The fiscal impact of immigration can be felt at every level of government, straining the resources of federal, state, and local taxpayers alike. So it is frustrating that the mainstream media focus almost exclusively on the federal budgetary consequences of immigration.
For example, when the Congressional Budget Office (CBO) scored the Schumer-Rubio amnesty bill from 2013, it analyzed only federal effects (except for a narrow set of unfunded mandates related to immigration enforcement). That analysis did not focus on the amnesty portion of the legislation; it combined some positive assumptions about future legal immigrants and came up with a slightly positive fiscal impact at the federal level. None of this stopped Sen. Chuck Schumer (D-N.Y.) from proclaiming that the CBO's report "proves once and for all that immigration reform is not only right to do to stay true to our nation's principles, it will also boost our economy, reduce the deficit, and create jobs." How Sen. Schumer could draw that conclusion without any estimate of the state and local effects is not clear.
Another example is the recent surge of illegal "unaccompanied alien children" from Central America. As the Obama administration helped settle the new arrivals throughout the United States, almost no one — with the exception of the Federation for American Immigration Reform — seemed to ask what the impact would be on state and local services, particularly free schooling for children who have a poor command of English.
In this context, a new report from the Institute on Taxation and Economic Policy (ITEP), "Undocumented Immigrants' State and Local Tax Contributions", seemed at first like a breath of fresh air. But ITEP is interested only in promoting the tax collection side of the ledger, with no reference to the spending side. The report calculates that illegal immigrants currently pay roughly $12 billion in state and local taxes, and amnesty would raise that number to about $14 billion. There is no mention of the cost of services received by illegal immigrants, before or after amnesty.
Of course, all technical reports have to be reasonably limited in scope — otherwise the researchers would never finish their work — and ITEP's organizational focus is on taxation. But by not estimating costs, the report is not very useful. We already knew that illegal immigrants pay billions in taxes. After all, there are some 10 to 12 million illegal immigrants in the country and they have some four million U.S.-born children (under age 18). But how could anyone celebrate the taxes paid by illegal immigrants if the services they receive exceed those payments?
When the Heritage Foundation calculated the state and local taxes illegal immigrants' paid, they estimated it as $17.6 billion in 2013, more than the ITEP estimate. But their overall finding was that when all the taxes illegals paid and the all the services they used were included, illegals created a net fiscal deficit of $54.5 billion annually at all levels of government.
In my prior research, I found that illegal immigrants paid about $16 billion in taxes to the federal government. But they created $26 billion in costs, for a net fiscal drain of about $10 billion in 2002 at the federal level. Paying taxes is no guarantee that illegal immigrants are going to be a net fiscal benefit, now or after amnesty.
Like the Heritage study, I found that the primary reason illegal immigrants are a net fiscal drain is not their illegal status, but the large share with very low levels of education. In the modern American economy, workers with few years of schooling have low average wages and make relatively modest tax payments as a result. Further they and their children often qualify for means-tested programs. This is true for both less-educated immigrants and less-educated native-born citizens.
If the authors of the ITEP wanted to stay focused only on taxes, they still could have reported illegal immigrants' tax payments relative to their share of the total population. This would have at least provided insight into whether illegal immigrants are paying taxes commensurate with their population size and the likely costs they create. Or perhaps they could have reported the average tax payments of the native-born and compared this to the average tax payments of illegal immigrants. This, too, could have provided insight into the likely overall fiscal impact of illegal immigrants.
Instead, ITEP provided information in their report that can be used to make polemical points, but is not all that relevant to policymakers. For example, the report provides the "effective tax rate" of illegal immigrants compared to those in the top 1 percent of the income distribution and found that illegals often pay a higher rate. But this means very little when thinking about policy. If the policy debate is whether to legalize illegal immigrants or to enforce the law and encourage them to go home, then the question is not their tax rate, but their actual fiscal impact. After all, those with high incomes make many times what illegal immigrants earn. So if they pay, say, 5 percent of their income, while illegal immigrants pay 8 percent of theirs, the high-income Americans are still paying many times in taxes what illegal immigrants are paying.
That households headed by illegal immigrants have a negative effect on taxes seems almost certain. Consider the following: ITEP estimates about $14 billion in taxes paid by illegal immigrants at the state and local level. But there are three to four million children from illegal immigrant households in public schools. The average cost per pupil in the United States is about $12,000. So the total cost of educating children from illegal immigrant households must be at least $36 billion annually — about 90 percent of which comes from state and local sources. Thus the ITEP study estimates indicate that there is simply no way illegal immigrants can pay enough in state and local taxes to cover the education of their children, let alone all the other services they use.
That less-educated immigrants (like less-educated native-born citizens) are a net fiscal drain — creating more in costs than they pay in taxes — is certainly not a moral failing on their part. They are merely participating in the U.S. government's highly redistributive system of taxing and spending. By design, Americans with lower levels of education and resulting low education incomes are supposed to make modest tax contributions and receive more in benefits than they pay in taxes. Illegal immigrants are no exception. They have on average a 10th-grade education. The question for policy makers is: Does our continued toleration of ongoing illegal immigration make sense? And what should we do with illegal immigrants already here? Unfortunately, the ITEP study does not give us much insight into those key questions.