David R. Henderson  

Quote of the Day: Alan Reynolds

Economics Lessons from the Min... The Literature of Nonviolent R...

In writing on the recent paper by Robert Rector and Jason Richwine ("The Fiscal Cost of Unlawful Immigrants and Amnesty to the U.S. Taxpayer"), which found that U.S. governments spend more on households headed by illegal immigrants than those immigrants pay in taxes, Alan Reynolds writes:

It is hardly shocking to learn that federal, state, and local governments spent more on unlawful immigrants than they received in taxes, since governments spent more on nearly everyone than they received in taxes. That is what happens when governments run big budget deficits.

Reynolds's piece is appropriately sub-titled "Rector and Richwine Rediscover Budget Deficits."

Comments and Sharing

COMMENTS (11 to date)
Arthur_500 writes:

illegal immigration does not always produce individuals who do not pay taxes. In fact many individuals pay taxes to state, local and federal governments and receive nothing in return.
One case involved an individual who paid Union dues, local, state and federal taxes all in the name and social security number of some other individual. When he became legal the Union told him to start from zero and the same for all his State and Federal taxes. All those funds went into the coffers for nothing in return.

That said, I still do not understand why we keep people who we know are illegal. If we don't like the laws change them but in the meantime we should enforce them. At least we will know how much we dislike the existing laws and work that much harder to change them.

S writes:

Given that a majority of Americans are net tax consumers (I am assuming, I really dont know) it would be odd that immigrants, as currently distributed, would be net contributors.

The argument that adding more therefore doesn't matter is lost on me.


Bob Murphy writes:

Oh my gosh, I don't know if I would have thought of that, even though it's obvious in retrospect. Let's hope I would have...

David R. Henderson writes:

@Bob Murphy,
Diogenes can stop his search. I know I didn't think of it either.

Aneirin writes:

Part of it is also the fact that they counted the cost of educating children, but not expected future tax revenues from said children. The way they did the accounting led to a negative result for the vast majority of households with children in public schools.

Ghost of Christmas Past writes:

Prof. Henderson (and Bob Murphy; please amigo! You know better!):

Government spends more than it collects on everyone? Road apples! TANSTAAFL!

Unless you believe in a large Keynesian multiplier you must admit that even without perfect Ricardian Equivalence today's deficits are basically taxes either delayed slightly or
collected by way of currency devaluation in either case with considerable deadweight loss.

So Americans do pay for all the benefits* their oh-so wise government bestows upon them.

However, while all Americans pay "on the average," they don't really pay evenly. The top 40% by household income actually pay and the bottom 60% get paid (be sure to check out the graph) [lumping together citizens and immigrants]. I won't even get into "unfunded mandates" such as EMTALA which act as transfer payments, nor debate whether old-age entitlement spending should be analyzed separately.

If immigration swells the numbers in the bottom three income quintiles faster than it boosts the numbers in the top two quintiles (it does) then immigrants are indeed a fiscal drain on citizens (and note well, even if you credit Bryan Caplan's empirically-false-over-nearly-five-decades claim that increasing immigration will reduce welfare spending (in the real world, from 1965 US welfare spending and immigration (40 million from 1965 to 2008, 50% from Latin America mainly Mexico, discounting illegal aliens and (many, many) immigrants' US-born offspring) increased together), immigrants claiming a larger share of welfare spending would crowd out poor citizens to their (fiscal) detriment).

So consider, as of the late 1990's* 75% of foreign immigrants to the bellwether State of California ended up in the lower 60% of the income distribution. In fact, low-skill immigration to California substantially drove the increase in income inequality in that state, and greatly increased the burden on net taxpayers, mostly citizens. (Immigrants' children made things much worse.)

Before the great recession began, California attracted primarily uneducated immigrants, but from 2007 to 2011, 47% of immigrants to Calif. have had bachelors' degrees (mostly Asians, chiefly Chinese). The great recession threw so many low-skilled people out of work in California that even poor Latin Americans figured they would be more comfortable underemployed at home than idle in California.

There are (at least) two possibilities going forward. (1) Low-skilled immigration will increase until it dominates as before, in which case the net harm to citizens will increase apace. (2) High-skilled immigration will continue to dominate, moderating but not eliminating transfer spending on immigrants. Option (2) will fail to fulfill Bryan Caplan's frantic longing for the world's least-skilled to immigrate to the US, so what would be the point? In any case, the only way to make immigration a net positive for citizens is to strictly limit it.

But now forget Alan Reynold's bogus "money grows on trees" back-of-the-envelope insinuation that low-skilled immigrants don't cost citizens anything. Consider Peter Schaefer's non-bogus back-of-the-envelope demonstration that low-skilled immigration is a fiscal disaster because low-skilled immigrants earn too little to ever pay for their health care in America-- since America now spends an average of $12/labor-hour for healthcare (averaged over all healthcare costs and all hours worked in the USA), too much for even a 100% income tax on low-skilled workers to recoup. (Summary healthcare spending data for the curious or skeptical.)

*Plus massive cronyism, waste, fraud, and abuse.
**Latest politically-neutral professional report I have a link to.

John Thacker writes:
The way they did the accounting led to a negative result for the vast majority of households with children in public schools.

Although in some sense this isn't surprising, given the same man founded some of the big anti-immigration groups and was one of Zero Population Growth's founders. (Though most of the rank and file of both groups may well disagree with the other groups.)

Daublin writes:


Surely, for the sake of optimism, we should assume that the U.S. will eventually balance its budget.

Not that I have any reason to *expect* this is true. It just seems pointless to discuss financial decisions if we assume the U.S. will stay on its current course of slow suicide.

R Richard Schweitzer writes:

Back on 14/07/2012 Greg Mankiw published the following information (on his blog) based on his research using the statistical information compiled by the Congressional Budget Office.

The “transfer payments” referred to are actual beneficial payments made to taxpayers by the United States government; they are not deductions or exemptions from taxation nor are they tax credits.

Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received. For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

Bottom quintile: -301 percent}
Second quintile: -42 percent } effective tax rate is negative
Middle quintile: -5 percent }
Fourth quintile: 10 percent
Highest quintile: 22 percent

Top one percent: 28 percent

The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned. When the tax rate is negative, that means that the taxpayer received more in payments from the government than the taxpayer sent to the government as taxes of any kind.

The most surprising fact to me was that the effective tax rate is negative for the middle quintile. According to the CBO data, this number was +14 percent in 1979 (when the data begin) and remained positive through 2007. It was negative 0.5 percent in 2008, and negative 5 percent in 2009. That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess

I should like to see this updated

Evan_S writes:

I'm not sure why I should be so horrified that government loses money on illegal immigrants. IMO there are much worse ways that it could be spending its money (e.g. wars, bank bailouts, enforcement of regulations) so transfer payments to the indigent seem pretty innocuous by comparison.

Yancey Ward writes:

Reynolds point is good, but then hasn't the entire issue about the effect of immigration reform on the government debt now been reduced to the old saw that "Sure, we lose money on every product we sell, but we will make it up on volume"?

Comments for this entry have been closed
Return to top