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So far, this report has generally concentrated on public service use by Mexican immigrants; however, this is only half of the fiscal equation. Immigrants also pay taxes to federal, state, and local governments. The CPS contains estimated federal income tax liabilities for those in the sample. These estimates are based on adjusted gross income, number of dependents, and other tax characteristics. These estimates are useful because they can provide some insight into the likely tax payments made by immigrants and natives. Because of their much lower incomes and their larger family size, Mexican immigrants pay dramatically less in federal income taxes than do natives. The March 2000 CPS indicates that in 1999, the average federal income tax payment by households headed by Mexican immigrants was $2,156, less than one third of the $7,255 average tax contribution made by native households. By design, the federal income tax system is supposed to tax those with higher income and fewer dependents at higher rates than those with lower income and more dependents. So the much lower income tax contributions of Mexican immigrants simply reflect the tax code and not some systematic attempt by Mexican immigrants to avoid paying taxes.
In 1999, 74 percent of households headed by natives had to pay at least some federal income tax, compared to only 59 percent of Mexican immigrant households. Even if one confines the analysis to legal Mexican immigrants, the gap between their tax contributions and those of natives remains large. Using the same method as before to distinguish legal and illegal Mexican immigrant households, the estimated federal income liability of households headed by legal Mexican immigrants in 1999 was $2,538. Thus, the very low tax contribution of Mexican immigrants is not simply or even mostly a function of legal status, but rather reflects their much lower incomes and larger average family size.
The much lower tax payments made by Mexican immigrants point to a fundamental problem associated with unskilled immigration that seems unavoidable. Even if Mexican Immigrants’ use of public services were roughly equal to natives, there would still be a significant drain on public coffers because their average tax payments would be much lower. While much of the fiscal concern centers on use of means-tested programs, clearly tax payments matter at least as much when evaluating the fiscal impact of Mexican immigration. Changing welfare eligibility or other efforts designed to reduce immigrant use of public services will not change the fact that Mexican immigrants pay significantly less in taxes than natives.
While the above analysis provides some insight into the impact of Mexican immigrants on tax receipts at the federal level, it does not show the total fiscal impact of Mexican immigration. Over the last decade, a number of studies have attempted to estimate the total fiscal impact (tax payments minus services used) of immigrants on the United States at the federal, state, and local levels.
The most comprehensive research on this subject was done by the National Research Council (NRC), which is part of the National Academy of Sciences. The study, conducted in 1997, found that more-educated immigrants tend to have higher earnings, lower rates of public service use, and as a result pay more in taxes than they use in services. In contrast, the NRC found that because of their lower incomes and resulting lower tax payments coupled with their heavy use of public services, less-educated immigrants use significantly more in services than they pay in taxes. The NRC estimates indicated that the average immigrant without a high school education imposes a net fiscal burden on public coffers of $89,000 during the course of his or her lifetime. The average immigrant with only a high school education creates a lifetime fiscal burden of $31,000. In contrast, the average immigrant with more than a high school education was found to have a positive fiscal impact of $105,000 in his or her lifetime. The NAS further estimated that the total combined fiscal impact of the average immigrant (all educational categories included) was a negative $3,000. Thus, when all immigrants are examined they are found to have a modest negative impact on public coffers. These figures are only for the original immigrant, they do not include public services used or taxes paid by their U.S.-born descendants.
Using the fiscal analysis developed by the NRC, it is possible to roughly estimate the fiscal effect of adult Mexican immigrants on the United States. Applying the NRC’s estimates by educational attainment and age is possible because the NRC’s research is based on the same data as this study — the March Current Population Survey.28 Using the estimates developed by the NRC and based on the educational attainment and age of newly arrived adult Mexican immigrants in 2000, we find that the lifetime fiscal burden created by the average adult Mexican immigrant is $50,300.29 It should be pointed out that these figures were based on 1996 dollars. Adjusted for inflation, the fiscal burden would be $55,200 in 2000.
Since a very large share of Mexican immigrants have little formal education, the fiscal burden they create seems unavoidable. The modern American labor market offers very limited opportunities for the unskilled — immigrant or native. It therefore should come as no surprise that they use a great deal more in public services than they pay in taxes during the course of their lives. While consistent with previous research as well as common sense, the large fiscal deficit created by Mexican immigration should sound a cautionary note to those who argue that there is no harm in allowing large numbers of unskilled workers from Mexico into the country. Even if employers wish to have access to unskilled immigrant labor, the cost to taxpayers indicates that for the nation this may not be wise. Mexican immigration becomes, in effect, a subsidy for employers of unskilled labor, with taxpayers providing services such as education, health insurance and medical care, and income-transfer programs such as the Earned Income Tax Credit to workers who, because of their low incomes, pay nowhere near enough in taxes to cover their consumption of services.
28 The NRC’s study included both legal and illegal immigrants and used the March 1994 and 1995 CPS.
29 The NRC study does include estimates for the fiscal effects of immigrants who arrive as children based on assumptions about the educational level they will attain when they reach adulthood. In this report, we ignore immigrant children and confine our estimates only to adults 21 years of age and older. Based on the March 2000 CPS, we find that the average age for an adult Mexican immigrant is 30 years and that 67 percent are dropouts, 21 percent are high school graduates only, and 12 percent have at least some college. The NRC study found that the lifetime fiscal effects for persons who are 30 when they arrive is as follows: -$99,919 for dropouts, -$14,122 for those with a high school education and +$163,452 for those with some college. (We would like to thank the authors of the NRC study for providing us with their detailed fiscal estimates by age and educational attainment.)