Immigration could reduce the deficit by at least $1 trillion over the next decade

The United States Capitol next to 100 dollar billsThe United States Capitol next to 100 dollar bills
(Photo 181642336 © Zimmytws |

One of the standard rationales for immigration restrictions is the idea that immigrants overburden the welfare state, thereby increasing tax burdens on natives. In reality, just the opposite is true. Immigration actually reduces these burdens, net. A new report from the Congressional Budget Office (CBO) estimates that immigration will reduce the federal budget deficit by about $1 trillion over the next decade. Reasons Eric Boehm summarizes the implications:

Higher levels of immigration are boosting the American economy and will reduce the deficit by about $1 trillion over the next decade.

In its semiannual forecast of the country’s fiscal and economic conditions, released this week, the Congressional Budget Office slightly lowered its expectations for this year’s federal budget deficit. CBO now projects that the federal government will have a deficit of $1.5 trillion, down from the previously projected $1.6 trillion deficit.

This reduction is due in part to higher-than-expected economic growth, which the CBO attributes to “more people working.” The workforce grew by 5.2 million people over the past year, “largely due to increased net immigration.”

More immigrants will also help reduce future budget deficits, which are projected to average $2 trillion a year over the next 10 years, meaning any help is desperately needed.

Changes in the workforce over the past year will result in $7 trillion in increased economic output over the next decade, according to the CBO. estimates“and revenues will be about $1 trillion higher than they otherwise would have been….”

“The higher growth rate of potential GDP over the next five years results primarily from rapid labor force growth, reflecting a surge in the rate of net immigration,” concludes the CBO, which expects higher-than-normal immigration levels at least until 2026.

Of course, this isn’t exactly rocket science. More workers equals more economic output and more growth, which in turn leads to more tax revenue to help offset some of the federal government’s seemingly insatiable spending appetite. Sometimes economics can be very confusing, but the formula is as simple as it can be.

America’s current population is aging, which puts a strain on old-age assistance programs and means fewer productive workers in the economy. Thankfully, this is not true for the country’s immigrants: “A large percentage of recent and intended immigrants are expected to be between the ages of 25 and 54, that is, adults in their prime working years…”

It also aligns with what other studies have repeatedly shown: More legal immigration grows the economy, helps fund government programs, and does not strain entitlements or welfare programs.

As Boehm notes, CBO likely underestimates the beneficial fiscal effects of immigration because the agency is not permitted to use a “dynamic” score to evaluate them. Furthermore, CBO does not consider immigrants’ disproportionate contributions to entrepreneurship, innovation, and scientific research, which further stimulate economic growth and productivity, and thus also improve the government’s fiscal position.

There is, however, an important caveat to the CBO’s otherwise optimistic assessment: It assumes that immigration will remain at about current levels or even higher until at least 2026. This is unlikely to happen if Donald Trump returns to power and brings ahead with his plans to drastically reduce immigration. – including the legal one. During his previous term, Trump cut legal immigration in half. In reality he has been much more successful on this front than on the illegal one. In a second term, Trump would likely go even further. The predictable result will be lower economic growth, less entrepreneurship and innovation, and significantly higher deficits.

Biden’s presidency has been a mixed bag at best. His tax situation is highly problematic. But one of his most important accomplishments was returning immigration to pre-Trump/pre-pandemic levels. If Trump returned to power, he would likely reverse the situation.

Of course, fiscal effects are not the only possible justifications for cutting immigration. Restrictionists can still argue for reducing it on the grounds that immigrants increase crime, damage political institutions, make bad decisions at the polls after becoming voters, spread harmful cultural values, and so on. If such harms were large enough, they could outweigh even very large beneficial fiscal effects. I address these and other motivations behind restrictionism in detail in Chapters 5 and 6 of my book Freedom of movement: popular vote, migration and political freedom.

But the supposedly adverse fiscal effects are still a significant restrictive argument, especially among those who consider themselves libertarians or fiscal conservatives. The CBO report adds to the already abundant evidence showing that such concerns are not only misplaced, but counterproductive. Far from increasing the tax burden on natives, immigration actually reduces it.

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