Lets Cut Benefits, Not Immigration

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A misleading Heritage Foundation report by economists Robert Rector and Jason Richwine concludes that legalizing undocumented workers will cost America $6.3 trillion over the immigrants' lifetimes.

The report is deceptive because it assumes, contrary to empirical evidence, no increased economic efficiency from immigration and no economic mobility. It doesn't discuss numerous benefits to national security from legalizing and making it easier to track America's11 million undocumented workers.

Yes, as the authors point out, America has a welfare problem. Over 47 million people, the vast majority native-born Americans, are on food stamps almost four years after the beginning of the economic recovery. Means tested benefits, healthcare under the Affordable Care Act, and retiree benefits are increasingly expensive, and these costs need to be brought under control for everyone.

But that's not the same as an immigration problem. If we're concerned that benefits are keeping people in poverty and impeding upward mobility, we should cut benefits, not immigrants.

The timing of the report is not coincidental. The Heritage Foundation, under the leadership of its new president, former South Carolina Republican senator Jim DeMint, released the document with its eye-popping $6.3 trillion price tag in order to attempt to derail the Senate bipartisan immigration bill. The bill's sponsors include Republicans Marco Rubio of Florida and Lindsay Graham of South Carolina, and Democrats Charles Schumer of New York and Dick Durbin of Illinois.

Entitled the Border Security, Economic Opportunity, and Immigration Modernization Act, the immigration bill would improve border security and grant provisional work status to undocumented workers. Upon payment of fines and penalties, immigrants would be able to get to the back of the line to receive green cards.

The report refers to the legalization process as "amnesty," deliberately overlooking the penalties required to be paid by undocumented workers in order to receive legal status. The term "amnesty" is a misreading of the immigration bill, inserted to prevent the bill from becoming law.

The report assumes all will choose naturalization and all will be on welfare. Federal Reserve Bank of Dallas economist Pia Orrenius told me on Monday, "Less than half of currently eligible Mexicans have naturalized. Overall, only about two-thirds of eligible immigrants have naturalized." Many return home, having paid Social Security taxes without collecting any benefits.

Table 7 of the report shows that in the "interim phase," after immigrants have received legal status but before they qualify for welfare benefits, the fiscal deficit per household declines by $2,000 per year. After the interim phase, which could take 5 to 15 years, the deficit rises by $15,000 annually from current levels, primarily due to increased spending on healthcare and means-tested benefits. One solution: cut benefits.

As University of Chicago professor Casey Mulligan documented in his new book, The Redistribution Recession: How Labor Market Distortions Contracted the Economy (Oxford University Press, 2012), benefits are a major reason why the proportion of working-age Americans who have jobs or who are looking for them has been falling, even though employment has been expanding, albeit fitfully and at a sluggish pace. Eligibility has increased, and the programs have become more generous.

The report assumes that immigrants stay poor, contrary to data on income mobility from the U.S. Department of the Treasury.

In an analysis of individuals' tax return data, Treasury economists Gerald Auten and Geoffrey Gee found considerable mobility between income groups during the periods 1987 to 1996, and 1996 to 2005. Over 50 percent of taxpayers moved to a different fifth of the income distribution, and over 50 percent of those who started in the bottom fifth moved to another fifth. One reason for moving to another quintile was marriage.

The Treasury data show a clear picture of high income mobility for the vast majority of workers. Using a sample of individuals aged between 25 and 64, Auten and Gee found that 56 percent of those in the lowest fifth had moved to a higher fifth 10 years later. Almost 30 percent went to the second fifth, and 27 percent moved up two or more fifths. The Heritage report doesn't mention the Treasury study.

Further, the Heritage report neglects multiple ways that immigration benefits U.S. economic growth and native-born Americans. Here are examples.

Immigrants Raise Wages of Native-Born Americans. Immigrants complement the skills of native-born Americans because there are proportionately more adults without high school diplomas, and more adults with PhDs in math and science. Hence, immigrants increase economic efficiency and raise Americans' wages by reducing labor shortages in low- and high-skilled markets. Their educational backgrounds fill holes in the native-born labor market.

Increased immigration would expand the American work-force, and encourage more business start-ups. Businesses ranging from Apple, Inc. to apple growers would be able to find additional workers in America. University of California economist Giovanni Peri has calculated that immigration raised wages of native-born Americans by six tenths of a percent during the period from 1990 to 2006.

America Needs More High-Skill Workers. One way to understand the benefits of immigration for America is to examine the role of foreigners in start-ups. Start-ups lead to economic growth, and immigrants found new companies in America at greater rates than do the native-born. Google, Intel, Yahoo, eBay, and PayPal had immigrant founders. None were mentioned in the Heritage report.

America Needs More Low-Skill Workers. Few Americans want careers cleaning hotel rooms or picking fruit, but low-skill immigrants want these jobs. Farms provide income to Americans employed not only in farming, but also in trucking and distribution. If farmers cannot find workers to pick fruit, as was the case in Washington State for the 2012 apple crop, products will be imported from countries with low-skill labor. It makes little sense for agricultural production to become uneconomic to avoid employing immigrants.

Immigrants Generate GDP and Tax Revenue. Technology Policy Institute fellow Arlene Holen has estimated that if no green card or H-1B visa constraints had existed in the period 2003 to 2007, an additional 182,000 foreign graduates in science and technology fields would have remained in America. Their contribution to GDP would have been $14 billion in 2008, including $2.7 billion to $3.6 billion in tax payments. Three hundred thousand H-1B visa holders would also have remained in the U.S. labor force, earning $23 billion in 2008 and generating $34 to $47 billion in tax revenue over the next decade.

Immigration Improves America's Demographics. Declining fertility rates mean that a shrinking pool of workers is responsible for an expanding group of retirees. America's fertility rate is declining, and between 2005 and 2010 it was 2.07 children per woman, barely above replacement rate. Immigrants have higher fertility rates than native-born Americans, and can keep the workforce growing.

Uncle Sam Could Sell Visas and Work Permits. Recently several economists, such as Orrenius and University of Chicago Nobel prize winner Gary Becker, have proposed auctioning off work permits to employers or visas to individuals. Such funds could be used to reduce the deficit, or distributed to those parts of the country, such as California and Arizona, to offset costs of security and educating immigrants' children. Orrenius suggests initial minimum prices for permits, fluctuating according to demand, of $10,000 for a high-skill permit, $6,000 for a low-skill permit, and $2,000 for a seasonal permit. Becker would price the visas higher, at $50,000. The Heritage report doesn't mention the possibility of auctioning off visas to raise revenue.

America is losing talented potential immigrants to other nations, resulting in declining competitiveness. By neglecting benefits of legal immigration, the Heritage report presents a misleading view of reform legislation under discussion in Congress.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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