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  • Congressional Budget Office Should Forecast Long-Term Cost of Amnesty

    Photo credit: Newscom

    Photo credit: Newscom

    With the Congressional Budget Office preparing to release a cost estimate for the Senate’s Gang of Eight bill in the coming days, a key Republican lawmaker yesterday insisted that any projection look beyond the 10-year budget window to fully understand the magnitude of granting amnesty to 11 million illegal immigrants.

    Senator Jeff Sessions (R-AL), ranking member on the Budget Committee, wrote to CBO Director Doug Elmendorf that it was crucial to have a long-term fiscal and economic analysis given the implementation timetable included in the Gang of Eight amnesty bill.

    Not only is a longer forecast period required because the legislation contains phase-in periods that differ by visa classification, but the fiscal and economic effects will likely develop across the lifespan of those immigrants immediately affected by S. 744. I would strongly urge you to consider using your long-term fiscal and economic models. The Global Insight U.S. Macroeconomic Model, which I understand you license, comes in a long-term version with baseline forecasts extending just beyond 2040. I believe you are capable of adapting this model’s baseline to one that incorporates your economic assumptions.

    Given the long time period over which the key elements of this bill are implemented, I cannot imagine a circumstance in which a 10-year scoring of S. 744 would be deemed adequate for guiding the policy decisions that Congress will confront. Thus, I would stress in the strongest possible terms that you should produce a fiscal score that extends beyond the current 10-year budget window.

    The letter also asks CBO’s number crunchers to conduct a detailed demographic analysis and examine how the amnesty legislation would impact on labor markets.

    A complete copy of Sessions’ letter is posted below.

    Heritage’s own analysis determined the very high cost of amnesty — trillions over the course of an illegal immigrant’s lifetime. That projection includes their eligibility for Social Security, Medicare and other federal welfare programs.

    >>> VIDEO: Heritage’s Robert Rector Explains the High Cost of Amnesty

    The Senate Judiciary Committee voted 13-5 in favor of the Gang of Eight amnesty bill, setting up a floor debate for the week of June 10. The CBO analysis is expected to be released in advance of the showdown on the Senate floor.

    The high cost of amnesty is not the only problem with the Gang of Eight bill. The current approach fails to secure the border — a top priority for many Americans. And granting amnesty will encourage more unlawful entry. That’s clear from the 1986 law, when amnesty was done before and didn’t work.

    The Heritage Foundation is urging a better way to solve our immigration challenges.  A step-by-step approach is simpler and better for America.

    Here is the text of Sessions’ letter to Elmendorf:

    Dear Dr. Elmendorf:

    Thank you again for recent conversations between your staff and mine on the likely fiscal and economic effects of S. 744. I understand that a number of questions were answered and that we had an opportunity to suggest some steps CBO could take in producing a fiscal score and macroeconomic analysis of the bill. As you know, the Senate will likely take up the Committee’s mark during the week of June 10.

    As the ranking member on the Senate Budget Committee, I am keenly concerned about the budgetary and economic effects of this legislation. Our gross federal debt already exceeds 100 percent of GDP, our federal entitlement programs face looming insolvency, and the economy suffers daily from the productive resources of the private sector that are used by government for welfare and other redistribution programs.

    I understand that CBO has begun work on estimating the fiscal effects of the legislation as well as analysis of how the bill would affect U.S. macroeconomic outcomes. I respectfully request that you include the following considerations in your analytical work.

    First, it is crucial that your fiscal and economic projections extend well beyond the current 10-year budget window. Not only is a longer forecast period required because the legislation contains phase-in periods that differ by visa classification, but the fiscal and economic effects will likely develop across the lifespan of those immigrants immediately affected by S. 744. I would strongly urge you to consider using your long-term fiscal and economic models. The Global Insight U.S. Macroeconomic Model, which I understand you license, comes in a long-term version with baseline forecasts extending just beyond 2040. I believe you are capable of adapting this model’s baseline to one that incorporates your economic assumptions.

    Given the long time period over which the key elements of this bill are implemented, I cannot imagine a circumstance in which a 10-year scoring of S. 744 would be deemed adequate for guiding the policy decisions that Congress will confront. Thus, I would stress in the strongest possible terms that you should produce a fiscal score that extends beyond the current 10-year budget window.

    I wrote you about this special scoring window in my letter of April 17, 2013, which is attached here.

    Second, my staff spoke to you about the crucial microeconomic work that must be done before you generate estimates of how the immigration legislation may affect overall fiscal and economic performance. Not only does this include detailed demographic analysis, which is so important for this subject, but it also involves a careful analysis of how labor markets will likely be affected by the provisions of S. 744.

    Of course, the beginning point of any fiscal or economic analysis is a sound estimate of net migration. The demographics of immigration to the U.S. poses special analytical challenges, since we have a large flow of people who enter and leave the U.S. each year as guest workers, a steady flow of migrants who enter and stay (either legally or not), and a large movement each year of chain migration. Clearly, you will need to get the demographics right in order to generate reasonable cost estimates.

    While by no means evenly divided, economists generally hold one of two views on how immigrant labor affects U.S. labor markets. On the one hand, low-skilled, low-educated immigrants substitute for native-born workers of the same skill and education levels. While workers at this level complement the labor of more skilled workers, which strengthens economic output, the addition of more low-skilled immigrant workers would not increase national output. There also is a likely expansion of government outlays to support newly unemployed native-born workers. This view is well represented by Harvard professor George Borjas. See, for example, his National Bureau of Economic Research (NBER) essay with Jeffrey Grogger and Gordon Hansen, “Imperfect Substitution between Immigrants and Natives: A Reappraisal,” Working Paper 13877.

    On the other hand, some economists view low-skill, low-educated laborers as imperfect substitutes for native-born labor. In this latter case, increased immigration of labor at this level adds to national output by creating more productive complementarities with higher skilled labor. This view is represented by Gianmarco Ottaviano and Giovanni Peri in a 2006 NBER working paper, “Rethinking the Effects of Immigration on Wages,” No. 12497.

    The side one chooses in this debate makes a large difference to the macroeconomic and fiscal results. Regardless of your decision, your team should carefully document how they resolved these and related labor market issues, and how they introduced the resulting microeconomic estimates into the macroeconomic model.

    I cannot conceive of a way for you to estimate outlay changes stemming from implementation of S. 744 unless you first determine how the law will affect labor markets. If, on the one hand, more immigrants with low skills dislodge low-skilled native-born workers, then mandatory outlays should go up. If they don’t, then other infrastructure costs supported by the federal budget will rise. Either way, the microeconomic work is central to your fiscal analysis.

    Third, I am advised that you should try to solve your microeconomic problems in a general equilibrium setting. Doing so allows capital to adjust to changes in the supply of labor, which, in turn, produces a better estimate of wages and capital costs. Otherwise, wages will be determined without knowing whether changes to capital move the average wage up or down.

    My staff stands ready to assist you in the preparation of this analysis. Thank you for your immediate attention to this matter.

    Sincerely,

    Jeff Sessions
    Ranking Member

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