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October 24, 1993 SOME PEOPLE believe that the budgets of local, state and federal government are staggering under the burden of illegal immigration. Others respond that while illegal immigrants do impose costs, the taxes they pay more than compensate. Both sides love to brandish studies that provide irrefutable, uncontestable evidence for their position. (A list appears below.) Since most people don't keep a tame statistician or economist on retainer to explain and criticize every study, they tend to dismiss them all, or believe the ones that confirm their prejudices. But it is possible, by employing some basic data and some common-sense judgments about sources, for the average citizen to separate the credible from the hyperbolic. Start with the basics. Any study of the fiscal impact of illegal immigration must answer a few key questions. How many illegal immigrants are out there? What costs does the average one impose on government? What taxes does the average illegal immigrant pay? Knowing the reasonable answers to those questions allows an evaluation of the commonly made claims about the immigration debate. More than any other person, Gov. Pete Wilson has elevated the immigration issue to center stage in California. Wilson recently estimated that California has half of the 4 million illegal immigrants in the country, and that these 2 million people cost state government $1.4 billion, and local governments an additional $1 billion. When considering other estimates of the costs of illegal immigration, I apply what I call the Wilson Ballpark Test. As a public official with deep concern about illegal immigration, it's unlikely that Wilson wildly underestimated its costs. So be suspicious of any study that makes Wilson look soft on illegal immigrants. Wilson's estimates of the number of illegal immigrants are probably on the high side. An August report from the non-partisan and highly respected General Accounting Office, whose methods are summarized below, argued that a "likely maximum" for the number of illegal aliens is 3.4 million. In addition, both the California Department of Finance and the Immigration and Naturalization Service have recently used estimates that 40 percent of the national total, not half, lives in California. Together, these estimates imply that the number of illegal immigrants in California is closer to 1.4 million than Wilson's 2 million. But even if Wilson's estimate is high, it is reasonable, given the uncertainties involved. By contrast, Donald Huddle of Rice University estimates 4.8 million illegal immigrants. A recent study of San Diego County by Richard Parker and Louis Rea of San Diego State University loses credibility by arguing for 8 million. Once the number of illegal immigrants is estimated, the next step is to estimate the cost of government support for them. Wilson calculates the cost of illegal immigrants in the public schools, the prisons and the Medi-Cal program. The costs to local governments are primarily those of running county jails, and of locally based spending on education. Wilson's list may seem too brief. However, public education, medical programs and prisons are 90 percent of the costs of major federal and state programs for undocumented immigrants, according to the Center for Immigration Studies in Washington, D.C. Because illegal immigrants are generally less skilled than legal ones, they are more likely to need public assistance. However, eligibility rules and fear of being caught and deported keep illegal immigrants away from welfare programs like food stamps. Overall, the government tends to spend less on illegal immigrants than on recent legal immigrants, as shown in the recent Los Angeles County study, for example. In figuring the cost of illegal immigrants, the Wilson Ballpark Test is again useful. He estimates that the average illegal immigrant costs the government $1,200. Huddle calculates $1,600; Parker and Rea estimate $1,380. Given the uncertainties involved, and the fact that Wilson left many small programs out of his analysis, these numbers are in the same ballpark. Making the generous assumptions of, say, 4 million illegal immigrants and a per person cost of $1,500, the total costs illegal immigrants impose on government budgets nationwide would be $6 billion. Any amount measured in billions is real money, and worthy of public debate. But in the context of the $2.4 trillion that federal, state, and local governments will spend this year, $6 billion is hardly a back-breaker. Moreover, illegal immigrants pay taxes as well as using government services. But calculating how much is tricky. After all, tax dollars don't arrive in government coffers labeled "courtesy of an illegal resident." Many studies tackle the tax revenue question by focusing only on the taxes directly received by a county or a state. That's reasonable enough if the focus is on the state or county coffers, but it's no way to discover the overall fiscal impact of illegal immigration. After all, many illegal immigrants have Social Security and income taxes withheld; essentially all pay sales taxes; some pay property taxes or play the lottery. Even harder to estimate is the amount illegal immigrants contribute to the economy indirectly by generating business, which leads to corporate taxes and fees. In general, studies that find very low levels of tax per undocumented immigrant (that is, only a few hundred dollars) are leaving out taxes to which we all contribute, directly and indirectly. A more sophisticated approach is to use an economic model to consider the ways that immigrants might contribute both to taxes and to economic activity. A recent study by Rebecca Clark and Jeffrey Passel at the Urban Institute takes this approach. It estimates that recent adult immigrants in Los Angeles County contribute an average of $3,066 per person in taxes. Like every estimate, this one has its problems. It mixes recent illegal immigrants with legal ones, and the average tax received from undocumented immigrants is almost surely lower than the total in the table. The table below showing the Clark and Passel estimates illustrates another point. Of the taxes paid by immigrants, about 80 percent went to the federal government. Every study that analyzes taxes across different levels of government finds that most of the revenue goes to the feds, even though most of the costs for education, health and corrections occur at the state or local level. Yet another approach to calculating the taxes is to use some reasonable assumptions about the income of illegal immigrants and the general level of taxation in the United States. For example, based on figures in many of these studies, it's reasonable to postulate that 75 percent of 4 million undocumented immigrants hold jobs, and earn an average salary of $12,000 per year. That multiplies to $36 billion in earned income. When all federal, state and local taxes are added up, government collects about $1 in taxes for every $3 in income, and that applies pretty uniformly to people at all income levels. In addition, even though some taxes are withheld by employers and sales taxes are tough to avoid, let's say that illegal immigrants pay only 75 percent of the taxes that are due, because many work in the underground economy. In this rough-and-ready calculation, illegal immigrants would be paying $9 billion in taxes, or an average of $2,250 per year per person. Naturally, this approach can be done in a more refined way, as in the studies by Julian Simon or by Sidney Weintraub and Gilberto Cardenas, but the bottom line is generally that the total taxes paid by undocumented immigrants equal or exceed their costs. A pattern emerges from the studies of the fiscal effects of illegal immigration. Studies that take a national perspective have tended to find that the costs to government are offset either largely or completely by the taxes paid by illegal immigrants. State and local level studies, on the other hand, find that the costs imposed by undocumented immigrants exceed the tax revenues generated for those levels of government. For states like California, and counties like San Diego and Los Angeles, this imbalance can be significant. The obvious remedy is for the federal government to recycle some of the tax money paid by illegal immigrants to help the most sorely affected areas. Analyzing the fiscal impact of illegal immigration addresses only one part of society's concern over this issue -- and probably not the most important part. Other central issues include how illegal immigration affects wages and jobs, culture and lifestyle, and America's image of how it wishes to treat those seeking a better life within our borders. Those subjects will be addressed on these pages in the weeks to come.
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© 2010 Timothy Taylor |