June 24, 2013

CBO: Immigration Reform Would Cut Deficit, Boost Economy

White House economic team also notes postive effects reform would have on Social Security

A man at a rally in April for immigration reform. (Photo: AP) A man at a rally in April for immigration reform. (Photo: AP)

Immigration reform would reduce the United States’ deficit by approximately $200 billion and increase real GDP by 3.3% in the next 10 years, according to the Congressional Budget Office’s recently released score of the Senate’s immigration reform bill, S. 744.

In a June 18 White House blog post, Sylvia Mathews Burwell, director of the White House Office of Management and Budget; Alan Krueger, chairman of the Council of Economic Advisors; and Gene Sperling, director of the National Economic Council, analyzed the CBO’s report on the Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744).

The administration’s three economic gurus note that the CBO and Joint Committee on Taxation report says the Senate’s bill would increase real GDP by 3.3% in 2023, and 5.4% in 2033, a real increase of roughly $700 billion in 2023 and $1.4 trillion in 2033, “due to higher labor force participation, increased capital investment, and increased productivity resulting from technological advancements, such as new innovations and improvements in the production process.’”

Sen. Charles Schumer, D-N.Y., said Thursday on the Senate floor that the legislation was near a “bipartisan” agreement, “barring something unexpected.”

While some drafting of the legislative language has yet to be completed, Schumer said, lawmakers “are on the verge of a huge breakthrough on border security. With this agreement, we believe we have the makings of a strong, bipartisan final vote in favor of this immigration reform bill.”

CBO estimates that “Fixing our broken immigration system,” will reduce federal deficits by about $200 billion over the next 10 years, and about $700 billion in the second decade, the White House analysts note.

“The CBO analysis made clear that the additional taxes paid by new and legalizing immigrants would not only offset any new spending, but would be substantial enough to reduce the deficit over the 20-year window,” the three economic analysts said. “A significant portion of the new taxes would be paid by previously undocumented immigrants. While many of these workers already pay federal taxes, millions more will pay payroll taxes once they are able to obtain legal status and work above board.”

Specifically, CBO and Joint Committee on Taxation estimate in their report that enacting S. 744 would have the following budgetary effects:

  • Increase federal direct spending by $262 billion over the 2014–2023 period. Most of those outlays would be for increases in refundable tax credits stemming from the larger U.S. population under the bill and in spending on health care programs—particularly for the Medicaid program and for subsidies provided through insurance exchanges created under the Affordable Care Act (ACA).
  • Increase federal revenues by $459 billion over the 2014–2023 period. That increase would stem largely from additional collections of income and payroll taxes, reflecting both an increase in the size of the U.S. labor force and changes in the legal status of some current workers.
  • Decrease federal budget deficits through the changes in direct spending and revenues just discussed by $197 billion over the 2014–2023 period. Because enacting the bill would affect direct spending and revenues, pay-as-you-go procedures apply. Those procedures consider only the on-budget effects of legislation and not the off-budget effects, such as the effects on Social Security taxes and spending.

As to the legislation’s effect on Social Security, Burwell, Krueger and Sperling cite comments made by the Social Security chief actuary in early May that the bill “will strengthen the solvency of the Social Security Trust Fund in the short run and the long run by reforming the legal immigration system and increasing by millions the number of currently undocumented workers who will be paying payroll taxes.”

The Chief Actuary said that, “Overall, we anticipate that the net effect of this bill on the long-range OASDI [Social Security] actuarial balance will be positive.”

Because most immigrants are young, Burwell, Krueger and Sperling write in their blog, “additional immigration helps balance out the increase in retirees per worker that will occur as the Baby Boom generation retires.” The recently-issued 2013 Social Security Trustees Report shows “that an increase of about 25% in annual net immigration flows would reduce the 75-year Social Security imbalance by 7%.”

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Check out Immigration Reform May Bruise Stocks by Alexei Bayer on AdvisorOne.

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