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How Heritage Is Studying the Costs of Immigration
Posted By Derrick Morgan On April 23, 2013 @ 1:24 pm In Featured | Comments Disabled
In discussing comprehensive immigration reform in recent days, some commentators have discussed The Heritage Foundation’s previous and anticipated work looking at the costs of unlawful immigration and amnesty.
Heritage’s Robert Rector, who helped spearhead welfare reform in the 1990s and is one of the nation’s top experts on government assistance programs, calculated those costs the last time an amnesty bill was debated in Congress in 2007. He found amnesty could cost some $2.5 trillion. He is working on an update to the research to help inform lawmakers and the American people of the cost to the taxpayer of legalizing some 11 million currently unlawful immigrants.
Proponents of amnesty have asked Heritage to do a “dynamic analysis,” although it is not clear what they mean by that term. The complaint isn’t about what Rector has done, but rather what they want Heritage to do. It is odd that so many politicians and other outsiders want to control what an educational institution like Heritage decides to study.
The concept of dynamic scoring takes into account how policy changes—often tax law changes—affect the economy, and how the new economy changes the government’s fiscal balance sheet and individual income. An example of why incentives should be considered and dynamic scoring should be done is a bill with a 100 percent tax rate. Without any dynamic considerations, a score would show tax revenues increasing in the following years, as if people would work for nothing. Obviously, that is absurd. The underlying concept of dynamic scoring is very sound—we know from experience that tax rate cuts, for example, will stimulate economic growth that will lead to more revenues than would result if one statically scored a tax cut measure. Any use of the idea must be sound in practice as well as in theory, however.
Dynamic analysis relies on the use of economic models with input variables and assumptions that must be programmed in. We and many others are experienced in using such models with tax changes.
As with any model, incorrect assumptions will lead to incorrect results. Modelers should be as transparent as possible, sharing methodology and assumptions behind key points.
Proponents of comprehensive immigration legislation have latched on to a short paper by economist Doug Holtz-Eakin. Because Holtz-Eakin’s dynamic model makes assumptions and projections about immigration economics, it would be helpful for leading labor economists who study immigration, like George Borjas of Harvard, to have a chance to analyze the methodology. Rector plans to share with the public his methodology in a lengthy appendix carefully describing his assumptions and calculations, similar to what he did in his 2007 work on the taxpayer costs of amnesty. Given that most of the immigration literature (including the mammoth study by the National Academy of Sciences in 1997) concludes that immigration has little long-term impact on native income, it is especially important that Holtz-Eakin be equally open about his assumptions and methodology on what he describes as the economic benefits of immigration.
Rector and Holtz-Eakin are studying two different questions. Rector’s study is a fiscal distributional analysis that focuses on amnesty for unlawful immigrants, a proposal that greatly concerns conservatives and The Heritage Foundation. Holtz-Eakin, by contrast, looks at “a benchmark immigration reform,” undefined, and then does a rough dynamic analysis that proceeds to ignore the fiscal effect highlighted by Rector. But even though they study different questions, they should both meet a professional standard in common: disclosing their assumptions and methodology.
Nearly all immigration will, by definition, increase the gross domestic product. The real test of any immigration or immigration reform is whether it makes current lawful residents better off by raising their after-tax incomes. This is why Heritage has consistently supported immigration of highly skilled immigrants who, according to Rector’s research, pay more in taxes than they receive in taxpayer-funded benefits.
Instead of insisting on including a costly amnesty in a comprehensive bill, Congress should address immigration in a step-by-step, problem-solving approach. Then America could get positive benefits from immigration without the heavy fiscal costs of an amnesty and path to citizenship. An amnesty like the one in the Gang of Eight bill would make our country’s fiscal future more uncertain, as the legislation would add millions more to our bloated welfare and overburdened entitlement programs.
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