Category: Economics


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1)      Overview of QHP Landscape files
This website contains plan information for states in Federally-Facilitated and State-Partnership Marketplaces.
·         Medical plans in the individual market;
·         Medical plans in the small group (SHOP) market;
·         Dental plans in the individual market; and
·         Dental plans in the small group (SHOP) market.
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To browse for a plan by specific data fields, click on the icon at the top of the column for a specific field of interest such as state, county, or metal level.  For example, to select a specific county of interest, select the county name from the drop-down menu in the second column and click “OK” when done. The file will filter the data and show plan information only for the selected county.   Multiple data fields may also be selected for browsing at one time.
3)      Premium Information
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The document shows premiums for the following example rating scenarios below:
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·         Adult Individual Age 50 (column I) = one adult age 50
·         Family  (column J) = two adults age 30, two children
·         Single Parent Family (column K) = one adult age 30, two children
·         Couple (column L) = two adults age 40, no children
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Note:  This document includes data from plans in the Federally-facilitated and State-Partnership Marketplaces. Those data were pulled from the Health Insurance Oversight System (HIOS) for Federally-facilitated states, and from the System for Electronic and Rate Form Filing (SERFF) for the partnership states.  They are current as of September 27, 2013, and are subject to change. For counties in Alaska and Nebraska, the premium rates shown are for the rating area within that county with the highest population.  For counties in all other states, the premiums shown are for all persons residing in that county. The premium amounts do not include tax credits that will lower premiums for the majority of those applying, specifically those with income up to 400 percent of the federal poverty level.

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Senate Judiciary Committee Passes Gang of Eight Bill, 13-to-5

Tuesday, May 21, 2013, 10:19 PM EDT

The Senate Judiciary Committee completed its markup of the Gang of Eight’s amnesty bill, S.744, this evening, approving the bill 13-to-5. Three Republicans, including Gang of Eight members Senators Jeff Flake and Lindsey Graham along with Sen. Orrin Hatch voted with the Democratic majority. While the Committee did approve several bipartisan amendments, all amendments to increase the enforcement provisions or reduce the future flow of legal immigration were rejected.

The Gang of Eight was able to win the support of Sen. Hatch in the final hours of the markup after agreeing to accept a package of his amendments. The amendments removed many of the safeguards for American tech workers in the bill, giving tech companies more flexibility when applying for H-1B visas.

In the final day, the Committee rejected an attempt from Sen. Ted Cruz that would prevent illegal aliens from receiving green cards and a number of amendments from Republicans that would have prevented amnesited illegal aliens from receiving welfare beneifts while in Registered Provisional Immigrant Status. The Gang of Eight remained unified throughout the five days of markups in defeating most amendments.

“Ironically, the only promise the sponsors of this legislation have kept is their promise to block any attempts to improve the proposal,” Sen. Jeff Sessions said. “As a result, we are left with legislation that is fundamentally unchanged and fatally flawed. It will not become law… Amendments offered by Republicans to put enforcement first were all rejected…

“A second immigration enforcement union–United States Citizenship and Immigration Services–has also come out against the bill, warning: “like the ICE Council, the USCIS Council was not consulted in the crafting of the Gang of Eight’s legislation…

“What about the promise that illegal aliens would not be eligible for federal benefits? In just the last 24 hours, this committee has rejected three amendments–including two I offered–to prevent illegal aliens from getting means-tested financial assistance.”

The bill will now move the Senate floor for debate. The timing of the floor debate and vote are still uncertain.

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Gang of Eight 2013 CA MARCH

GOP Senator Preserves Loophole Giving Illegal Immigrants Immediate Welfare Access

“… Sen. Jeff Flake (R-AZ) backed down from a previous promise his spokeswoman made to Breitbart News that he would consider voting in favor of amendments to the Senate’s immigration bill that would close a loophole allowing illegal immigrants immediate access to state and local welfare.

When Sen. Ted Cruz (R-TX) actually offered an amendment that would close the loophole during Tuesday’s Senate Judiciary Committee markup of the bill, Flake joined Sen. Lindsey Graham (R-SC) and all the committee Democrats in opposing the amendment.

As Breitbart News has previously detailed, Senate Budget Committee ranking member Sen. Jeff Sessions (R-AL) found a loophole in the immigration bill that would allow illegal immigrants access to state and local welfare immediately and would allow them access to federal benefits sooner than Gang of Eight members had publicly promised…

Flake’s and Graham’s fellow Judiciary Committee member Sen. Chuck Schumer (D-NY) was caught on a hot mic Monday organizing votes for amendments to the legislation, referring to Flake and Graham as GOP senators who belong to him and the Democrats. “Do our Republicans have a pass on this one if they want?” Schumer said as the committee was voting on an amendment that would prevent illegal immigrants from gaining access to the Earned Income Tax Credit (EITC)…”

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Where does the Census Bureau say we’re heading by 2060?

We will have 459 million Americans, not counting illegal aliens. This is an increase of more than 200 million, the vast majority of which is due to immigrants and their offspring. This is a future which does not have to happen! But the U.S. Census Bureau says the projections on this chart are inevitable UNLESS Congress cuts immigration. The chart shows the U.S. Census Bureau’s middle-range projection of how much additional population will be forced into the United States if current immigration and fertility levels continue. The Census Bureau has at least 10 projections based on low, middle and high figures for each of the categories of fertility rate, mortality rate and immigration. The middle-range projection shown here is considered the most likely scenario if conditions remain similar to what they are now.

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Who were the more than 90 million people added to the United States since 1970?

Most were immigrants.

There were 203 million people living in the U.S. in 1970 — we’ll call them “1970-stock Americans.” Births to that population have exceeded their deaths, resulting in the growth illustrated in the green block.  The green shows how much growth the U.S. would have had since 1970 if the number of immigrants arriving each year was the same as the number of Americans permanently moving away (currently that is an estimated 225,000). That is known as “replacement-level immigration.”

The red block shows the population growth cause by immigration policies of the U.S. government. It accounts for more than half of population growth since 1970. Although its frontiers were declared closed a century ago, the United States today is adding population at a numerical level just under the phenomenal Baby Boom, which far exceeded all other periods of U.S. population growth.

Why is their natural population growth (as shown by the green area), even though birth rates have fallen below replacement levels?

Well, it takes decades for a country’s population to stabilize after women adopt a family size that is on average 2.1 children. Their children have to finish having their children. Those children have to have their babies and the original mothers have to die off before full stabilization occurs.

A country that wants to stabilize its population has to start around 70 years in advance if fertility drops only to the 2.1 replacement level. Americans have had fertility since 1972 that is somewhat below replacement level. So stabilization could occur a bit sooner.

But even during the 70-year wait for stabilization, a country is able to enjoy substantially reduced population growth. That means the country can enjoy the resulting lowered demands for expanded infrastructure and mass urban development of farmland and natural habitat.

Americans, however, can enjoy none of that, thanks to Congress and its incredible increase in immigration. If the chart had been started at any other date in U.S. history, wouldn’t it have looked very similar? No. The last quarter century has been a unique period in U.S. demographic history.

Any other quarter-century slice would show the green –not the red– as the majority of population growth. And not other period except for the Baby Boom (1946-64) would show anywhere close to this much total growth. At no other time in this country, have recent immigrants and their children (the red block) dominated population growth.

That has many political and sociological ramifications. It means that for the first time in U.S. history when Americans are asked to raise taxes or pay higher prices to provide additional schools, roads, cleaner air, etc., they are asked to do so not for the additional population and conditions they are creating but for the sake primarily of foreign-born residents and their children.

The majority of all new additional infrastructure needs over the past quarter century are the result of Washington’s immigration policies. Thus, the costs Americans are asked to cover are ones that Congress (through immigration policies), and not American families (through their fertility), have created.

What is meant by “Total U.S. population”?

The circled numbers represent the U.S. Population in millions. The top line of the chart represents the total population of the United States each year. In 1970, the U.S. population was about 203 million. Today it has surpassed 293 million.

These numbers come from the U.S. Bureau of the Census which counted the residents of the country in 1970, 1980, 1990, 2000 and a revised projection done by the Census in 2002. All other years are estimated by the Census Bureau based on what was learned in the previous Census, on targeted surveys done each year and on other projection devices.

Does the red block include illegal aliens?

No. The bar graph counts only the annual number of legal immigrants. If illegal aliens could be accurately counted and included, it is likely that the 1966-89 period would be revealed as being even more disparate from earlier eras. Illegal immigration is believed to be far higher during recent decades than in the past.

The Census Bureau estimates there are 8 million illegal immigrants currently in the U.S. On annual illegal immigration, the Center for Immigration Studies has extrapolated the latest Census data to show that 700,000 to 800,000 new illegal aliens are settling each year. Now, far, far more than that enter illegally each year, but there is a lot of back and forth. The 700,000 to 800,000 represents illegals who truly settle in for at least a couple of years, and usually much, much longer. .

Why do these charts start at the 203-million level?

These charts are about growth. They are not about the total U.S. population — except tangentially — but about any additional growth in that population.

Astute chart readers are conditioned to raise questions when they see charts that start somewhere other than at zero. By picking a starting point proportionately far above zero, a chartmaker may be able to distort the impression of the information being portrayed.

But that is not what is happening here. Because these charts are about population growth — and because there were 203 million people in this country in 1970 — they reveal only the U.S. population above 203 million.

While the 203 million people who are not shown here play a role in plans for roads, schools, parks, sewers and other infrastructure, it is the addition of residents that creates the greatest challenges. These charts focus on the millions of people who are being added to the roads, schools, parks, and laborforce.

This information comes from the U.S. Bureau of the Census. To find similar population growth in foreign countries, we must look to the Third World. Although its frontiers were declared closed a century ago, the United States today is adding population at a numerical level just under the phenomenal Baby Boom, which far exceeded all other periods of U.S. population growth.

Why do these charts start at 1970?

The era since 1970 has been a unique period of American history. It is the only time that the federal government and the American people have moved in opposite directions in creating the country’s demographic future: The American people have chosen family sizes that allow for a stablized U.S. population; the federal government has chosen policies to force never-ending U.S. population growth.

The year 1970 is around the time of several great changes in America:

1. It was around 1970 — the year of the first Earth Day — when the American people made a collective commitment to stop squandering their environmental resources and to restore the natural world within their nation’s borders to a healthy and sustainable quality. Major laws were passed and agencies established to see that the environmental goals were met. The American people and U.S. companies spent billions of dollars to meet the goals.

2. It was around 1970 that most environmental experts began to agree that it would be difficult for the nation to reach its environmental goals without stabilizing its population at a level not too much higher than the 203 million with which the country began the decade.

3. Although no official population goal was set, a bi-partisan presidential-congressional commission recommended moving toward a stable population to meet environmental, economic and social goals that had been adopted during the Johnson and Nixon administrations.

4. In 1972, the American people — fresh from a historic Baby Boom — lowered their fertility to “replacement level.” Ever since, American fertility has been low enough to allow the population size eventually to stabilize.

5. It was around 1970 that the number of legal immigrants allowed into the country began to rise rapidly as a result of a change in the law back in 1965.

Since 1970, there have been two contradictory blueprints for the nation’s population future:

THE PEOPLE’S BLUEPRINT: The American people since just after 1970 have adopted behaviors and attitudes that — on their own — would move the nation toward a stabilized population size. Through millions of individual and highly personal choices, Americans have adopted on average a family size of two or fewer children while telling pollsters they want a stabilized national population.

WASHINGTON’S BLUEPRINT Since just before 1970, each Congress and each President has adopted a policy allowing immigration far in excess of traditional levels and moving the nation toward constant population increases.

The charts on these pages show how these conflicting visions have affected the demographic direction of the United States. As a Census year, 1970 offers the most logical starting point for measurement. By starting the charts at 1970, we measure what has happened since around the beginning of the era in which the majority of individual Americans in one way or another embraced population stabilization as a goal.

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Our Lost Future

The green section of the graphic below is the future that millions of Americans began to create in the early 1970s when they decided — on average — to have families at replacement size (about two children per family). But the red shows the extra population Congress added through above-replacement-level immigration.

You can see that if Congress had allowed immigration at replacement-level numbers since 1970 to match the American people’s replacement-level fertility, we would be living much less congested lives today. U.S. population would never have risen as high as it already is today. We would have to be building schools, roads, houses and infrastructure at a far slower pace.

But the green on this graphic is a future that has been forever destroyed by Congress through its decisions to dramatically increase immigration numbers to force mass U.S. population growth at an unprecedented level.

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The Fiscal Cost of Unlawful Immigrants and Amnesty to the U.S. Taxpayer

Executive Summary

Unlawful immigration and amnesty for current unlawful immigrants can pose large fiscal costs for U.S. taxpayers. Government provides four types of benefits and services that are relevant to this issue:

  • Direct benefits. These include Social Security, Medicare, unemployment insurance, and workers’ compensation.
  • Means-tested welfare benefits. There are over 80 of these programs which, at a cost of nearly $900 billion per year, provide cash, food, housing, medical, and other services to roughly 100 million low-income Americans. Major programs include Medicaid, food stamps, the refundable Earned Income Tax Credit, public housing, Supplemental Security Income, and Temporary Assistance for Needy Families.
  • Public education. At a cost of $12,300 per pupil per year, these services are largely free or heavily subsidized for low-income parents.
  • Population-based services. Police, fire, highways, parks, and similar services, as the National Academy of Sciences determined in its study of the fiscal costs of immigration, generally have to expand as new immigrants enter a community; someone has to bear the cost of that expansion.

The cost of these governmental services is far larger than many people imagine. For example, in 2010, the average U.S. household received $31,584 in government benefits and services in these four categories.

The governmental system is highly redistributive. Well-educated households tend to be net tax contributors: The taxes they pay exceed the direct and means-tested benefits, education, and population-based services they receive. For example, in 2010, in the whole U.S. population, households with college-educated heads, on average, received $24,839 in government benefits while paying $54,089 in taxes. The average college-educated household thus generated a fiscal surplus of $29,250 that government used to finance benefits for other households.

Other households are net tax consumers: The benefits they receive exceed the taxes they pay. These households generate a “fiscal deficit” that must be financed by taxes from other households or by government borrowing. For example, in 2010, in the U.S. population as a whole, households headed by persons without a high school degree, on average, received $46,582 in government benefits while paying only $11,469 in taxes. This generated an average fiscal deficit (benefits received minus taxes paid) of $35,113.

The high deficits of poorly educated households are important in the amnesty debate because the typical unlawful immigrant has only a 10th-grade education. Half of unlawful immigrant households are headed by an individual with less than a high school degree, and another 25 percent of household heads have only a high school degree.

Some argue that the deficit figures for poorly educated households in the general population are not relevant for immigrants. Many believe, for example, that lawful immigrants use little welfare. In reality, lawful immigrant households receive significantly more welfare, on average, than U.S.-born households. Overall, the fiscal deficits or surpluses for lawful immigrant households are the same as or higher than those for U.S.-born households with the same education level. Poorly educated households, whether immigrant or U.S.-born, receive far more in government benefits than they pay in taxes.

In contrast to lawful immigrants, unlawful immigrants at present do not have access to means-tested welfare, Social Security, or Medicare. This does not mean, however, that they do not receive government benefits and services. Children in unlawful immigrant households receive heavily subsidized public education. Many unlawful immigrants have U.S.-born children; these children are currently eligible for the full range of government welfare and medical benefits. And, of course, when unlawful immigrants live in a community, they use roads, parks, sewers, police, and fire protection; these services must expand to cover the added population or there will be “congestion” effects that lead to a decline in service quality.

In 2010, the average unlawful immigrant household received around $24,721 in government benefits and services while paying some $10,334 in taxes. This generated an average annual fiscal deficit (benefits received minus taxes paid) of around $14,387 per household. This cost had to be borne by U.S. taxpayers. Amnesty would provide unlawful households with access to over 80 means-tested welfare programs, Obamacare, Social Security, and Medicare. The fiscal deficit for each household would soar.

If enacted, amnesty would be implemented in phases. During the first or interim phase (which is likely to last 13 years), unlawful immigrants would be given lawful status but would be denied access to means-tested welfare and Obamacare. Most analysts assume that roughly half of unlawful immigrants work “off the books” and therefore do not pay income or FICA taxes. During the interim phase, these “off the books” workers would have a strong incentive to move to “on the books” employment. In addition, their wages would likely go up as they sought jobs in a more open environment. As a result, during the interim period, tax payments would rise and the average fiscal deficit among former unlawful immigrant households would fall.

After 13 years, unlawful immigrants would become eligible for means-tested welfare and Obamacare. At that point or shortly thereafter, former unlawful immigrant households would likely begin to receive government benefits at the same rate as lawful immigrant households of the same education level. As a result, government spending and fiscal deficits would increase dramatically.

The final phase of amnesty is retirement. Unlawful immigrants are not currently eligible for Social Security and Medicare, but under amnesty they would become so. The cost of this change would be very large indeed.

  • As noted, at the current time (before amnesty), the average unlawful immigrant household has a net deficit (benefits received minus taxes paid) of $14,387 per household.
  • During the interim phase immediately after amnesty, tax payments would increase more than government benefits, and the average fiscal deficit for former unlawful immigrant households would fall to $11,455.
  • At the end of the interim period, unlawful immigrants would become eligible for means-tested welfare and medical subsidies under Obamacare. Average benefits would rise to $43,900 per household; tax payments would remain around $16,000; the average fiscal deficit (benefits minus taxes) would be about $28,000 per household.
  • Amnesty would also raise retirement costs by making unlawful immigrants eligible for Social Security and Medicare, resulting in a net fiscal deficit of around $22,700 per retired amnesty recipient per year.

In terms of public policy and government deficits, an important figure is the aggregate annual deficit for all unlawful immigrant households. This equals the total benefits and services received by all unlawful immigrant households minus the total taxes paid by those households.

  • Under current law, all unlawful immigrant households together have an aggregate annual deficit of around $54.5 billion.
  • In the interim phase (roughly the first 13 years after amnesty), the aggregate annual deficit would fall to $43.4 billion.
  • At the end of the interim phase, former unlawful immigrant households would become fully eligible for means-tested welfare and health care benefits under the Affordable Care Act. The aggregate annual deficit would soar to around $106 billion.
  • In the retirement phase, the annual aggregate deficit would be around $160 billion. It would slowly decline as former unlawful immigrants gradually expire.

These costs would have to be borne by already overburdened U.S. taxpayers. (All figures are in 2010 dollars.)

The typical unlawful immigrant is 34 years old. After amnesty, this individual will receive government benefits, on average, for 50 years. Restricting access to benefits for the first 13 years after amnesty therefore has only a marginal impact on long-term costs.

If amnesty is enacted, the average adult unlawful immigrant would receive $592,000 more in government benefits over the course of his remaining lifetime than he would pay in taxes.

Over a lifetime, the former unlawful immigrants together would receive $9.4 trillion in government benefits and services and pay $3.1 trillion in taxes. They would generate a lifetime fiscal deficit (total benefits minus total taxes) of $6.3 trillion. (All figures are in constant 2010 dollars.) This should be considered a minimum estimate. It probably understates real future costs because it undercounts the number of unlawful immigrants and dependents who will actually receive amnesty and underestimates significantly the future growth in welfare and medical benefits.

The debate about the fiscal consequences of unlawful and low-skill immigration is hampered by a number of misconceptions. Few lawmakers really understand the current size of government and the scope of redistribution. The fact that the average household gets $31,600 in government benefits each year is a shock. The fact that a household headed by an individual with less than a high school degree gets $46,600 is a bigger one.

Many conservatives believe that if an individual has a job and works hard, he will inevitably be a net tax contributor (paying more in taxes than he takes in benefits). In our society, this has not been true for a very long time. Similarly, many believe that unlawful immigrants work more than other groups. This is also not true. The employment rate for non-elderly adult unlawful immigrants is about the same as it is for the general population.

Many policymakers also believe that because unlawful immigrants are comparatively young, they will help relieve the fiscal strains of an aging society. Regrettably, this is not true. At every stage of the life cycle, unlawful immigrants, on average, generate fiscal deficits (benefits exceed taxes). Unlawful immigrants, on average, are always tax consumers; they never once generate a “fiscal surplus” that can be used to pay for government benefits elsewhere in society. This situation obviously will get much worse after amnesty.

Many policymakers believe that after amnesty, unlawful immigrants will help make Social Security solvent. It is true that unlawful immigrants currently pay FICA taxes and would pay more after amnesty, but with average earnings of $24,800 per year, the typical unlawful immigrant will pay only about $3,700 per year in FICA taxes. After retirement, that individual is likely to draw more than $3.00 in Social Security and Medicare (adjusted for inflation) for every dollar in FICA taxes he has paid.

Moreover, taxes and benefits must be viewed holistically. It is a mistake to look at the Social Security trust fund in isolation. If an individual pays $3,700 per year into the Social Security trust fund but simultaneously draws a net $25,000 per year (benefits minus taxes) out of general government revenue, the solvency of government has not improved.

Following amnesty, the fiscal costs of former unlawful immigrant households will be roughly the same as those of lawful immigrant and non-immigrant households with the same level of education. Because U.S. government policy is highly redistributive, those costs are very large. Those who claim that amnesty will not create a large fiscal burden are simply in a state of denial concerning the underlying redistributional nature of government policy in the 21st century.

Finally, some argue that it does not matter whether unlawful immigrants create a fiscal deficit of $6.3 trillion because their children will make up for these costs. This is not true. Even if all the children of unlawful immigrants graduated from college, they would be hard-pressed to pay back $6.3 trillion in costs over their lifetimes.

Of course, not all the children of unlawful immigrants will graduate from college. Data on intergenerational social mobility show that, although the children of unlawful immigrants will have substantially better educational outcomes than their parents, these achievements will have limits. Only 13 percent are likely to graduate from college, for example. Because of this, the children, on average, are not likely to become net tax contributors. The children of unlawful immigrants are likely to remain a net fiscal burden on U.S. taxpayers, although a far smaller burden than their parents.

A final problem is that unlawful immigration appears to depress the wages of low-skill U.S.-born and lawful immigrant workers by 10 percent, or $2,300, per year. Unlawful immigration also probably drives many of our most vulnerable U.S.-born workers out of the labor force entirely. Unlawful immigration thus makes it harder for the least advantaged U.S. citizens to share in the American dream. This is wrong; public policy should support the interests of those who have a right to be here, not those who have broken our laws.

Introduction

Each year, families and individuals pay taxes to the government and receive back a wide variety of services and benefits. A fiscal deficit occurs when the benefits and services received by one group exceed the taxes paid. When such a deficit occurs, other groups must pay for the services and benefits of the group in deficit. Each year, therefore, government is involved in a large-scale economic transfer of resources between different social groups.

Fiscal distribution analysis measures the distribution of total government benefits and taxes in society. It provides an assessment of the magnitude of government transfers between groups.

This paper provides a fiscal distribution analysis of households headed by unlawful immigrants: individuals who reside in the U.S. in violation of federal law. The paper measures the total government benefits and services received by unlawful immigrant households and the total taxes paid. The difference between benefits received and taxes paid represents the total resources transferred by government on behalf of unlawful immigrants from the rest of society.

Identifying the Unlawful Immigrant Population

The U.S. Department of Homeland Security (DHS) estimates that there were 11.5 million undocumented, or unlawful, foreign-born persons in the U.S. in January 2011.[1] These estimates are based on the fact that the number of foreign-born persons appearing in U.S. Census surveys is considerably greater than the actual number of foreign-born persons who are permitted to reside lawfully in the U.S. according to immigration records.

For example, in January 2011, some 31.95 million foreign-born persons (who arrived in the country after 1980) appeared in the annual Census survey, but the corresponding number of lawful foreign-born residents in that year (according to government administrative records) was only 21.6 million.[2] DHS estimates that the difference—some 10.35 million foreign-born persons appearing in the Census American Community Survey (ACS)—was comprised of unauthorized or unlawful residents. DHS further estimates that an additional 1.15 million unlawful immigrants resided in the U.S. but did not appear in the Census survey, for a total of 11.5 million unlawful residents.[3]

DHS employs a “residual” method to determine the characteristics of the unlawful immigrant population. First, immigration records are used to determine the gender, age, country of origin, and time of entry of all foreign-born lawful residents. Foreign-born persons with these characteristics are subtracted from the total foreign-born population in Census records; the leftover, or “residual,” foreign-born population is assumed to be unlawful. This procedure enables DHS to estimate the age, gender, country of origin, date of entry, and current U.S. state of residence of the unlawful immigrant population in the U.S.

The current Heritage Foundation study uses the DHS reports on the characteristics of unlawful immigrants to identify in the Current Population Survey (CPS) of the U.S. Census a population of foreign-born persons who have a very high probability of being unlawful immigrants.[4] (The Current Population Survey is used in place of the similar American Community Survey because it has more detailed income and benefit information.)

The procedures used to identify unlawful immigrants in the CPS are similar to those used in studies of the unlawful immigrant population produced by the Pew Hispanic Center, the Center for Immigration Studies, and the Migration Policy Institute. Selection procedures included the following:

  1. The unlawful immigrant population identified in the CPS matched as closely as possible the age, gender, country of origin, year of arrival, and state of residence of the unlawful immigrant population identified by DHS.
  2. Foreign-born persons who were current or former members of the armed forces of the U.S. or current employees of federal, state, and local governments were assumed to be lawful residents.
  3. Since it is unlawful for unlawful immigrants to receive government benefits such as Social Security, Medicare, Medicaid, and public housing, individuals reporting personal receipt of such benefits were assumed to be lawfully resident.
  4. Principles of consistency were applied within families; for example, children of lawful residents were assumed to be lawful.

Additional information on the procedures used to identify unlawful immigrants in the CPS is provided in Appendix B. It should also be noted that the Heritage Foundation analysis matched the DHS figures as closely as possible.[5]

The characteristics of the unlawful immigrant population estimated for the present analysis are shown in text Table 1. In 2010, there were 11.5 million unlawful immigrants in the U.S. Some 10.34 million of these appeared in the annual Current Population Survey and were identified by the residual method described above. Following the DHS estimate, an additional 1.15 million unlawful immigrants were assumed to reside in the U.S. but not to appear in Census surveys.

Immigration Costs 2013 - Table 1

As Table 1 shows, 84 percent of unlawful immigrants came from Mexico, the Caribbean, and Central or South America; 11 percent came from Asia; and 5 percent came from the rest of the world. Unlawful immigrants were almost equally split by gender: 54 percent were males, and 46 percent were females.

Characteristics of Unlawful Immigrants and Unlawful Immigrant Households

Any analysis of the fiscal costs of unlawful immigration must deal with the fact that a great many unlawful immigrants are parents of U.S.-born children. For example, the Pew Hispanic Center estimates that in 2010, there were 5.5 million children residing in the U.S. who have unlawful immigrant parents. Among these children, some 1 million were born abroad and were brought into the U.S. unlawfully; the remaining 4.5 million were born in the U.S. and are treated under law as U.S. citizens. Overall, some 8 percent of the children born in the U.S. each year have unlawful immigrant parents.[6]

The presence of these 4 million native-born children with unlawful immigrant parents is a direct result of unlawful immigration. These children would not reside in the U.S. if their parents had not chosen to enter and remain in the nation unlawfully. Obviously, any analysis of the fiscal cost of unlawful immigration must therefore include the costs associated with these children, because those costs are a direct and inevitable result of the unlawful immigration of the parents. The costs would not exist in the absence of unlawful immigration.

To address that issue, the present study analyzes the fiscal costs of all households headed by unlawful immigrants. (Throughout this study, the terms “households headed by an unlawful immigrant” and “unlawful immigrant households” are used synonymously.)

In 2010, 3.44 million such households appeared in the CPS. These households contained 12.7 million persons including 7.4 million adults and 5.3 million children. Among the children, some 930,000 were unlawful immigrants, and 4.4 million were native-born or lawful immigrants.[7]

Immigration Costs 2013 - Table 2

Table 2 shows the characteristics of unlawful immigrant households in comparison to non-immigrant and lawful immigrant households. Unlawful immigrant households are larger than other households, with an average of 3.7 persons per household compared to 2.5 persons in non-immigrant households.[8]

Unlawful immigrant households have more wage earners per household: 1.6 compared to 1.2 among non-immigrant households. However, the average earnings per worker are dramatically lower in unlawful immigrant households: $24,791 per worker compared to $43,413 in non-immigrant households. Contrary to conventional wisdom, non-elderly adult unlawful immigrants are not more likely to work than are similar non-immigrants.

The heads of unlawful immigrant households are younger, with a median age of 34 compared to 50 among non-immigrant householders. Partly because they are younger, unlawful immigrant households have more children, with an average of 1.6 children per household compared to 0.6 among non-immigrant households. The higher number of children tends to raise governmental costs among unlawful immigrant households. (Both lawful and unlawful children in unlawful immigrant households are eligible for public education, and the large number of children who were born in the U.S. are also eligible for means-tested welfare benefits such as food stamps, Medicaid, and Children’s Health Insurance Program benefits.)

By contrast, there are very few elderly persons in unlawful immigrant households. Only 1.1 percent of persons in those households are over 65 years of age compared to 13.7 percent of persons in non-immigrant households. The absence of elderly persons in unlawful immigrant households significantly reduces current government costs; however, if unlawful immigrants remain in the U.S. permanently, the number who are elderly will obviously increase significantly.

Unlawful immigrant households are far more likely to be poor. Over one-third of unlawful immigrant households have incomes below the federal poverty level compared to 18.8 percent of lawful immigrant households and 13.6 percent of non-immigrant households.

Education Level of Unlawful Immigrant Households

The low wage level of unlawful immigrant workers is a direct result of their low education levels. As Table 3 shows, half of unlawful immigrant households are headed by persons without a high school degree; more than 75 percent are headed by individuals with a high school degree or less. Only 10 percent of unlawful immigrant households are headed by college graduates. By contrast, among non-immigrant households, 9.6 percent are headed by persons without a high school degree, around 40 percent are headed by persons with a high school degree or less, and nearly one-third are headed by college graduates.

The current unlawful immigrant population thus contains a disproportionate share of poorly educated individuals. These individuals will tend to have low wages and pay comparatively little in taxes.

Immigration Costs 2013 - Table 3

There is a common misconception that the low education levels of recent immigrants are part of a permanent historical pattern and that the U.S. has always admitted immigrants who were poorly educated relative to the native-born population. Historically, this has not been the case. For example, in 1960, recent immigrants were no more likely than non-immigrants to lack a high school degree. By 1998, recent immigrants were almost four times more likely to lack a high school degree than were non-immigrants.[9]

As the relative education level of immigrants fell in recent decades, so did their relative wage levels. In 1960, the average immigrant male in the U.S. actually earned more than the average non-immigrant male. As the relative education levels of subsequent waves of immigrants fell, so did relative wages. By 1998, the average immigrant earned 23 percent less than the average non-immigrant earned.[10]

Aggregate Cost of Government Benefits and Services

Any analysis of the distribution of benefits and taxes within the U.S. population must begin with an accurate count of the cost of all benefits and services provided by the government. The size and cost of government is far larger than many people imagine. In fiscal year (FY) 2010, the expenditures of the federal government were $3.46 trillion. In the same year, expenditures of state and local governments were $1.94 trillion. The combined value of federal, state, and local expenditures in FY 2010 was $5.4 trillion.[11]

This sum is so large that it is difficult to comprehend. One way to grasp the size of government more readily is to calculate average expenditures per household. In 2010, there were 120.2 million households in the U.S.[12] (This figure includes both multi-person families and single persons living alone.) The average cost of government spending thus amounted to $44,932 per household across the U.S. population.[13]

The $5.4 trillion in government expenditure is not free; it must be paid for by taxing or borrowing economic resources from Americans or by borrowing from abroad. In FY 2010, federal taxes amounted to $2.12 trillion. State and local taxes and related revenues amounted to $1.98 trillion.[14] Together, federal, state, and local taxes amounted to $4.11 trillion. Taxes and related revenues came to 75 percent of the $5.4 trillion in expenditures. The gap between taxes and spending was financed by government borrowing.

Types of Government Expenditure

After the full cost of government benefits and services has been determined, the next step in analyzing the distribution of benefits and taxes is to determine the beneficiaries of specific government programs. Some programs, such as Social Security, neatly parcel out benefits to specific individuals. With programs such as these, it is relatively easy to determine the identity of the beneficiary and the cost of the benefit provided. On the other hand, other government functions such as highway construction do not neatly parcel out benefits to individuals. Determining the proper allocation of the benefits of that type of program is more complex.

To determine the distribution of government benefits and services, this study begins by dividing government expenditures into six categories: direct benefits, means-tested benefits, educational services, population-based services, interest and other financial obligations resulting from prior government activity, and pure public goods.

Direct Benefits. Direct benefit programs involve either cash transfers or the purchase of specific services for an individual. Unlike means-tested programs, direct benefit programs are not limited to low-income persons. By far the largest direct benefit programs are Social Security and Medicare. Other substantial direct benefit programs are unemployment insurance and workers’ compensation.

Direct benefit programs involve a fairly transparent transfer of economic resources. The benefits are parceled out discretely to individuals in the population; both the recipient and the cost of the benefit are relatively easy to determine. In the case of Social Security, the cost of the benefit would equal the value of the Social Security check plus the administrative costs involved in delivering the benefit.

Calculating the cost of Medicare services is more complex. Ordinarily, government does not seek to compute the particular medical services received by an individual. Instead, government counts the cost of Medicare for an individual as equal to the average per capita cost of Medicare services. (This number equals the total cost of Medicare services divided by the total number of recipients.[15]) Overall, government spent $1.33 trillion on direct benefits in FY 2010.

Means-Tested Benefits. Means-tested programs are typically termed welfare programs. Unlike direct benefits, means-tested programs are available only to households that fall below specific income thresholds. Means-tested welfare programs provide cash, food, housing, medical care, and social services to poor and low-income persons.

The federal government operates over 80 means-tested aid programs.[16] The largest are Medicaid; the Earned Income Tax Credit (EITC); food stamps; Supplemental Security Income (SSI); Section 8 housing; public housing; Temporary Assistance for Needy Families (TANF); school lunch and breakfast programs; the WIC (Women, Infants, and Children) nutrition program; and the Social Services Block Grant (SSBG). Many means-tested programs, such as SSI and the EITC, provide cash to recipients. Others, such as public housing or SSBG, pay for services that are provided to recipients.

The value of Medicaid benefits is usually counted much as the value of Medicare benefits is counted. Government does not attempt to itemize the specific medical services given to an individual; instead, it computes an average per capita cost of services to individuals in different beneficiary categories such as children, elderly persons, and disabled adults. (The average per capita cost for a particular group is determined by dividing the total expenditures on the group by the total number of beneficiaries in the group.) Overall, the U.S. spent $835 billion on means-tested aid in FY 2010.[17]

Public Education. Government provides primary, secondary, post-secondary, and vocational education to individuals. In most cases, the government pays directly for the cost of educational services provided. In other cases, such as the Pell Grant program, the government in effect provides money to an eligible individual who then spends it on educational services.

Education is the single largest component of state and local government spending, absorbing roughly a third of all state and local expenditures. The average cost of public primary and secondary education per pupil is now around $12,300 per year. Overall, federal, state, and local governments spent $758 billion on education in FY 2010.

Population-Based Services. Whereas direct benefits, means-tested benefits, and education services provide discrete benefits and services to particular individuals, population-based programs generally provide services to a whole group or community. Population-based expenditures include police and fire protection, courts, parks, sanitation, and food safety and health inspections. Another important population-based expenditure is transportation, especially roads and highways.

A key feature of population-based expenditures is that such programs generally need to expand as the population of a community expands. (This quality separates them from pure public goods.) For example, as the population of a community increases, the number of police and firefighters will generally need to expand proportionally.

In The New Americans, a study of the fiscal costs of immigration published by the National Academy of Sciences, the National Research Council (NRC) argued that if service remains fixed while the population increases, a program will become “congested,” and the quality of service for users will deteriorate. Thus, the NRC uses the term “congestible goods” to describe population-based services.[18] Highways are an obvious example. In general, the cost of population-based services can be allocated according to an individual’s estimated utilization of the service or at a flat per capita cost across the relevant population.

A subcategory of population-based services is government administrative support functions such as tax collections and legislative activities. Few taxpayers view tax collection as a government benefit; therefore, assigning the cost of this “benefit” appears to be problematic.

The solution to this dilemma is to conceptualize government activities into two categories: primary functions and secondary functions.

  • Primary functions provide benefits directly to the public; they include direct and means-tested benefits, education, ordinary population-based services such as police and parks, and public goods.
  • By contrast, secondary or support functions do not provide direct benefits to the public but do provide necessary support services that enable the government to perform primary functions. For example, no one can receive food stamp benefits unless the government first collects taxes to fund the program. Secondary functions can thus be considered an inherent part of the “cost of production” of primary functions, and the benefits of secondary support functions can be allocated among the population in proportion to the allocation of benefits from government primary functions.

Government spent $871 billion on population-based services in FY 2010. Of this amount, some $769.6 billion went for ordinary services such as police and parks, and $101.4 billion went for administrative support functions.

Interest and Other Financial Obligations Relating to Past Government Activities. Often, tax revenues are insufficient to pay for the full cost of government benefits and services. In that case, government will borrow money and accumulate debt. In subsequent years, interest payments must be paid to those who lent the government money. Interest payments for the government debt are in fact partial payments for past government benefits and services that were not fully paid for at the time of delivery.

Similarly, government employees deliver services to the public. Part of the cost of the service is paid for immediately through the employee’s salary, but government employees are also compensated by future retirement benefits. To a considerable degree, expenditures of public-sector retirement are therefore present payments in compensation for services delivered in the past. The expenditure category “interest and other financial obligations relating to past government activities” thus includes interest and principal payments on government debt and outlays for government employee retirement. Total government spending on these items equaled $533.3 billion in FY 2010.[19]

While direct benefits, means-tested benefits, public education, and population-based services will grow as more immigrants take up residence in the United States, this is not the case for interest payments on the debt and related costs. These costs were fixed by past government spending and borrowing and are largely unaffected, at least in the intermediate term, by immigrants’ entry into the United States. While an increased inflow of immigrants will lead to an increase in most forms of government spending, it will not cause an increase in interest payments on government debt in the short term.

To assess the fiscal impact of unlawful immigrants, therefore, the present report follows the procedures used by the National Research Council in The New Americans: That is, it ignores the costs of interest on the debt and similar financial obligations when calculating the net tax burden imposed by lawful and unlawful immigrant households.[20]

On the other hand, while unlawful immigrant households do not increase government debt immediately, such households will, on average, increase government debt significantly over the long term. For example, if an unlawful immigrant household generated a net fiscal deficit (benefits received minus taxes paid) of $20,000 per year and roughly 20 percent of that amount was financed each year by government borrowing, then the immigrant household would be responsible for adding roughly $4,000 to government debt each year. After 50 years, the family’s contribution to growth in government debt would be around $200,000. While these potential costs are significant, they are outside the scope of the current paper and are not included in the calculations presented here.

Pure Public Goods. Economic theory distinguishes between “private consumption goods” and pure public goods. Economist Paul Samuelson is credited with first making this distinction. In his seminal 1954 paper “The Pure Theory of Public Expenditure,”[21] Samuelson defined a pure public good (or what he called a “collective consumption good”) as a good “which all enjoy in common in the sense that each individual’s consumption of such a good leads to no subtractions from any other individual’s consumption of that good.” By contrast, a “private consumption good” is a good that “can be parceled out among different individuals.” Its use by one person precludes or diminishes its use by another.

A classic example of a pure public good is a lighthouse: The fact that one ship perceives the warning beacon does not diminish the usefulness of the lighthouse to other ships. Another clear example of a governmental pure public good would be a future cure for cancer produced by government-funded research: The fact that non-taxpayers would benefit from this discovery would neither diminish its benefit nor add extra costs to taxpayers. By contrast, an obvious example of a private consumption good is a hamburger: When one person eats it, it cannot be eaten by others.

Direct benefits, means-tested benefits, and education services are private consumption goods in the sense that the use of a benefit or service by one person precludes or limits the use of that same benefit by another. (Two people cannot cash the same Social Security check.) Population-based services such as parks and highways are often mentioned as “public goods,” but they are not pure public goods in the strict sense described above. In most cases, as the number of persons using a population-based service (such as highways and parks) increases, the service must either expand (at added cost to taxpayers) or become “congested,” in which case its quality will be reduced. Consequently, use of population-based services such as police and fire departments by non-taxpayers does impose significant extra costs on taxpayers.

Government pure public goods are rare; they include scientific research, defense, spending on veterans, international affairs, and some environmental protection activities such as the preservation of endangered species. Each of these functions generally meets the criterion that the benefits received by non-taxpayers do not result in a loss of utility for taxpayers. Government pure public good expenditures on these functions equaled $978 billion in FY 2010. Interest payments on government debt and related costs resulting from public good spending in previous years add an estimated additional cost of $93.5 billion, bringing the total public goods cost in FY 2010 to $1,071.5 billion.

An immigrant’s entry into the country neither increases the size and cost of public goods nor decreases the utility of those goods to taxpayers. In contrast to direct benefits, means-tested benefits, public education, and population-based services, the fact that unlawful and low-skill immigrant households may benefit from public goods that they do not pay for does not add to the net tax burden on other taxpayers.

This report therefore follows the same methods employed by the National Research Council in The New Americans and excludes public goods from the count of benefits received by unlawful immigrant households.[22] (For a further discussion of pure public goods, see Appendix G.)

Immigration Costs 2013 - Table 4

Summary: Total Expenditures. As Table 4 shows, overall government spending in FY 2010 came to $5.40 trillion. Direct benefits had an average cost of $11,088 per household across the whole population, while means-tested benefits had an average cost of $6,944 per household. Education benefits and population-based services cost $6,304 and $7,249 per household, respectively. Interest payments on government debt and other costs relating to past government activities cost $4,436 per household. Pure public good expenditures comprised 20 percent of all government spending and had an average cost of $8,912 per household.

Excluding spending on public goods, interest on the debt, and related financial obligations, total spending came to $31,584 per household across the entire population.

Taxes and Revenues

Total taxes and revenues for federal, state, and local governments amounted to $4.107 trillion in FY 2010. The federal government received $2.12 trillion in revenue, while state and local governments received $1.98 trillion.

A detailed breakdown of federal, state, and local taxes is provided in Appendix Tables 6 and 7. The biggest revenue generator was the federal income tax, which cost taxpayers $899 billion in 2010, followed by Federal Insurance Contribution Act (FICA) taxes, which raised $812 billion. Property tax was the biggest revenue producer at the state and local levels, generating $442 billion, while general sales taxes gathered $285 billion.

Over 90 percent of the revenues shown in Appendix Tables 6 and 7 are conventional taxes and revenues; the remaining 9 percent ($449 billion) are earnings from government assets, primarily assets held in state and local government employee pension funds. About one-quarter of these revenues were used to fund current retirement benefits; the rest were accumulated for future use.

Unlike general taxes, these earnings are not mandatory transfers from the population to the government, but rather represent an economic return on assets the government owns or controls. Because they do not represent payments made by households to the government, these earnings are not included in the fiscal balance analysis presented in the body of this paper. If they were included, they would alter the fiscal balance of current government retirees; therefore, they are irrelevant to the main topic of this paper: the fiscal balance of unlawful immigrants.

Summary of Estimation Methodology

The accounting framework used in the present analysis is the same framework employed by the National Research Council of the National Academy of Sciences in The New Americans.[23] Following that framework, the present study:

  1. Excludes public goods costs such as defense and interest payments on government debt;
  2. Treats population-based or congestible services as fully private goods and assigns the cost of those services to immigrant households based either on estimated use or on the immigrant share of the population.[24]
  3. Includes the welfare and educational costs of immigrant and non-immigrant minor children and assigns those costs to the child’s household;
  4. Assigns the welfare and educational costs of minor U.S.-born children of immigrant parents in the immigrant household; and
  5. Assigns the cost of means-tested and direct benefits according to the self-reported use of those benefits in the CPS.

Clearly, any study that does not follow this framework may reach very different conclusions. For example, any study that excludes the welfare benefits and educational services received by the minor U.S.-born children of unlawful immigrant parents from the costs assigned to unlawful immigrant households will reach very different conclusions about the fiscal consequences of unlawful immigration.

An important principle in the analysis is that receipt of means-tested benefits and direct benefits was not imputed or assigned to households arbitrarily. Rather, the cost of benefits received was based on the household’s self-report of benefits in the U.S. Census Bureau’s Current Population Survey.[25] For example, the cost of the food stamp benefits received is based on the food stamp benefits data provided by the household. If the household stated it did not receive food stamps, then the value of food stamps within the household would be zero.

Data on attendance in public primary and secondary schools were also taken from the CPS; students attending public school were then assigned educational costs equal to the average per-pupil expenditures in their state. Public post-secondary education costs were calculated in a similar manner.

Wherever possible, the cost of population-based services was based on the estimated utilization of the service by unlawful immigrant households. For example, each household’s share of public transportation expenditures was assumed to be proportional to its share of spending on public transportation as reported in the Bureau of Labor Statistics Consumer Expenditure Survey (CEX). When data on utilization of a service were not available, the household’s share of population-based services was assumed to equal its share of the total U.S. population.

Federal and state income taxes were calculated based on data from the CPS. FICA taxes were also calculated from CPS data; both the employer and employee share of FICA taxes were assumed to fall on workers. Corporate income taxes were assumed to be borne partly by workers and partly by owners; the distribution of these taxes was estimated according to the distribution of earnings and property income in the CPS.

Sales, excise, and property tax payments were based on consumption data from the Consumer Expenditure Survey.[26] For example, if the CEX showed that households headed by persons without a high school degree accounted for 10 percent of all sales of tobacco products in the U.S., those households were assumed to pay 10 percent of all tobacco excise taxes.

Certain specific adjustments were made for unlawful immigrant households. Since 45 percent of unlawful immigrants are believed to work “off the books,” the federal and state income tax and FICA tax payments that Census imputes for each household were reduced by 45 percent among unlawful immigrant households. The values of the Earned Income Tax Credit and Additional Child Tax Credit that Census imputes based on family income were reduced to zero for unlawful immigrant families since they are not eligible for those benefits. Immigrant children enrolled in government medical programs were assumed to have half the actual cost of non-immigrant children.[27] And unlawful immigrant families were assumed to use parks, highways, and libraries less than lawful households with the same income.

Finally, about 9 percent of the persons in unlawful immigrant households are adult lawful immigrants or U.S. citizens. The benefits received and taxes paid by these individuals have been excluded from the analysis. The overall methodology of the study is described in detail in the Appendices.

Distribution of Government Benefits and Taxes in the U.S. Population

Table 5 shows government benefits received and taxes paid by the average household in the whole U.S. population. In FY 2010, the average household received a total of $31,584 in government direct benefits, means-tested benefits, education, and population-based services. The household paid $30,426 in federal, state, and local taxes. Since the benefits received exceeded taxes paid, the average household had a fiscal deficit of $1,158 that had to be financed by government borrowing.

Immigration Costs 2013 - Table 5

If earnings in government employee retirement funds were included in the analysis, this small average household deficit would be largely erased. Nonetheless, these figures show that the taxes paid by U.S. households overall barely cover the cost of immediate services received (direct benefits, means-tested aid, education, and population-based services).[28] Public goods such as defense and interest on government debt are funded by government borrowing.

However, these average household figures mask great differences between different types of households. Individual households have different fiscal balances. Many households are net tax contributors: The taxes they pay exceed the direct and means-tested benefits, education, and population-based services they receive. These households generate a “fiscal surplus” that government uses to finance benefits and services for other households. By contrast, other households are net tax consumers: The government benefits and services received by these households exceed taxes paid. These households generate a “fiscal deficit” that must be financed by taxes from other households or by government borrowing.

Table 5 shows that a critical factor in determining the fiscal balance of a household is the education of the head of household. Individuals with higher education levels earn more, pay more in taxes, and receive fewer government benefits. Less-educated individuals tend to receive more in government benefits and pay less in taxes.

Chart 2 shows the average fiscal balance for all U.S. households based on the education level of the head of household. At one extreme are households with college-educated heads; on average, these households receive $24,839 in government benefits while paying $54,089 in taxes. The average college-educated household thus generates a fiscal surplus of $29,250 that government uses to finance benefits for other households.

Immigration Costs 2013 - Chart 2

At the other extreme are households headed by persons without a high school degree. On average, these households receive $46,582 in government benefits (direct, means-tested, education, and population-based services) while paying only $11,469 in taxes. This generates an average fiscal deficit (benefits received minus taxes paid) of $35,113.

The large average fiscal deficit of less-educated households has a bearing on the immigration debate because immigrant families (both lawful and unlawful) have, on average, far lower education levels than non-immigrants. For example, as Table 3 shows, half of unlawful immigrant household heads do not have a high school degree, and another 27 percent have only a high school diploma.

Household Fiscal Balances and Immigration

Table 6 shows the fiscal balance for non-immigrant, lawful immigrant, and unlawful immigrant households. Unlawful immigrant households have the largest annual fiscal deficits at $14,387 per household. Lawful immigrant households have an average annual fiscal deficit of $4,344, and non-immigrant households have a deficit of $310, meaning that taxes paid roughly equal benefits received.[29]

Lawful immigrant households have higher fiscal deficits than non-immigrants for two reasons. The first is lower education levels; 20 percent of lawful immigrant households are headed by individuals without a high school diploma, compared to 10 percent among non-immigrant households. The second reason is high levels of welfare use. There is a popular misconception that immigrants use little welfare. The opposite is true. In fact, lawful immigrants receive the highest level of welfare benefits.

At $9,040, lawful immigrants’ annual welfare benefits are a third higher than non-immigrants’ benefits. This seems paradoxical because lawful immigrants are barred from receiving nearly all means-tested welfare during their first five years in the U.S. As Table 6 shows, this temporary ban has virtually no impact on the overall use of welfare because (a) the ban does not apply to children born inside the U.S. and (b) receipt of welfare occurs continually throughout a lifetime and therefore is little affected by a five- or 10-year moratorium on receipt of aid.

The lack of effectiveness of the five-year ban on welfare receipt in controlling total welfare costs has a direct bearing on the debate about amnesty legislation. It is noteworthy that the highest level of welfare use shown in Table 6 is $19,762 per household per year among lawful immigrant households headed by individuals without a high school diploma. This figure is important because similar levels of welfare use can be expected among unlawful immigrant households receiving amnesty.

Immigration Costs 2013 - Table 6

Immigration Costs 2013 - Table 6

Another important point is that the level of welfare benefits received by unlawful immigrant households is significant, despite the fact that unlawful immigrants themselves are ineligible for nearly all welfare aid. The welfare benefits received by unlawful immigrant households go to U.S.-born children within these homes. If undocumented adults within these households are given access to means-tested welfare programs, per-household benefits will reach very high levels.

Cost of Government Benefits and Services Received by Unlawful Immigrant Households

As noted, in 2010, some 3.44 million unlawful immigrant households appeared in Census surveys. Appendix Table 8 shows the estimated costs of government benefits and services received by these households in 73 separate expenditure categories. The results are summarized in Chart 3.

Immigration Costs 2013 - Chart 3

Overall, households headed by an unlawful immigrant received an average of $24,721 per household in direct benefits, means-tested benefits, education, and population-based services in FY 2010. Education spending on behalf of these households averaged $13,627, and means-tested aid (going mainly to the U.S.-born children in the family) averaged $4,497. Spending on police, fire, and public safety came to $3,656 per household. Transportation added another $662, and administrative support services cost $958. Direct benefits came to $44. Miscellaneous population-based services added a final $1,277.

Taxes and Revenues Paid by Unlawful Immigrant Households. Appendix Table 9 details the estimated taxes and revenues paid by unlawful immigrant households in 34 categories. The results are summarized in Chart 4.

Total federal, state, and local taxes paid by unlawful immigrant households averaged $10,334 per household in 2010. Federal and state individual income taxes comprised less than a fifth of total taxes paid. Instead, taxes on consumption and employment (FICA) produced nearly half of the tax revenue for unlawful immigrant households. (The analysis assumes that workers pay both the employer and employee share of FICA tax.) Property taxes (shifted to renters) and corporate profit taxes (shifted to workers) also form a significant part of the tax burden.

It is worth noting that FICA and income taxes reported in Chart 4 have been reduced because the analysis assumes that 45 percent of unlawful immigrant earners work off the books. If all unlawful immigrant workers were employed on the books, these tax payments would increase significantly.

Immigration Costs 2013 - Chart 4

Balance of Taxes and Benefits. On average, unlawful immigrant households received $24,721 per household in government benefits and services in FY 2010. This figure includes direct benefits, means-tested benefits, education, and population-based services received by the household but excludes the cost of public goods, interest on the government debt, and other payments for prior government functions. By contrast, unlawful immigrant households on average paid only $10,334 in taxes. Thus, unlawful immigrant households received $2.40 in benefits and services for each dollar paid in taxes.

Immigration Costs 2013 - Chart 5

Many politicians believe that households that maintain steady employment are invariably net tax contributors, paying more in taxes than they receive in government benefits. Chart 5 shows why this is not the case. As Table 2 shows, unlawful immigrant households have high levels of employment, with 1.6 earners per household and average annual earnings of around $39,000 for all workers in the household. But with average government benefits at $24,721, unlawful immigrant households actually receive 63 cents in government benefits for every dollar of earnings.

To achieve fiscal balance, with taxes equal to benefits, the average unlawful immigrant household would have to pay nearly two-thirds of its income in taxes. Given this simple fact, it is obvious that unlawful immigrant households can never pay enough taxes to cover the cost of their current government benefits and services.

Net Annual Fiscal Deficit. The net fiscal deficit of a household equals the cost of benefits and services received minus taxes paid. As Chart 6 shows, when the costs of direct and means-tested benefits, education, and population-based services are counted, the average unlawful immigrant household had a fiscal deficit of $14,387 (government expenditures of $24,721 minus $10,334 in taxes) in 2010.

Immigration Costs 2013 - Chart 6

For the average unlawful immigrant household to become fiscally solvent, with taxes paid equaling immediate benefits received, it would be necessary to increase the household’s tax payments to 240 percent of current levels. Alternatively, unlawful immigrant households could become solvent only if all means-tested welfare and nearly all public education benefits were eliminated.

Age Distribution of Benefits and Taxes Among Unlawful Immigrant Households. Many political decision makers believe that because unlawful immigrant workers are comparatively young, they can help to relieve the fiscal strains of an aging society. Charts 7 and 8 show why this is not the case. These charts separate the 3.44 million unlawful immigrant households into five categories based on the age of the head of household.

The benefits levels in Chart 7 again include direct benefits, means-tested benefits, public education, and population-based services. These benefits start at $24,726 for households headed by immigrants under 25 years of age and rise to $28,000 to $29,000 per year as the heads of household reach their 30s and 40s. The increase is driven by a rise in the number of children in each home. As the age of the head of household reaches the late 50s, the number of children in the home falls, and benefits dip to around $21,000 per year. Annual tax payments vary little by the age of the householder, averaging around $12,000 per year in each age bracket.

Immigration Costs 2013 - Chart 7

Immigration Costs 2013 - Chart 8

The critical fact shown in Chart 7 and Chart 8 is that, for each age category, the benefits received by unlawful immigrant households exceed the taxes paid. At no point in the life cycle does the average unlawful immigrant household pay more in taxes than it takes out in benefits. In each age category, unlawful immigrant households receive roughly $2.00 in government benefits for each dollar paid in taxes. Between ages 45 and 54 (generally considered prime earning years), unlawful immigrants actually receive nearly $3.00 in benefits for each dollar paid in taxes.

These figures belie the notion that government can relieve financial strains in Social Security and other programs simply by importing younger unlawful immigrant workers. The fiscal impact of an immigrant worker is determined far more by education and skill level than by age. Low-skill immigrant workers (whether lawful or unlawful) impose a net drain on government finance as soon as they enter the country and add significantly to those costs every year they remain.

Chart 8 shows the net fiscal deficits (benefits minus taxes) for each age category. The fiscal deficits reach a peak of over $19,000 per year for households with heads between 45 and 54 years old. The average deficit then falls to around $10,000 per year for households with heads between 55 and 64 years old. The number of unlawful immigrant households declines sharply with age. There are very few unlawful immigrant households with heads over age 65.

Aggregate Annual Net Fiscal Costs. In 2010, 3.44 million unlawful immigrant households appeared in the Current Population Survey. The average net fiscal deficit per household was $14,387. Most experts believe that at least 350,000 more unlawful immigrant households resided in the U.S. but were not reported in the CPS.

Assuming that the fiscal deficit for these unreported households was the same as the fiscal deficit for the unlawful immigrant households in the CPS, the total annual fiscal deficit (total benefits received minus total taxes paid) for all 3.79 million unlawful immigrant households together equaled $54.5 billion (the deficit of $14,387 per household times 3.79 million households). This sum includes direct and means-tested benefits, education, and population-based services.

Adjusting Future Deficit Estimates for the Potential Impact of the 2010 Recession

In 2010, the economy was in recession. In a recession, overall income and tax revenue will be lower; some benefits such as unemployment insurance will be dramatically higher. The recession may therefore have increased the fiscal deficit of unlawful immigrant households relative to non-recession years. However, the impact of a recession will not be uniform across all socioeconomic groups.

Evidence suggests that the recession had at best a modest impact on the fiscal status of unlawful immigrant households. For example, while incomes dropped significantly during the recession, most of the drop occurred in property income; the National Income and Product Accounts (which measure the whole economy) show that total nominal wages fell by only 2.3 percent from 2008 to 2010. Some 95 percent of the income of unlawful immigrant households comes from wages.

As measured in the CPS, the constant-dollar income of the average unlawful immigrant household was the same in 2010 as in 2006. The measured income of unlawful immigrants may be comparatively stable during a recession because unemployed unlawful immigrants return to their country of origin and thereby disappear from Census records. If the average unlawful immigrant household lost income during the recession, the drop was modest.

What about welfare spending? There is a popular conception that welfare spending is like a roller coaster, rising sharply during a recession and falling when the recession ends. This pattern applies somewhat to food stamps but not to means-tested welfare in general. Historically, overall means-tested spending does rise during a recession but does not fall noticeably when the recession ends.

This pattern is shown in Chart 9, which shows total means-tested spending over time adjusted for inflation. The chart shows a dramatic rise in costs over time. Periods of rapid increase are followed by spending plateaus, but there are no significant dips in post-recession periods. Following this pattern, the Obama budget shows that constant-dollar per capita means-tested spending will not decline over the next decade.[30]

Immigration Costs 2013 - Chart 9

Despite these caveats, the estimates of future fiscal deficits in the rest of this paper will be adjusted for the potential effects of the recession on the 2010 data. Specifically, the analysis reduces future unemployment benefits and food stamp benefits by 66 percent and 25 percent below 2010 levels, respectively. These adjustments are firmly backed by evidence and included in all of the figures on future-year deficits.

In addition, the analysis increases future tax payments by unlawful immigrants upward by 5 percent and reduces future overall means-tested welfare benefits downward by 5 percent to compensate for the impact of the recession on 2010 data. These adjustments are more speculative; their impact is shown separately in Table 7 and in subsequent tables. The latter adjustments reduce projected future fiscal deficits among unlawful immigrant households by about 5 percent.

Fiscal Impact of Amnesty or “Earned Citizenship”

In recent years, Congress has considered various comprehensive immigration reform proposals. One key feature of these proposals has been that all or most current unlawful immigrants would be allowed to stay in the U.S. and become U.S. citizens.

In most legislative proposals, amnesty or “earned citizenship” would have three phases. First, unlawful immigrants would be placed in a provisional status that would allow them to remain in the U.S. lawfully. After five to 10 years in this provisional status, most former unlawful immigrants would be granted legal permanent resident (LPR) status. After five years in LPR status, the individuals would be allowed to become U.S. citizens. The interval between initial amnesty and citizenships would thus stretch for 10 to 15 years or longer.

The fiscal impact of amnesty would vary greatly depending on the time period examined. The present paper will analyze the fiscal consequences of amnesty in four phases.

  • Phase 1: Current Law or Status Quo. This is the fiscal status at the present time prior to amnesty.
  • Phase 2: The Interim Phase. This phase would include the period in which amnesty recipients were in provisional status followed by the first five years of legal permanent residence. During the interim phase, tax revenues would go up as more former unlawful immigrants began to work “on the books” but would remain barred from receiving means-tested welfare and probably Obamacare health care subsidies. The overall net fiscal cost of the former unlawful immigrant population could be expected to decline slightly during this period. The length and programmatic boundaries of the interim phase would obviously vary in different bills, but five to 15 years would be typical.
  • Phase 3: Full Implementation of Amnesty. At the end of the interim phase, all amnesty bills would provide the amnesty recipients (former unlawful immigrants) with full eligibility for more than 80 means-tested welfare programs as well as health care subsidies under the Affordable Care Act (ACA, or Obamacare). The resulting increase in outlays would be substantial.
  • Phase 4: Retirement Years. Under current law, unlawful immigrants are not eligible for Social Security and Medicare benefits. All amnesty legislation would allow recipients of amnesty to obtain eligibility for these programs. Immediately after enactment of amnesty, former unlawful immigrants with jobs would begin to acquire credits toward future Social Security and Medicare eligibility. Once they had completed 40 quarters (or 10 years) of employment, they would become eligible for Social Security old age benefits and Medicare and would begin to receive benefits upon reaching retirement age.In addition, under amnesty, former unlawful immigrants would probably be able to obtain credits toward Social Security for work performed during their time of unlawful residence if they could show that FICA taxes were paid for that employment. Upon reaching the retirement age of 67, former unlawful immigrants could begin to draw Social Security and Medicare benefits. They would also be eligible for other government benefits such as public housing, food stamps, and Medicaid payments for nursing home care. Given the present age of most unlawful immigrants, these retirement costs would not emerge for several decades, but they would be quite large when they did occur.

The median age for current adult unlawful immigrants is 34. Given amnesty, these individuals would, on average, continue to pay taxes and receive benefits for five decades. From this perspective, placing a temporary moratorium on receipt of welfare and Obamacare subsidies would have only a marginal impact on overall costs.

Postponing the date when amnesty recipients would receive welfare and Obamacare is important politically, however, because it hides the real costs of amnesty during the all-important 10-year “budget window” employed by the Congressional Budget Office (CBO). Concealing the actual costs of legislation by delaying program expansion until after the end of the CBO 10-year budget window is a time-worn legislative trick in Washington. This budgetary ploy can be very effective in deluding both politicians and the public about the actual costs of legislation.

When amnesty legislation is rolled out in Congress, the public should expect to see this strategy of deception in full force. Nearly all fiscal discussion in Congress and the press will focus on the deliberately low temporary costs during the interim phase. The far more significant longer-term costs will be largely ignored. No politician who is serious about government spending and deficits should promote this deceptive budgetary gimmick, and the public should not be fooled by it.

Fiscal Changes During the Interim Phase

During the initial interim phase, amnesty would produce three fiscal changes: an increase in tax revenue, an increase in Social Security and Medicare payments for disabled persons and survivors, and an increase in some population-based costs as former unlawful immigrants become more comfortable using government services. This section analyzes those changes.

As noted earlier, nearly all experts believe that much employment of unlawful immigrants occurs “off the books.” Since taxes are not paid on this hidden employment, the result is less government revenue. After amnesty, former unlawful immigrants would have a strong incentive to shift to “on the books” employment because a consistent record of official employment would probably be necessary for these individuals to remain in the U.S. and to progress toward LPR status.

The present analysis assumes that at the current time, some 55 percent of unlawful immigrant workers work on the books and 45 percent work off the books. The analysis assumes that if amnesty were enacted, 95 percent of future employment of the former unlawful immigrants would occur on the books. This would increase payments of federal and state income taxes, FICA taxes, and other labor taxes (such unemployment and work compensation fees) by nearly $14 billion per year.

After amnesty, former unlawful immigrants would be able to seek employment more openly and compete for a wider range of positions. Research from the amnesty in 1986 shows that this led to significant wage gains among amnesty recipients, but amnesty also made individuals eligible for unemployment insurance and other programs that support individuals when they are not working, and this led to a decline in employment among workers receiving amnesty. These two effects offset each other, yielding a net overall gain of 5 percent in wages.[31] This 5 percent wage boost is included in the analysis and leads to an increase in income, FICA, and consumption tax payments of around $3 billion per year.

The analysis also assumes that after amnesty, former unlawful immigrant households would be more likely to use highways, autos, and airports; this would result in an increase in related taxes and fees of roughly $800 million per year. Overall, amnesty would increase tax revenue and fees by some $18 billion per year, or roughly $4,700 per former unlawful immigrant household.

As former unlawful immigrants began to work on the books using their own names and Social Security numbers, their eligibility for unemployment insurance benefits and workers’ compensation would increase. These benefits would likely reach levels comparable to those received by lawful immigrant families with similar socioeconomic characteristics.[32]

In contrast to old age benefits, Social Security disability, survivor’s benefits, and related Medicare are available well before retirement age. Any amnesty law would make former unlawful immigrants and their kin eligible for these benefits. For example, a worker who had five years of credited employment would receive disability benefits if he became unable to work. Ten years of credited employment would make a worker’s family eligible for survivor benefits upon the worker’s death.

Former unlawful immigrants would begin to receive these benefits not long after amnesty, and the number receiving benefits would grow over time. Eventually, the per-household disability and survivor benefits and accompanying Medicare received by former unlawful immigrant households would likely equal the benefits received by current lawful immigrants: roughly $1,600 per household per year.[33] However, during the first decade after amnesty, the benefit increase would be much less.

The present analysis assumes that unlawful immigrant households are less likely to use certain government services such as parks, highways, libraries, and airports than are lawful households with the same level of income. However, if unlawful immigrant households are granted amnesty, their utilization of these government services will increase.

Over time, the use of these services by former unlawful households would likely match their use by current lawful immigrant and non-immigrant households with similar demographic characteristics. The resulting increase in population-based government services would raise government costs by around $2,000 per household. Increased receipt of unemployment insurance, workers’ compensation, disability benefits, and population-based services would increase the overall government benefits received by former unlawful immigrant households by nearly $11 billion per year.

Fiscal Impact of the Full Implementation of Amnesty

Federal and state governments currently spend over $830 billion per year on more than 80 different means-tested aid programs. U.S.-born children of unlawful immigrants are currently eligible for aid through most of these programs, but foreign-born children who are in the country unlawfully and adult unlawful immigrants are generally not eligible for aid.

At present, all amnesty proposals would make adult unlawful immigrants and their foreign-born children fully eligible for these programs at the end of the waiting period. As a result, welfare benefits in former unlawful households would likely rise to the level of those received by current lawful immigrant families with similar socioeconomic characteristics. This would mean a sharp increase in benefits from programs such as Temporary Assistance for Needy Families, the Earned Income Tax Credit, Medicaid, public housing, and food stamps.

Overall, annual welfare costs would rise to around $13,700 per household among former unlawful households. Amnesty would increase overall welfare costs to $51 billion per year for this group.[34]

Starting in 2014, the Affordable Care Act will begin to provide various forms of aid, including expanded Medicaid, premium subsidies, and cost-sharing subsidies, to lower-income individuals who lack health insurance. Unlawful immigrants are currently ineligible for this aid. Under amnesty or “earned citizenship,” unlawful immigrants would obtain full eligibility for these benefits, although access to aid would probably be delayed until the end of the interim period.

The estimated cost of benefits from Obamacare to former unlawful immigrant households would be $24 billion per year.[35]

Overall Fiscal Impact of Amnesty or “Earned Citizenship”

Table 7 and Chart 10 show the average fiscal balances of unlawful immigrant households during the three stages: before amnesty, the interim period after amnesty, and full implementation of amnesty. At the current time, before amnesty, the average unlawful immigrant household has a fiscal deficit of $14,387 per year. During the interim period immediately following amnesty, tax revenues would increase more than government benefits, and the average fiscal deficit among the former unlawful households would fall to $11,455 per household.[36] (This figure, however, assumes there would be no expansion of government medical care to poor amnesty recipients for a full decade after amnesty is enacted; this seems politically implausible.)

Immigration Costs 2013 - Table 7

Immigration Costs 2013 - Table 7

Immigration Costs 2013 - Table 10

When the interim phase ends, amnesty recipients would become eligible for means-tested welfare and health care benefits under the Affordable Care Act. At that point, annual government benefits would rise to around $43,900 for the average former unlawful immigrant household.[37] Tax payments would remain at around $16,000 per household, yielding an annual fiscal deficit (benefits minus taxes paid) of around $28,000 per household.[38]

Table 8 and Chart 11 show the aggregate fiscal balance for all unlawful immigrant households in the three stages.[39] All of the figures in Table 8 and Charts 10 and 11 are adjusted for future inflation and presented in 2010 constant dollars.[40]

  • Before amnesty, all unlawful immigrant households together received $93.7 billion per year in government benefits and services and paid $39.2 billion, yielding an aggregate annual deficit of $54.5 billion.
  • In the interim phase after amnesty, aggregate government benefits and services would rise to $103.4 billion per year, but tax revenue would rise to around $60 billion; as a consequence, the aggregate annual deficit would fall slightly to $43.4 billion. (These figures include all post-recession adjustments.)
  • At the end of the interim phase, former unlawful immigrant households would become fully eligible for means-tested welfare and health care benefits under the Affordable Care Act. Total annual government benefits and services would soar to $166.5 billion; tax revenue would remain at around $60.5 billion, yielding an aggregate annual fiscal deficit of $106 billion. (These figures include all post-recession adjustments.)

Immigration Costs 2013 - Chart 11

Immigration Costs 2013 - Table 8

Long-Term Retirement Costs for Former Unlawful Immigrants Under Amnesty

One major fiscal consequence of amnesty is that nearly all current unlawful immigrants would become eligible for Social Security and Medicare and would receive benefits from those programs when they reach retirement age. In most cases, the few who did not obtain eligibility for Social Security and Medicare would receive support from Supplemental Security Income and Medicaid. As they aged, former unlawful immigrants would also be eligible for nursing home care funded by Medicaid. The cost of these benefits would be quite large.

One way to estimate the future retirement costs of unlawful immigrants under amnesty is to examine the average benefits currently received by lawful immigrants over age 65 whose education levels match those of unlawful immigrants. The figures for lawful immigrants over age 65 are shown in Table 9. (Once individuals move into retirement years, it is more accurate to analyze persons rather than households. Thus, in contrast to the previous tables in this paper, Table 9 presents benefits and taxes per immigrant rather than per household.)

Table 9 reports the actual benefits received and taxes paid per person in 2010 by lawful immigrants over age 65. For example, the average elderly lawful immigrant who lacked a high school degree received $31,574 in annual government benefits and services and paid $3,921 in taxes, yielding an annual fiscal deficit of $27,653.

Table 10 shows the estimated fiscal balances of adult amnesty recipients over age 65 if amnesty were enacted. (Again, the estimated benefits received and taxes paid are modeled on the actual current figures for elderly lawful immigrants.) Given amnesty, the average former unlawful immigrant age 65 or older would receive around $30,500 per year in benefits. Social Security benefits would come to around $10,000 per year; Medicare would add another $9,000. Retirees would receive some $7,600 in means-tested welfare, primarily in Medicaid nursing home benefits, general Medicaid, and SSI.[41] Population-based benefits would add another $3,100 in costs. The average amnesty recipient would pay around $7,800 in taxes, resulting in an average annual fiscal deficit of roughly $22,700 per retiree.[42] (All figures include post-recession adjustments.)

Retiring at age 67, amnesty recipients could be expected to receive benefits for 18 to 19 years on average.[43] This would produce a long-term fiscal deficit cost of $420,000 per person during retirement.

Immigration Costs 2013 - Table 9

Immigration Costs 2013 - Table 10

Parents of Amnesty Recipients

An additional consequence of legalization is that when amnesty recipients become citizens, they would have the unconditional right to bring their parents to the U.S. On arrival, the parents would become legal permanent residents with the right to obtain citizenship in five years. They would probably be eligible for Obamacare immediately; after five years, they would become eligible for Supplemental Security Income (at $8,500 per year) and other means-tested benefits. The right to bring parents to the U.S. to become citizens is automatic and unlimited. As many as 15 million to 20 million parents would become eligible for legal permanent residence under an amnesty law.

Not all of these individuals would come to the U.S. Historically, one parent has been brought to the U.S. for every seven non-elderly adult immigrants. Following this ratio, 10 million adult amnesty recipients would be likely to bring 1.5 million parents to the country as lawful residents.

For the most part, these parents would be poor and heavily dependent on taxpayers. Typical costs would probably be around $20,000 per parent per year for welfare and medical care. The parents would be elderly on arrival and might receive benefits for five to 10 years. In that case, the total cost to taxpayers would be about $260 billion.[44]

Lifetime Fiscal Costs of Unlawful Immigrants Following Amnesty

Most discussions of the fiscal consequences of unlawful immigration and amnesty focus on the next five to 10 years, but amnesty, by definition, entitles each unlawful immigrant with lifetime eligibility for the full array of government benefits. The average adult unlawful immigrant is currently 34 years old and has a life expectancy of 50 more years. Under amnesty, that means 50 years of government benefits funded by U.S. taxpayers.

If amnesty is enacted, some 3.74 million unlawful immigrant households will be given eventual access to welfare and other entitlements. Of course, amnesty recipients will not live forever. Given standard mortality statistics, it is possible to estimate the decline in the number of adult unlawful immigrants/amnesty recipients and corresponding households year by year in the future.[45] Table 7 gave the estimated fiscal deficit per household during the interim period and during full implementation of amnesty. By combining these per-household deficit figures with the expected number of surviving households headed by amnesty recipients, it is possible to estimate the total lifetime fiscal costs of current unlawful households after amnesty but prior to retirement age.

Table 10 gave the estimated per-person fiscal cost of amnesty recipients after retirement. Combining this per-person deficit figure with the expected number of surviving individuals in each year after retirement yields an estimated total fiscal cost for amnesty recipients after retirement. If the total fiscal costs in the interim, full amnesty, and retirement periods are summed, the result is the estimated lifetime fiscal costs for unlawful immigrants after amnesty.

Table 11 shows the lifetime costs. During the interim phase, the former unlawful immigrant households would generate a net fiscal cost (benefits received minus tax paid) of $550 billion. During the full phase of amnesty (but prior to retirement), the net fiscal deficit would be $1.99 trillion. After retirement, amnesty recipients would run a fiscal deficit of $3.45 trillion. Parents brought into the U.S. by amnesty recipients would generate another $260 billion in net fiscal costs.

If amnesty were enacted tomorrow, current unlawful immigrants (along with their minor children and dependent parents) would subsequently receive around $9.4 trillion in government benefits over the span of a lifetime.[46] The lifetime taxes paid by the amnesty recipients would come to $3.1 trillion. The total fiscal deficit (total benefits received minus taxes paid) would equal $6.3 trillion. (All figures are in constant 2010 dollars.)

Put another way, if amnesty were enacted, the average adult unlawful immigrant would subsequently receive $898,000 in government benefits over the course of a lifetime and pay $306,000 in taxes over the same period. The average lifetime fiscal deficit (benefit received minus taxes paid) would be around $592,000 for each adult amnesty recipient.

These costs would be spread over the lifetime of the amnesty recipients. More than 90 percent of the fiscal costs would occur during a 50-year period after amnesty.

The policy of barring amnesty recipients from receiving welfare and Obamacare during a short period after amnesty is usually trumpeted as a means of eliminating the potential costs of amnesty. In reality, postponing access to government benefits has only a marginal impact on fiscal costs. If amnesty recipients are barred from receiving welfare aid and health benefits from Obamacare for 13 years after initial amnesty, the total fiscal deficit falls by 12 percent from $7.1 trillion to $6.3 trillion.

Immigration Costs 2013 - Table 11

Immigration Costs 2013 - Chart 12

How Much Does Amnesty Add to Existing Costs?

The $6.3 trillion figure represents the lifetime fiscal costs of unlawful immigrant households after amnesty. It does not represent the increased fiscal costs caused by amnesty alone. The increased lifetime costs caused by amnesty would equal $6.3 trillion minus the estimated lifetime fiscal costs of unlawful immigrant households under current law. Calculating the latter figure is not easy.

As noted, there currently are few unlawful immigrants over age 50. This may be because unlawful immigrants, arriving as young adults over the past 15 to 20 years, have simply not yet reached age 50. It may also be that unlawful immigrants, being unable to access the U.S. welfare and retirement systems under current law, simply go back to their country of origin as they get older. If one assumes that under current law, most unlawful immigrants will return to their country of origin around age 55, the lifetime fiscal costs of unlawful immigrants under current law are comparatively low: only around $1 trillion. The net increased fiscal costs generated by amnesty would be around $5.3 trillion ($6.3 trillion minus $1 trillion.)

However, there is a loophole in existing law that may allow many or most current unlawful immigrants to achieve lawful status and obtain benefits from the welfare system, Social Security, Medicare, Obamacare, and Medicaid. Given access to the U.S entitlement system, it seems unlikely that most unlawful immigrants would choose to return to their native countries empty-handed. The loophole in existing law is the open-ended provision of green cards to the foreign-born parents of U.S. citizens.

A majority of adult unlawful immigrants have children who were born in the U.S. When these children reach age 21, they can immediately demand that their unlawful immigrant parents be given a green card (legal permanent residence) as parents/immediate relatives. The number of green cards (or visas for legal permanent residence) available to parents is unlimited, and the visas will be granted almost automatically. Once the parent spends five years in legal permanent residence, he immediately becomes eligible for welfare and citizenship. As a legal resident, the parent may also be given credit in the Social Security system for work performed previously as an unlawful immigrant. This would contribute to future eligibility for Social Security and Medicare benefits.

If millions of unlawful immigrants utilize the parent visa option in the future and thereby obtain legal permanent residence and/or citizenship, the cost to the taxpayers could run into the trillions. Thus, ironically, the increased fiscal costs generated by amnesty may be reduced by the fact that many unlawful immigrants already have potential long-term access to Social Security, Medicare, Obamacare, and means-tested welfare through a loophole in current law.

Policymakers who are interested in future government solvency should close this loophole by prohibiting any individual who has fathered or mothered a child in the U.S while he or she was an unlawful immigrant from ever receiving an immediate relative/parent visa. This would prevent unlawful immigrants from gaining legal permanent residence and citizenship simply because they have children born in the U.S.

Will the Children of Unlawful Immigrants Repay Their Parents’ Costs?

It is often argued that the fiscal burdens produced by unlawful immigrants are irrelevant because their children will become vigorous net tax contributors, producing fiscal surpluses that will more than pay for any costs their parents have generated. This is not true. As this paper has shown, the degree to which the children of unlawful immigrants become net fiscal contributors (rather than tax consumers) will depend largely on their educational attainment. Moreover, even if all of the children of unlawful immigrants became college graduates, they would be very hard-pressed to pay back $6.3 trillion in net costs even over the course of their entire lives.

Of course, not all of these children will graduate from college; many will have substantially lower educational achievements. The National Educational Longitudinal Study (NELS) reports the intergenerational educational attainment of U.S. children based on the educational attainment of their parents.[47] Table 12 uses data from the NELS survey to predict the educational attainment of the children of unlawful immigrants based on ethnicity and their parents’ education level. Although these children will clearly do better than their parents, 18 percent are still likely to leave school without a high school degree, and only 13 percent are likely to graduate from college.

Based on this level of educational attainment, the children of unlawful immigrants, on average, will become net tax consumers rather than net taxpayers: The government benefits they receive will exceed the taxes they pay.[48] If the children of unlawful immigrants were adults today and had the levels of education predicted in Table 12, they would have an average fiscal deficit of around $7,900 per household.

Immigration Costs 2013 - Table 12

The odds that the children of unlawful immigrants, on average, will become strong net taxpayers are minimal. Indeed, for these children even to become fiscally neutral (taxes paid equal to benefits received), the percent that graduate from college would need to rise to 30 percent, and the percent without a high school diploma would need to fall to 10 percent. In reality, unlawful immigrants will be net tax consumers, placing a fiscal burden on other taxpayers not only in the first generation, but in the second generation as well.

Will Unlawful Immigrants Contribute to the Solvency of Social Security and Medicare?

It is often argued that unlawful immigrants have a positive impact on U.S. taxpayers because they pay taxes into the Social Security trust fund. Unlawful immigrant workers do pay Social Security or FICA taxes; the median unlawful immigrant worker currently pays about $2,070 per year in FICA taxes.[49]

If amnesty encouraged all former unlawful immigrant workers to work on the books, that number would rise to around $3,770. A worker who paid this amount into Social Security for 35 years would contribute $132,000. Upon retiring, this individual would receive $14,650 per year in Social Security benefits and $10,074 per year in Medicare benefits.[50] Over an average span of 18 years of retirement, the total Social Security and Medicare benefits received by this individual would come to $445,000. Thus, the retirement benefits received would be more than three times the taxes paid into the system.[51]

Moreover, taxes and benefits must be viewed holistically. It is a mistake to look at the Social Security trust fund in isolation. Unlawful immigrants draw benefits from many other government programs besides Social Security. If an individual pays $3,700 per year into the Social Security trust fund but simultaneously draws a net $25,000 per year (benefits minus taxes) out of general government revenue, the solvency of government has not improved. In reality, other taxpayers, including many Social Security recipients, will face higher taxes in order to subsidize unlawful immigrant households.

Caveat: Understating Future Welfare and Medical Benefits

The fiscal analysis in this paper, presented in Table 11 and Chart 12, takes the current fiscal status of households and projects that status forward into future years. All figures are presented in 2010 dollars. One problem with this approach is that it assumes that means-tested welfare and medical benefits per household will grow no faster than general inflation for the next 50 years. Households are assumed to receive no greater welfare benefits in 2035 than they did in 2010. The historical record suggests that this is highly unlikely.

For nearly every year for the past half-century, welfare spending per capita has increased much faster than inflation. In fact, constant-dollar spending per person today is six times higher than it was 50 years ago. By contrast, the analysis in this paper assumes that for the next 50 years, per capita welfare benefits will rise no faster than inflation. While this assumption simplifies the analysis, it is likely an underestimate.

The same problem applies to medical benefits. The inflation rate is higher for medical care than for other goods. In addition, when new medical treatment and technology become available, they are provided through government medical programs, broadening the scope of service and increasing costs for taxpayers. The main analysis in this paper assumes that the cost of medical services per beneficiary will grow no faster than inflation for the next 50 years. This is likely an underestimate and probably results in an understatement of future spending.[52]

Additional Factors That Could Raise Future Fiscal Costs

There are a number of demographic, economic, and policy factors that could raise the short-term and long-term fiscal deficit estimates presented in Tables 8 and 11. These include demographic variables that affect the number of amnesty recipients and their dependents and economic factors that would affect the future economic growth rate.

  1. Potential Undercount of Unlawful Immigrants. The analysis in this paper assumes that there are currently 11.5 million immigrants in the U.S. based on DHS estimates. The DHS estimates that there are some 10.4 million unlawful immigrants recorded in Census surveys and 1.1 million more who are not reported by the Census. While the first number is based on firm evidence, the second is merely a guess. The number of unlawful immigrants who reside in the U.S. but do not respond to Census surveys may be far more than 1.1 million. These extra unlawful immigrants would tend to be single adults, since children would show up in birth or school records.The fact that the actual number of unlawful immigrants can be far greater than 11.5 million is another reason that amnesty is a bad policy. If the number of unlawful immigrants is actually 20 percent greater than the 11.5 million assumed in this paper, the long-term fiscal cost of amnesty would increase proportionately, adding perhaps $1.2 trillion to the lifetime fiscal deficit.[53]
  2. Cheating in Amnesty. In the 1986 amnesty, an estimated 25 percent of the amnesties granted were fraudulent.[54] In the past 20 years, the underground industry producing fraudulent documents has grown vastly larger and more sophisticated. In the proposed new amnesty, the fraud rate could be as high as or higher than in 1986, resulting in far more than 11 million amnestied individuals. If cheating increased the number of amnesty recipients by 25 percent, the added lifetime fiscal cost would be $1.5 trillion.
  3. Exclusion of 20 Percent of Unlawful Immigrants During the Interim and Full Implementation Phases of the Analysis. This analysis estimates costs for persons living in households headed by unlawful immigrants during the interim and full amnesty phases. However, about 20 percent of unlawful immigrants do not reside in those households. Any fiscal costs associated with that 20 percent are therefore omitted from the analysis; this is likely to lead to an underestimate of total costs. (In the retirement phase, however, all unlawful immigrants who were adults in 2010 are included in the analysis, not just those residing in unlawful immigrant households.)
  4. Spouses and Children Brought from Abroad. Any amnesty or legalization will automatically grant amnesty recipients the right to bring spouses and minor children from abroad to reunify families. This reunification would probably occur during the interim phase. Once admitted to the U.S., the children would receive heavily subsidized public education; over time, both children and spouses would become eligible for means-tested welfare and Obamacare. The number of spouses and dependent children who would be brought into the U.S as a result of amnesty is uncertain, but the added fiscal costs could be considerable. If an additional one million spouses and dependent children were brought to the U.S as a result of amnesty, the added lifetime fiscal cost would be around $600 billion.
  5. Triggering of Additional Chain Migration by Relatives. Social and kinship networks are important factors in increasing immigration flows. Once unlawful immigrant households were legalized, there would be an increased tendency for brothers, sisters, and cousins to migrate from abroad both lawfully and unlawfully to join their relatives. Thus, other things being equal, amnesty would likely increase future unlawful immigration, in turn increasing future fiscal costs.
  6. Amnesty as a Magnet for Future Unlawful Immigration. The U.S. enacted a much smaller amnesty for unlawful immigrants in 1986. The public was promised that the 1986 amnesty was a one-time affair that would never be repeated. Despite this promise, the 1986 amnesty was probably a factor in encouraging the subsequent surge in unlawful immigration, since it signaled that the U.S. might take a lenient stance toward unlawful immigrants in the future. If the U.S now enacts a second amnesty, it will have established a very strong precedent for serial amnesties. The prospect of recurring amnesties would certainly make future unlawful immigration more attractive, drawing more unlawful immigrants into the country and significantly increasing long-term fiscal costs.
  7. Dynamic Effects of Increased Fiscal Deficits. The core analysis in this paper indicates that amnesty would increase net governmental costs by perhaps $6.3 trillion. These added costs would have to be financed either by higher taxes or by greater government borrowing leading to a higher national debt. Higher taxes or a higher national debt in turn would reduce future economic growth, thereby lowering future tax revenues. This dynamic feedback effect has not been included in the calculations in the paper.

Additional Factors That Could Reduce Future Fiscal Costs

  1. Reduced Number of Amnesty Recipients. Not all current unlawful immigrants will necessarily receive amnesty. Some individuals may not apply. Others may not be able to demonstrate residence. Others will fail the criminal background check. If 10 percent of the unlawful immigrants currently residing in the U.S. did not receive amnesty and instead returned to their country of origin, lifetime fiscal costs would be reduced proportionately, resulting in roughly $600 billion in savings.
  2. Increased Emigration. The core long-term analysis presented in Table 11 assumes an emigration rate of 5 percent among amnesty recipients. Certainly, amnesty recipients would have a very strong financial incentive to remain in the country to receive nearly free education for their children and eventually obtain access to welfare, Obamacare, Social Security, and Medicare. Nonetheless, some amnesty recipients would return to their country of origin.If this emigration occurred before the individual obtained eligibility for Social Security and Medicare, there would be considerable cost savings. If the individual emigrated after establishing eligibility for those programs, the cost saving would be less. The core analysis assumes that 5 percent of unlawful immigrants would emigrate before establishing eligibility for Social Security and Medicare. If, instead, 10 percent emigrated, the lifetime fiscal costs might be reduced by roughly $300 billion.
  3. Increased Recessionary Adjustments. The recession in 2010 may have reduced tax payments from unlawful immigrants and temporarily increased welfare assistance. In response to this issue, the analysis has reduced estimated future benefits in the unemployment insurance and food stamp programs, increased future estimated tax revenues by 5 percent, and decreased long-term receipt of welfare benefits by 5 percent. All of these adjustments are included in the lifetime fiscal cost figures appearing in table 11.There is considerable evidence that the last two adjustments are not absolutely necessary; nonetheless, some may argue that even greater post-recessionary adjustments should be considered. In general, an increase of one percentage point in the tax loss estimate, combined with a one percentage point decrease in the future welfare benefits will lower the estimated lifetime deficit of amnesty recipients by 1 percent. Setting the post-recessionary tax loss estimate at 10 percent (rather than 5 percent) and reducing future welfare benefits by 10 percent (rather than 5 percent) would thus increase the estimated lifetime fiscal deficit by an added 5 percent, or $315 billion.

Altogether, the variables discussed above suggest that the number of amnesty recipients and dependents may well be much higher than the numbers assumed in this paper. This could have a considerable impact on future costs. If the number were 30 percent greater, for example, the lifetime fiscal costs could rise to nearly $9 trillion.

Possible Indirect Fiscal Effects

The analysis presented in this paper reflects the direct fiscal impact of unlawful immigrants. It reports the benefits received and taxes paid by those immigrants. However, there can be other indirect fiscal consequences of unlawful immigration. For example, unlawful immigrants augment the U.S. labor force and thereby expand the gross domestic product (GDP) by roughly 2 percent. Unlawful immigrants themselves capture most of the gain from this expanded production through their wages, and taxes on the immigrants’ wages and consumption are already incorporated into the analysis.

But the owners of businesses that employ the unlawful immigrants also receive income from their investment in the enterprises in which the immigrants work. The difficulty lies in determining whether the investment in enterprises employing unlawful immigrants represents a net expansion of the stock of investment or merely a reallocation of investment that would have existed without the presence of the immigrant labor. New investment would be unlikely to occur unless the increased labor supply had reduced wages. New net investment would result in new income, and this added income would be taxed by government in a variety of ways. Even though the unlawful immigrants would not pay these taxes themselves, their employment would have triggered the extra tax revenue.

In the extreme case, one might assume that all of the investment associated with unlawful immigrant labor represents a net increase in capital stock. Since unlawful immigrants earn about 2 percent of all wages in the U.S. economy, this might coincide with a 2 percent increase in business profits and capital income. If this were the case, the result would be a roughly $8.5 billion increase in federal, state, and local revenue from a variety of different taxes; this indirect tax gain would amount to roughly $2,500 per unlawful immigrant household.[55] The future lifetime tax gain due to unlawful immigrants from this source could be around $280 billion. Again, the difficulty with this calculation lies in the assumption that all of the capital invested in the employment of unlawful immigrants represents a net increase rather than a reallocation of capital stock.

Conversely, there may be other indirect effects that substantially increase the fiscal drain created by unlawful immigrants. An additional indirect fiscal effect would occur if the presence of immigrant workers in the U.S. reduced the wages or employment of competing non-immigrant workers. For example, Harvard professor George Borjas has estimated that the very large influx of immigrant workers between 1980 and 2000 lowered the wages of the average non-immigrant worker by 3.2 percent. In particular, the disproportionate influx of low-skill immigrants was estimated to reduce the wages of low-skill native workers by 8.9 percent.[56]

The National Research Council has estimated that a 10 percent increase in the labor supply lowers the wage for similarly skilled workers by 3 percent.[57] In 2010, unlawful immigrants constituted about 25 percent of employed adults with less than a high school degree. This means that unlawful immigrants have increased the labor supply of individuals without a high school degree by one-third.

Applying the NRC ratio, the wages of legal residents without a high school diploma have been reduced by about 10 percent due to unlawful immigration. This amounts to $23.1 billion in lost income, or about $2,300 per worker. A wage loss of $23 billion would result in around $8 billion in lost tax revenue (income, FICA, and consumption taxes) and perhaps $6 billion in added welfare costs. The overall indirect fiscal loss to government would be around $14 billion per year.

Another potential impact of unlawful immigration is a reduction in employment rates for native workers. This may be of particular importance for youth and black male workers.[58] Heavy competition for jobs can discourage less-skilled workers, leading them to leave the labor force. As immigrants become the majority of workers in certain occupations, networking and word-of-mouth regarding job openings[59] may increasingly exclude natives. Finally, the abundance of unlawful immigrant labor helps employers to avoid expending effort on recruiting potential U.S.-born workers from underemployed areas, such as Appalachia or Midwestern industrial towns.

Even if just one out of five unlawful immigrant workers displaced a legal resident from a job, wage losses could amount to $14 billion annually. The tax loss and added welfare costs from this could reach $10 billion per year. The lifetime fiscal loss to government due to wage and job loss among U.S. citizens and lawful immigrants might be around $790 billion. In addition, the decline in jobs and wages for lower-skill males may contribute to the long-term decline in marriage in low-income communities; the social and fiscal consequences of this decline are enormous.

Because figures are imprecise, none of the indirect fiscal effects discussed in this section is included in the fiscal analysis in this paper.

Potential Economic Gains and Losses from Unlawful Immigration

While the fiscal consequences of unlawful immigration are strongly negative, some argue that unlawful immigrants create economic benefits that partially compensate for the net tax burdens they create. For example, it is frequently argued that unlawful immigration is beneficial because unlawful immigrant workers expand the gross domestic product. While it is true that unlawful immigrants enlarge GDP by roughly 2 percent, the problem with this argument is that the immigrants themselves capture most of the gain from expanded production in their own wages.[60] Metaphorically, while unlawful immigrants make the American economic pie larger, they themselves consume most of the slice that their labor adds.

The central issue in the debate over the costs and benefits of unlawful immigration is not whether such immigration makes U.S. GDP larger (clearly, it does), but whether unlawful immigration raises the post-tax income of the average non-immigrant American. Given the very large net tax burden that unlawful immigrants impose on U.S. society, such immigrants would have to raise the incomes of non-immigrants to a remarkable degree to have a net beneficial effect.

Policy Issues

There are approximately 3.7 million unlawful immigrant households in the U.S. These households impose a net fiscal burden (benefits received minus taxes paid) of around $54.5 billion per year. The fiscal cost of unlawful and low-skill immigrants will be increased in the future by government policies that increase the number of low-skill immigrants, the immigrants’ length of stay in the U.S., or the access of unlawful immigrants to government benefits. Conversely, fiscal costs will be reduced by policies that decrease these variables.

Clearly, immigration policy has enormous fiscal implications. Consistent with principles for immigration reform laid out elsewhere.[61] immigration policy should be changed in the following ways to reduce the costs of unlawful and low-skill immigration to the taxpayer:

  1. Enforce the current law against employing unlawful immigrants. Unlawful immigrants are predominantly low-skilled. Over time, they impose large costs on the taxpayer. In 1986, the U.S. gave amnesty to 3 million unlawful aliens in exchange for a prohibition on hiring unlawful immigrants in the future. While amnesty was granted, the law against hiring unlawful immigrants was never enforced in more than a token manner. As a result, there are now at least 11.5 million unlawful immigrants in the U.S.Because the majority of unlawful immigrants come to the U.S. for jobs, serious enforcement of the ban on hiring unlawful labor would substantially reduce the employment of unlawful aliens and encourage many to leave the U.S. Reducing the number of unlawful immigrants in the nation and limiting the future flow of unlawful immigrants would also reduce future costs to the taxpayer.
  2. Do not grant amnesty to unlawful immigrants. Granting amnesty to unlawful immigrants would confer entitlement to welfare, Social Security, and Medicare for the amnesty recipients. This would be ruinously expensive to U.S. taxpayers.
  3. Eliminate “back door amnesty.” This could be done by closing the loophole in current law that permits unlawful immigrants to become U.S. citizens because they have U.S.-born children. Roughly half of unlawful immigrants have U.S.-born children. When these children reach age 21, they can demand that their parents be given a visa, which grants the parents legal permanent residence; this gives the parents access to the U.S. welfare system and puts them on a potential path to U.S. citizenship. This provision, which operates automatically and cannot be stopped under current law, could be called “back door amnesty.”Current law should be changed to prohibit any individual who conceived or gave birth to a child in the U.S. while that individual was unlawfully present in the U.S. from ever receiving an immediate relative/parent visa that provides legal permanent residence. Closing that loophole could save the taxpayers trillions of dollars over the long term.
  4. Ensure that any guest worker program is truly temporary and not a gateway to welfare entitlements.[62] A program that involves long-term residence and permits access to welfare, Social Security, Medicare, and public education would be enormously expensive for the U.S. taxpayer. For example, if the “guest worker” brings school-age children with him, each child will generate, on average, $12,300 in public education costs that must be funded by U.S. taxpayers. Similarly, even if formally barred from receiving welfare assistance, guest workers’ low-income families would be likely to receive aid simply because welfare agencies would be reluctant to deny services to families that appear to be in need of aid. Finally, bringing a family into the U.S. would make it far less likely that the guest worker would actually return home, and continued residence in the U.S would increase fiscal costs.Granting U.S. citizenship to guest workers’ children born in the U.S. would raise fiscal costs. If a child born to a guest worker is granted U.S. citizenship, that child immediately becomes entitled to Medicaid coverage and a full range of other welfare benefits. Further, granting the child citizenship makes it less likely that the guest worker’s parents will actually leave the U.S. and thereby increases taxpayer costs. To the extent permitted by the Fourteenth Amendment to the Constitution, the law establishing the guest worker programs should clearly stipulate that children born to guest workers would be treated in the same manner as children of diplomats—that is, they would be citizens of their parents’ country of origin rather than citizens of the United States.
  5. Reduce the number of legal permanent residence visas based on kinship and increase the number of visas allocated to high-skilled workers.[63] Under current law, the visa lottery and visa preferences for adult brothers, sisters, and parents tend to bring a high proportion of low-skill immigrants into the U.S. While low-skill immigrants create a fiscal burden for U.S. taxpayers, high-skill immigrants tend to pay more in taxes than they receive in benefits.The legal immigration system should be altered to greatly reduce the number of low-skill immigrants entering the country and increase the number of new entrants with high levels of education and skills that are in demand by U.S. firms. The visa lottery and all preferences for brothers, sisters, parents, and relatives other than spouses and minor children should be eliminated and replaced by new skill-based visas. Parents would be able to visit children in the U.S. as guests but not as legal permanent residents with access to welfare.

Conclusion

The United States offers enormous economic opportunities and societal benefits. Countless more people would immigrate to the U.S. if they had the opportunity. Given this context, the U.S. must be selective in its immigration policy. Policymakers must ensure that the interaction of welfare and other financial transfer programs with immigration does not expand the fiscally dependent population, thereby imposing large costs on American society.

Current immigration policies with respect to both lawful and unlawful immigration encourage the entry of a disproportionate number of poorly educated immigrants into the U.S. As these low-skill immigrants (both lawful and unlawful) take up residence, they impose a substantial tax burden on U.S. taxpayers. The benefits received by unlawful and low-skill immigrant households exceed taxes paid at each age level; at no point do these households pay more in taxes than they receive in benefits.

Current immigration practices, both lawful and unlawful, operate like a system of transnational welfare outreach, bringing millions of fiscally dependent individuals into the U.S. This policy needs to be changed. U.S. immigration policy should encourage high-skill immigration and strictly limit low-skill immigration. In general, government policy should limit immigration to those who will be net fiscal contributors, avoiding those who will increase poverty and impose new costs on overburdened U.S. taxpayers.

Robert Rector is Senior Research Fellow in the Domestic Policy Studies Department at The Heritage Foundation. Jason Richwine, PhD is Senior Policy Analyst for Empirical Studies in the Domestic Policy Studies Department at The Heritage Foundation.

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Related Previous Post

E-Verify: Sí, podemos! Es La Ley! (Yes, We Can! It’s The Law)

;(

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John Boehner (R., Ohio): “The House did not take up the tax measure today because it did not have sufficient support from our members to pass.  Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff.  The House has already passed legislation to stop all of the January 1 tax rate increases and replace the sequester with responsible spending cuts that will begin to address our nation’s crippling debt.  The Senate must now act.”

Barney Keller, a spokesman for the Club for Growth: “We are pleased that the Republicans did not vote to raise taxes. We need to get real about our problems and stop playing political games. Only in Washington can a bill that increases taxes be considered a tax cut.”

Ezra Klein (Washington Post): “It’s not entirely clear whether Boehner will be the speaker of the House a month from today. The vote to elect the next speaker is on Jan. 3. To win, you need an absolute majority of the House, not a plurality. Even a hopeless conservative challenge that attracts only a handful of Republican votes could deny Boehner the speakership until a consensus candidate emerged. Tonight’s vote makes that challenge more likely.

A significant number of Boehner’s members clearly don’t trust his strategic instincts, they don’t feel personally bound to support him, they clearly disagree with his belief that tax rates must rise as part of a deal, and they, along with many other Republicans, must be humiliated after the shenanigans on the House floor this evening.

Worse, they know that Boehner knows he’ll need Democratic support to get a budget deal done. That means “a cave,” at least from the perspective of the conservative bloc, is certain. That, too, will make a change of leadership appealing.”

If a conservative spoiler runs, he or she could very possibly deny Boehner the 218 votes he needs to become speaker, clearing the way for a more moderate candidate like Eric Cantor to unite the party. It’s hard to say exactly how likely that is. But it’s likelier than it was, say, this morning.

U.S. Debt on Track to Fuel Economic Crisis

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Boehner Led Prayer, Pledge and Then Broke News

WSJ – By Michael R. Crittenden

Rep. Scott Rigell, a first-term GOP congressman from Virginia who sits on the House armed services committee, said Speaker John Boehner opened the Republicans’ Thursday evening meeting by saying it would be a quick conference and then took the unusual step of leading both a prayer and the Pledge of Allegiance. Mr. Boehner said the “Serenity Prayer,” Mr. Rigell said, but made no attempt to garner further support for his Plan B proposal.

Mr. Boehner had pushed the proposal, which would extend the Bush-era tax cuts for the first $1 million of income, as an alternative to reaching a broader deal with President Barack Obama.

“I knew they were having some trouble with the vote, but I had just assumed they’d say ‘Hey look, rally, let’s go.’ That did not happen,” Mr. Rigell said. “He said ‘We do not have the votes and we are not going to have any further votes and I’ll go before the press tomorrow and explain we don’t have the votes.’ ”

He added that a few members clapped, but that many were trying to process the sudden change of plans.

“I’m not sure the people who have been up here 20 or 30 years really understand what the next iteration of this process is,” Mr. Rigell said.

In a statement, Mr. Boehner said: “The House did not take up the tax measure today because it did not have sufficient support from our members to pass.  Now it is up to the president to work with Senator [Majority Leader Harry] Reid on legislation to avert the fiscal cliff. ”

TwoTrunkGOP

About the Speaker of the U.S. House of Representatives

The position of Speaker of the House of Representatives is created in Article I, Section 2, Clause 5 of the U.S. Constitution, which states, “The House of Representatives shall chuse their Speaker and other Officers; …”

How the Speaker is chosen
As the highest-ranking member of the House, the Speaker is elected by a vote of the members of the House. While it is not required, the Speaker usually belongs to the majority political party. The Constitution does not require that the Speaker be an elected Member of Congress. No non-member has ever been elected Speaker.

The Speaker is elected following each mid-term election held every-other year, and serves a two year term. Along with the title and duties, the Speaker of the House continues to serve as the elected representative from his or her congressional district, and takes part in debate and votes like all other representatives.

Powers duties and privileges of the Speaker

Typically the head of the majority party in the House, the speaker outranks the Majority Leader. The salary of the Speaker is also higher than that of the Majority and Minority Leaders in both the House and Senate.

The Speaker rarely presides over regular meetings of the full House, instead delegating the role to another representative. The Speaker does, however, typically presides over special joint sessions of Congress in which the House hosts the Senate. The Speaker exerts power over the legislative process by setting the House legislative calendar determining when bills will be debated and voted on.

The Speaker often utilizes this power to help fulfill his or her responsibility of making sure bills supported by the majority party are passed by the House. The Speaker also serves as chair of the majority party’s House steering committee.

Perhaps most clearly indicating the importance of the position, the Speaker of the House stands second only to the Vice President of the United States in the line of presidential succession.

The first Speaker of the House was Frederick Muhlenberg of Pennsylvania, elected during the first session of Congress in 1789.

Social Security Deficits are Permanent and Growing

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Federal Revenues by Source

What Is the ‘Fiscal Cliff’?

CNBC – By:

The ‘fiscal cliff’ may sound like the name of an exercise retreat on a mountain top in Southern California, but the reality is not so pretty.

What ‘fiscal cliff’ actually refers to is the potentially dire economic situation the U.S. faces at the end of 2012.

The now infamous phrase was coined by Federal Reserve Chairman Ben Bernanke in February 2012, during one of his required appearances before Congress on the state of the U.S. economy. He described … “a massive fiscal cliff of large spending cuts and tax increases” on Jan. 1, 2013.

Since then, ‘fiscal cliff’ has taken on legendary status as a harbinger of economic gloom and doom.

So what does the ‘fiscal cliff’ trigger for the economy and how bad can it be? Here’s a look.

How does the fiscal cliff come about?

At midnight on Dec. 31, 2012, a major provision of the Budget Control Act of 2011 (BCA) is scheduled to go into effect. This was the deal signed by President Obama in August 2011 to end the Congressional battle over raising the government debt ceiling.

The Act was a compromise between Democrats and Republicans on economic policies while temporarily increasing the debt ceiling — the amount of money the government could borrow from itself to pay its bills.

The crucial part of the Act provided for a Joint Select Committee of Congressional Democrats and Republicans — the so called ‘Supercommittee ‘— to produce bipartisan legislation by late November 2012 that would decrease the U.S. deficit by $1.2 trillion over the next 10 years.

To do so, the committee agreed to implement by law — if no other deal was reached before Dec. 31 — massive government spending cuts as well as tax increases or a return to tax levels from previous years. These are the elements that make up the ‘fiscal cliff.’

What laws from the Budget Control Act will go into place?

Among them are the end of 2011′s temporary payroll tax cuts — the result of which will be a 2 percent tax increase for most workers.

There will also be an end to several tax breaks for businesses, and changes in the alternative minimum tax (AMT) that could result in more people having to pay — the income range is currently between $45,000 and $200,000 — and higher tax payments for those who do.

Several of these existing tax breaks came from the George W. Bush tax cut bill of 2001, which were extended under President Obama until the end of 2012.

There will also be tax increases for higher income individuals to help pay for the ffordable Health Care Act (so-called ObamaCare).

At the same time, spending cuts will take place in more than 1,000 government programs, including cuts in the defense budget as well as social programs like Medicare, through 2022.

But some programs are exempt from the BCA. Those are Social Security, federal pensions and veterans’ benefits.

What is the impact of the tax increases and budget cuts?

While higher taxes and spending cuts would reduce the U.S. budget deficit by an estimated $560 billion, the Congressional Budget Office (CBO) predicts that the policies from the BCA would cut gross domestic product by four percentage points in 2013. Many analysts say that would likely send the still-struggling U.S. economy into a recession, if not a depression, as the financial markets would likely go into a tailspin while businesses and consumers both cut back on spending.

As a result of the economic slowdown from the stilted GDP growth, the CBO also predicts unemployment would rise by almost a full percentage point, with a loss of about two million jobs.

Can anything be done to prevent the ‘Fiscal Cliff’ from happening?

The major problem has been getting Republicans and Democrats in Congress and the White House to agree on budgetary policy for the future. epublicans say they want cuts in government spending to reduce the country’s deficit without raising taxes. For their part, Democrats say they want spending cuts with certain taxes raised.

There have been calls to extend some or all of the tax cuts and to replace the massive cutbacks in government spending with more targeted reductions. Some proposals include repealing the BCA altogether and just keeping what exists now until another agreement can be reached.

But so far, there is no consensus on what to do, and some analysts say nothing might happen to avoid the ‘fiscal cliff’ until the last week in December.

There is one ace in the hole, so to speak. Even if the BCA deadline comes and nothing is done, Congress can still act to change laws retroactively if it chooses.

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“God grant me the serenity to accept the things I cannot change,”

;)

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Acoustic Warfare Protesters

“Safety at Any Price: Assessing the Impact of Homeland Security Spending in U.S. Cities”

Dear Taxpayer,

The Oklahoma City bombing in 1995 and the attacks of September 11, 2011 will forever be etched in our collective memory and forever serve as painful reminders that the enemies of freedom are many and our security often comes at a steep price—in dollars, lives and liberty.

We no longer can assume our distant shores from foreign lands or having the greatest military force in the history of the world are enough to protect us. We now live with the reality terrorists are within our midst and they may look, sound and act like us, but they hate everything we are and the values we share.

The balancing act between liberty and security has been tenuous throughout the history of our nation, founded upon basic freedoms granted by our Creator and protected from government infringement within the Bill of Rights of our Constitution.

But a new element has been added to this equation over the past decade that threatens to undermine both our liberty and security—excessive government spending and insurmountable debt.

We cannot secure liberty and guarantee security simply by spending more and more money in the name of security.

Every dollar misspent in the name of security weakens our already precarious economic condition, indebts us to foreign nations, and shackles the future of our children and grandchildren. Our $16 trillion national debt has become the new red menace not only lurking in our midst, but created and sustained by shortsighted and irresponsible decisions made in Washington.

We can only defend our freedoms by ensuring the dollars we spend on security are done so in a fiscally responsible manner, meet real needs, and respect the very rights we are aiming to preserve and protect.

This report, Safety at Any Price, exposes misguided and wasteful spending in one of the largest terror-prevention grant programs at the Department of Homeland Security – the Urban Area Security Initiative (UASI).

We cannot assume that because the UASI program has an important mission and a large budget it is accomplishing its goals, however.

Significant evidence suggests that the program is struggling to demonstrate how it is making U.S. cities less vulnerable to attack and more prepared if one were to occur—despite receiving $7.1 billion in federal funding since 2003.

After ten years, a clear danger for the Urban Areas Security Initiative (UASI) grant program is that it would be transformed from a risk-based program targeting security gaps into an entitlement program for states and cities.

My office has conducted a year-long inquiry into the this grant program found that to wide of latitude is given to states and urban areas to determine the projects they will fund, and program parameters defining what constitute allowable expenses are extremely broad.

Congress and DHS failed to establish metrics to measure how funds spent through the UASI program have made us safer or determine the right amount to dedicate to counterterrorism programs to mitigate the threat.

While DHS recently established its first National Preparedness Goal, it has yet to develop a robust assessment of the nation’s current preparedness capabilities or defined performance metrics to assess the effectiveness of federal expenditures made to date.

If in the days after 9/11 lawmakers were able to cast their gaze forward ten years, I imagine they would be surprised to see how a counter-terrorism initiative aimed at protecting our largest cities has transformed into another parochial grant program.

We would have been frustrated to learn that limited federal resources were now subsidizing the purchase of low-priority items like an armored vehicles to protect festivals in rural New Hampshire, procure an underwater robot in Ohio and to pay for first responder attendance at a five-day spa junket that featured a display of tactical prowess in the face of a “zombie apocalypse.”

As we prepare to mark the tenth anniversary of the creation of the Department of Homeland Security in November, the time has come for Congress to reconsider DHS’s mission and approach to counterterrorism.

We must be honest with the American people that we cannot make every community around the country invulnerable to terrorist attacks by writing large checks from Washington, D.C. Not only is this an unrealistic goal, but it also undermines the very purpose of our efforts.

By letting every level of government – federal, State and local – do the things each does best, we can secure our cities and our freedoms. Confusing these roles, as we have done with UASI, leads to waste, inefficiency and a false sense of security.

We must rededicate ourselves to ensuring that every dollar the federal government spends on terrorism prevention programs is spent wisely, yielding the largest improvement in security and best return on investment for your tax dollars.

Facing a $16 trillion national debt, Congress needs to have a conversation about what we can afford to spend on the Department of Homeland Security’s terrorism prevention programs and where to spend it.

The American people recognize and understand the limits we face. They understand that we should never sacrifice all of our freedoms in the name of security.

We similarly cannot mortgage our children and grandchildren’s future by funding unnecessary and ineffective programs, even including those that have important missions.

Sincerely,

Tom Coburn, M.D.

U.S. Senator

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Introduction

American cities have long been symbols of strength, freedom, progress and ingenuity, representing some of the best our nation has to offer. The threat of an urban terror attack, however, has made many feel less safe than they used to. While most of our cities have never been struck from the weapons of terrorists, we know the possibility is a real one.

In 1995, the bombing of the Alfred P. Murrah Federal Building in Oklahoma City, Oklahoma, which killed

168 people and injured more than 800,showed our nation the horrors of a terror attack in a major city. In the years that followed, attempted terrorist attacks like at the Seattle millennial celebration in 1999 were thankfully disrupted by law enforcement authorities.

Of course, everything changed when New York City and Washington, D.C. were attacked in 2001. Americans understood that an organized enemy was plotting and attempting spectacular terrorist attacks in American cities.

For the past ten years, Americans have struggled to know just how to respond—including our leaders and elected officials. Sensing that many major cities were not fully prepared for another September 11th style attack, Congress gathered more than 20 agencies into a new Department of Homeland Security (DHS).

DHS was tasked with managing several grant programs, including the Urban Area Security Initiative (UASI). UASI was one of several new federal programs aimed at ramping up preparedness and closing security gaps in major cities that were most at-risk.

UASI grants were designed to be start-up investments to help the most vulnerable urban areas enhance both their readiness and response capabilities. Officials in one urban area said it was well known that the grants were “seed money” and “everyone knew [federal] money would not be around forever.” Success for the UASI program, therefore, would be defined by it growing less needed, not more. DHS has since spent an estimated $35 billion on its grant programs over the past decade,4 including $7.144 billion for UASI Urban areas.

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After a decade in operation and many billions spent, it is unclear to what extent UASI and other DHS grant program have made our nation’s cities safer and more prepared. The question was given added urgency by this year’s significant reduction in the program’s funding and size.

Having grown rapidly from an early focus on seven major cities to as many as 64 in recent years, budgetary realities trimmed it back to 31 for 2012.

Large and small cities alike have been lobbying to get the funds restored to formerly high levels. This is especially true for cities that saw their funds dry up and aren’t traditionally considered the targets of terrorists, like Riverside, California; Bridgeport, Connecticut; Baton Rouge, Louisiana; Toledo, Ohio; Richmond, Virginia; Albany New York; and San Juan, Puerto Rico.

This report examines the UASI grant program, including a detailed review of 15 cities that have received funding through the program. It is intended to assess whether spending on DHS antiterrorism grants like UASI have made us safer, and whether the taxpayer dollars that have been spent on these programs have yielded an adequate return on investment in terms of improved security.

The results of the investigation find that taxpayer money spent on homeland security grant programs has not always been spent in ways obviously linked to terrorism or preparedness. Importantly, this does not mean money was spent outside the bounds of what was allowed. The decision by officials in Michigan to purchase 13 sno-cone machines and the $45 million that was spent by officials in Cook County, Illinois on a failed video surveillance network have already garnered national attention as examples of dubious spending. Both were defended or promoted by DHS.

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Other examples have not received as much attention. Columbus, Ohio recently used a $98,000 UASI grant to purchase an “underwater robot.”6 Local officials explained that it would be used to assist in underwater rescues.

Keene, New Hampshire, with a population just over 23,000 and a police force of 40, set aside UASI funds to buy a BearCat armored vehicle. Despite reporting only a single homicide in the prior two years,7 the City of Keene told DHS the vehicle was needed to patrol events like its annual pumpkin festival. Tulsa, Oklahoma used UASI funding to harden a county jail and purchase a color printer.

In 2009, Pittsburgh, Pennsylvania purchased for $88,0009 several “long-range acoustic device,” or LRAD, which is mounted on a truck and emits an ear-splitting sound. Local officials used it to disperse G-20 protestors, giving one bystander permanent hearing loss, but which they called “a kinder and gentler way to get people to leave.”

Peoria, Arizona spent $90,000 to install bollards and surveillance cameras at the Peoria Sports Complex, which is used for spring training by the San Diego Padres and Seattle Mariners. The Oxnard-Thousand Oaks UASI used $75,000 to also purchase surveillance equipment, alarms and closed-circuit television, which it installed in its Civic Arts Plaza, a local theater and cultural center.

UASI funds were also used for mundane expenses, such as paying the overtime costs of police and firefighters or purchasing new computers for the local emergency planning office. Some urban areas used their awards for local outreach, holding conferences, creating websites and posting videos on how citizens can spot signs of terror in their own neighborhoods. A video sponsored by the Jacksonville UASI alerted its residents to red flags such as people with “average or above average intelligence” or who displayed “increased frequency of prayer or religious behavior.”

When asked, FEMA could not explain precisely how the UASI program has closed security gaps or prepared the nation in the event of another attack. In part, FEMA has done very little oversight of the program, allowing cities to spend the money on almost anything they want, as long as it has broad ties to terror prevention.

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In fact, according to a June 2012 report by the Department of Homeland Security Inspector General, “FEMA did not have a system in place to determine the extent that Homeland Security Grant Program funds enhanced the states’ capabilities to prevent, deter, response to, and recover from terrorist attacks, major disasters and other emergencies before awarding more funds to the states.” Moreover, the agency failed to

issue preparedness goals, intended to shape the use of UASI funds, until last year—nine years after the program was created. Because of this, it is difficult to measure the gains with any specificity.

Any blame for problems in the UASI program, however, also falls on Congress, which is often more preoccupied with the amount of money sent to its cities than with how the money is spent, or whether it was ever needed in the first place. With so few accountability measures in place, there is almost no way to ensure taxpayers are getting value for their money, and more importantly, whether they are safer.

This report is a first step in identifying some of the problems that have developed with the UASI program in its first decade, as Congress and the administration consider reforming DHS grant program. In February 2012, the Department of Homeland Security proposed consolidating 16 homeland security grant programs, including the Urban Areas Security Initiative (UASI), into a single “National Preparedness Grant Program.”12 This proposal, to which the administration would dedicate $1.54 billion, would be a major change in how the department uses federal resources to buy-down risk.

Given our nearly $16 trillion national debt, and the federal government’s many competing responsibilities, it is important that Congress carefully consider what we can afford and what investments on anti-terrorism programs will yield the best return on investment in terms of improved security. Before Congress embraces a consolidation plan, and allocates another $35 billion14 in homeland security grants, it is essential that DHS’s address the difficulties it has had to this point implementing the Urban Areas Security Initiative (UASI) and other DHS grant programs.

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Conclusion and Recommendation

As part of the agency’s grant program reorganization, DHS needs to address how the agency will continue to meet is mission to provide funding to areas with the highest risk of terrorist attacks. The agency will also need to demand that the local and state partners conduct better oversight over the federal funds that they are in charge of managing.

Finally, DHS needs to implement a systematic approach to define and measure the preparedness capabilities it desires, and then assess whether those capabilities are being achieved as effectively and efficiently as possible.

More than ten years after 9/11, the federal budget realities of the United States does not allow us to assume that any taxpayer dollar spent in the name of preparedness is a dollar well spent. Since the list of needs will always exceed the money available, we have to prioritize the biggest risks and steer funding to those cities and urban areas. Transforming UASI into an entitlement program for states, rather than a program that protect our cities from terrorists, is in fact the failure of imagination we were warned about by the 9-11 Commission.

Our inquiry demonstrates a number of basic facts regarding the implementation of the UASI grant program:

  • The number of urban areas funded under UASI, while fluctuating from year to year, has grown since the program’s inception, resulting in resources being diverted from the most at-risk cities and urban areas.
  • Wide latitude is given to states and urban areas to determine the projects they will fund, and program parameters defining what constitute allowable expenses are extremely broad. This has resulted in many states and urban areas using homeland security grant funds to make questionable purchases or offset costs that otherwise would have been borne by state and local governments.
  • While DHS recently established its first National Preparedness Goal, it has yet to develop a robust assessment of the nation’s current preparedness capabilities or defined performance metrics to assess the effectiveness of federal expenditures made to date.

DHS is now proposing a major reorganization of all of its grant programs, including UASI, into a single grant program along with a request for an additional $1.5 billion in funding. This proposal offers an opportunity to pause and reassess a set of fundamental questions that are key to improving the effectiveness and accountability of taxpayer funds used to prepare and secure the nation from the threat of terrorist attacks.

How will DHS meet its fundamental mission to provide funding to the areas at highest risk of terrorist attacks for validated needs that enhance national goals? How will DHS better ensure that effective oversight of these funds takes place at the federal, state, and local level?

Finally, how and when will DHS implement a systematic approach to define and measure the preparedness capabilities it desires, and then assess whether those capabilities are being achieved as effectively and efficiently as possible? Failure by Congress to demand answers to these questions will continue to place billions of dollars in taxpayer money at risk and will perpetuate the structural deficiencies our review of this program has identified.

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One notable training-related event that was deemed an allowable expense by DHS was the HALO Counter-Terrorism Summit 2012. Held at the Paradise Point Resort & Spa on an island outside San Diego, the 5-day summit was deemed an allowable expense by DHS, permitting first responders to use grant funds for the $1,000 entrance fee.

Event organizers described the location for the training event as an island paradise: “the exotic beauty and lush grandeur of this unique island setting that creates a perfect backdrop for the HALO Counter-Terrorism Summit. This luxury resort features over 460 guestrooms, five pools, three fantastic restaurants overlooking the bay, a world-class spa and state-of-the-art fitness center. Paradise awaits…”

While the summit featured various training courses for participants, the HALO Corporation explained that a top goal was to bring together technology vendors and possible customers at first-responder agencies. According to the company’s promotional material, “The 2012 Summit is specifically designed to allow more interaction between those who develop the products and those who use them.” Over the course of the 5-day conference, numerous technology companies provided live-action demonstrations in an effort to drum up business.

“In my view it’s not how large your company is,” explained Brad Barker, president of HALO, in a promotional video, “I believe you should have the exact same access to the people who need it. At an event like this it’s a level playing field. Everybody’s going to get the same type of access because it’s five days. Imagine being on an island for five days with a limited number of people. By the end of the five days you’ll be on a first-name basis with a lot of the people who are interested in what you do.”

The marquee event over the summit, however, was its highly-promoted “zombie apocalypse” demonstration. Strategic Operations, a tactical training firm, was hired to put on a “zombie-driven show” designed to simulate a real-life terrorism event. The firm performed two shows on Halloween, which featured 40 actors dressed as zombies getting gunned down by a military tactical unit. Conference attendees were invited to watch the shows as part of their education in emergency response training.

Barker explained that, “the idea is to challenge authorities as they respond to extreme medical situations where people become crazed and violent, creating widespread fear and disorder.” According to the firm’s public relations manager, the exercise was brought about “utilizing Hollywood magic,” and setup in a “parking lot-sized movie set [with] state-of-the-art structures, pyrotechnic battlefield effects, medical special effects, vehicles and blank-firing weapons.” Barker added, however, “”This is a very real exercise, this is not some type of big costume party.”

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The Federal Government’s Long-Term Fiscal Outlook

GAO-13-148SP, Dec 3, 2012

Fall 2012 Update

GAO’s simulations continue to illustrate that the federal government is on an unsustainable long-term fiscal path. In both the Baseline Extended and Alternative simulations, debt held by the public grows as a share of gross domestic product (GDP) over the long term as shown in figure 1. While the timing and pace of growth varies depending on the assumptions used, neither set of assumptions achieves a sustainable path.

In the Baseline Extended simulation, which assumes current law, including the discretionary spending limits and other spending reductions contained in the Budget Control Act (BCA) of 2011 and expiration of certain tax cuts enacted in 2001 and 2003, debt as a share of GDP declines in the short term before turning up again.

In the Alternative simulation, in which these laws are assumed to not take full effect, federal debt as a share of GDP grows throughout the period. Discretionary spending limits alone do not address the fundamental imbalance between estimated revenue and spending, which is driven largely by the aging of the population and rising health care costs.

The Patient Protection and Affordable Care Act (PPACA) slows the growth of health care spending and federal debt under the Baseline Extended simulation, in which cost-containment mechanisms are assumed to be fully implemented and effective.

However, some have questioned whether these mechanisms can be sustained over the long term; this is reflected in GAO’s Alternative simulation.

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Figure 1: Debt Held by the Public under Two Fiscal Policy Simulations

Significant actions to change the long-term fiscal path must be taken and the design of these actions should take into account concerns about the near-term impact on economic growth.

In the near term, for example, the Baseline Extended simulation reflects a number of fiscal policy changes contained in current law that are projected to sharply reduce spending and raise revenue from their current levels beginning in 2013.

CBO, the Federal Reserve Board Chairman, and others project that such drastic fiscal tightening—commonly referred to as the “fiscal cliff”—could disrupt economic growth.

In the Alternative simulation, historcial trends and past policy preferences are assumed to continue; revenue is lower and spending is higher than in the Baseline Extended simulation.

While CBO projects that continuation of such polices would prevent disruptions to the economy in the very near term, it would lead to higher debt over the long term.

In both GAO simulations spending for the major health and retirement programs will increase in coming decades, putting greater pressure on the rest of the federal budget. For the first few decades this spending is driven largely by the aging of the population.

The oldest members of the baby-boom generation are already eligible for Social Security retirement benefits and for Medicare, and, as shown in figure 2, the number of baby boomers turning 65 is projected to grow in coming years from an average of about 7,600 per day in 2011 to more than 11,000 per day in 2029.

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Figure 2: Daily Average Number of People Turning 65 Each Year

Health care spending has been growing faster than the overall economy and is expected to continue growing as more members of the baby-boom generation become eligible for federal health programs and the cost of caring for each enrollee increases.

If PPACA is implemented as currently written and is effective, it would have a major effect on slowing the rate of growth in federal health care spending as shown in our Baseline Extended simulation.

In this simulation, spending on Medicare and Medicaid, the Children’s Health Insurance Program (CHIP), and exchange subsidies grows from 5 percent of GDP in 2010 to over 7 percent by 2030.

If, however, the cost containment measures are not sustained over the long term—a concern expressed by the Trustees, the CMS Actuary, the CBO, and others—spending on federal health care programs grows much more rapidly.

Spending on Medicare and Medicaid, CHIP, and exchange subsidies under the Alternative simulation grows to over 8 percent of GDP by 2030.

Figures 3 and 4 below show revenue and the composition of spending in the Baseline Extended and Alternative scenarios moving forward.

In the Baseline Extended simulation, not only is health care spending growth slower, but revenue as a share of the economy is higher and discretionary spending lower than at any point in the last 50 years.

Even in this simulation, revenue covers little more than spending on Social Security, Medicare, Medicaid, CHIP, exchange subsidies, and interest in 2040 (see fig. 3).

There is little room for “all other spending,” which includes not only national defense, homeland security, veteran’s health care, and investment in highways and mass transit, but also smaller entitlement programs such as farm price supports and student loans.

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Figure 3: Potential Fiscal Outcomes: Revenues and Composition of Spending in the Baseline Extended Simulation

As figure 4 shows, if the federal government continues on the current path, as assumed in the Alternative simulation, and borrows from the public to finance the growing imbalance between revenue and spending, by 2040 more than half of all federal revenue will go to net interest payments.

Overall, our simulations illustrate the difficult trade-offs that policymakers will have to consider in order to put the federal government on a more sustainable path.

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Figure 4: Potential Fiscal Outcomes: Revenues and Composition of Spending in the Alternative Simulation

Balancing Near-Term and Long-Term Considerations

One measure of the challenge over the long term is the “fiscal gap.” The fiscal gap represents the difference, or gap, between revenue and noninterest spending over a certain period, such as 75 years, that would need to be closed in order to achieve a specified debt level at the end of the period.

From the fiscal gap, one can calculate the size of action needed—in terms of tax increases, spending reductions, or, more likely, some combination of the two—to close the gap.

For example, to keep debt held by the public as a share of GDP in 2086 from exceeding its level at the beginning of 2012 (roughly 68 percent of GDP) in our Alternative simulation, the fiscal gap is 8.3 percent of GDP.

This means that revenue would have to increase by 46 percent or noninterest spending would have to be reduced by about 32 percent (or some combination of the two) on average over the 75-year period. Even more significant changes would be needed to reduce debt to lower levels.

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Figure 5: Debt Held by the Public under Fiscal Policy Simulations with Different Assumptions for Major Entitlement Programs

The simulation results depend largely on what is assumed about growth in large entitlement programs. As in previous updates, we also show the Baseline Extended simulation using both Trustees and CBO estimates for long-term spending on Social Security and major health entitlement programs (Medicare, Medicaid, and others).

In addition, we show the Alternative simulation using different assumptions about certain health care cost-containment provisions based on CBO and CMS Actuary alternative projections. As figure 5 shows, the results are not materially different. The outlook under either set of assumptions is unsustainable.

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When considering action to address the longer-term fiscal challenge, it is important to recognize the current state of the economy.

With this in mind, policy changes could be designed to phase in over time allowing for the economy to fully recover and for people to adjust to the changes. However, the longer action is delayed the greater the risk that the eventual changes will be disruptive and destabilizing.

Under our Alternative simulation, waiting 10 years would increase the fiscal gap to nearly 10 percent of GDP—meaning a revenue increase of more than 54 percent or a noninterest spending cut of about 37 percent or some combination of the two would be required to bring debt held by the public back to its level in 2012 by 2086.

Concluding Observations

Addressing the long-term fiscal challenge will likely require difficult choices affecting both revenue and spending. In addition, the need to act soon to develop a plan for addressing the long-term fiscal imbalance must be balanced with concerns about the near-term impact of policy decisions.

Action now would allow for the greatest range of options to address the fiscal imbalance and strengthen the economy for the long term. Many of the long-term drivers highlighted in past updates, including health care cost growth and the aging population, have already begun to affect the federal budget. These are challenges for which there are no quick or easy solutions.

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