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May 29, 2007

National Data, By Edwin S. Rubenstein
"Path To Citizenship" Goes Through U.S. Taxpayer's Pocket

Here's a question Tamar Jacoby's pollsters should ask Americans: would
you support a "path to citizenship" [Bushspeak for amnesty] if you
knew it would cost you, oh, say $2.4 trillion?

Robert Rector, the reigning domestic policy expert at Heritage
Foundation, has shown that it will.

It works like this: In recent testimony before the House Judiciary
Committee, Rector calculates the fiscal deficit of households headed
by immigrants who lack a high school diploma. He finds that the
average uneducated immigrant household:

Receives $30,164 in government benefits

Pays $10,573 in government taxes

Generates a fiscal deficit of $19,588 ($30,164 less $10,573)

There are about 4.5 million such households, implying that the fiscal
deficit (benefits received less taxes paid) for all poorly educated
immigrant households equals $89.1 billion (4.5 million times $19,588).
More than half of this deficit-$49.1 billion-occurs at the state and
local government level.

Bottom line, according to Rector: Eighty-nine billion dollars a year,
or about 0.6 percent of GDP, is transferred from native taxpayers to
immigrant beneficiaries.

This amount far exceeds the infinitesimal gains in native before-tax
income that earlier studies have attributed to immigration. Thus
Rector's study shows that immigration is reducing the living standards
of U.S. natives.

Here's how amnesty fits in:

About 41 percent of these uneducated immigrant households are headed
by illegal aliens. They are eligible for many of the same benefits
received by legals, notably public education. (At $7,737 per
household, public education accounts for more than one-quarter of all
government costs associated with immigrants.) And while illegals
themselves are technically ineligible for welfare-unless you think
they might lie-their U.S.-born children receive the full gamut of
means-tested welfare benefits. The biggest difference occurs in Social
Security and Medicare.

In an editorial [May 24, 2007] attacking Rector's fiscal impact study,
the Wall Street Journal notes what everyone already knows: immigrants
generally come here when they are young and working. Seventy percent
are 20 to 54, compared to only half of natives. Just two percent of
immigrants are over 65 when they arrive. So immigrants contribute
payroll taxes for some years before they collect Social Security and
Medicare. Overall, they will pay about $5 trillion more in payroll
taxes over the next 75 years than they will receive in Social Security
benefits. (Eventually, of course, these legal immigrants will
themselves become a liability to the system, at which point the WSJ
would no doubt advocate more immigration-in other words, a Ponzi scheme.)

But the WSJ conveniently suppresses these inconvenient truths:

This subsidy from immigrants is nowhere near enough to staunch the
long-run actuarial deficit facing Social Security or Medicare.

The 2007 Trustee Reports project increasingly large deficits in both
Social Security and Medicare, with a 75-year deficit of $6.8 trillion
in the retirement fund and $11.6 trillion in the health insurance
fund. The Medicare Trust fund is expected to run out of cash by 2019,
while Social Security will hang on until 2041.

With the signing of the U.S.-Mexico totalization agreement on June 29,
2004, most of the 10 to 20 million illegal aliens living in the U.S.
became potential Social Security recipients.

The agreement allows Mexican aliens to vest for Social Security after
working just 18 months in the U.S., and make up the difference by
"claiming" to have worked in Mexico. We say "potential" because the
U.S.-Mexico agreement has yet to be signed by the President-or even
sent to Congress for review. While costs will ultimately depend on
specific terms and language, any totalization agreement will hasten
the demise of both Social Security and Medicare.

And amnesty will accelerate Social Security's demise far more
dramatically than totalization.

Rector's explanation: If the government gives amnesty to 9.3 million
illegal immigrants-and there may be as many as 20 million-most of them
would eventually become eligible for Social Security and Medicare
benefits or Supplemental Security Income and Medicaid benefits. Of
course, not all of the 9.3 million adults given amnesty would survive
till age 67-normal mortality rates would probably reduce the
population by roughly 15 percent before age 67. But that means 7.9
million individuals would reach 67 and enter retirement. Their average
life expectancy would be around 18 years.

Rector's conclusion:

"The net governmental cost (benefits minus taxes) of these elderly
individuals would be around $17,000 per year. Over eighteen years of
expected life, costs would equal $306,000 per elderly amnesty
recipient. A cost of $306,000 per amnesty recipient multiplied by 7.9
million amnesty recipients would be $2.4 trillion. These costs would
hit the U.S. taxpayer at exactly the point that the Social Security
system is expected to go into crisis." [The Fiscal Cost of Low-Skill
Immigrants to State and Local Taxpayers by Robert E. Rector, Testimony
Delivered May 17, 2007]

The bottom line: amnesty will cost Americans $2.4 trillion. Go on,
Tamar. See how popular that is.

Edwin S. Rubenstein (email him) is President of ESR Research Economic
Consultants in Indianapolis.

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