going in reverse. Those who arrived in the 1980s have reduced the wage gap by about 20 percent, while those who arrived in the past decade have seen no wage increases, relative to natives. In fact, data suggest they’re now losing ground.

There are a lot of reasons for this. One of the biggest factors, however, appears to be the rising share of foreign-born workers who are in the U.S. illegally. According to Jeffrey Passel, a demographer at the Pew Hispanic Center, in the 1970s there were very few undocumented workers in the U.S.; their numbers were negligible, compared to the overall foreign-born population with legal status. By 1980, there were about 3 million illegal immigrants in the U.S., accounting for about 20 percent of the total foreign-born population. Today, the 11 million undocumented workers make up about 27 percent of the total foreign-born population. Granting them legal status should go a long way toward helping them close that gap: They will likely gain in labor skills, move out of their immigrant enclaves, and probably boost their English proficiency.

All in all, the CBO report offers an interesting conundrum for House Republicans, many of whom are staunchly against any form of amnesty but also deeply favor reducing the federal budget deficit. What happens when one helps achieve the other? If the Senate manages to pass the bill, we’ll find out when it moves to the House.

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