Public Dollars
The other much-publicized effect of immigration is on the budgets of governments at all levels. One common perspective is that immigrants, because they are lower-skilled and lower-paid, pay less in taxes and use more in public services than American-born citizens do, making immigrants a “drain” on state, local, and federal dollars.
This, too, is more complicated than it appears. Lower-paid workers do tend to pay less in taxes, and lower-income households do tend to use more government services, but there are at least two important countervailing forces. First, many immigrants are actually highly skilled and well-compensated workers. These doctors and scientists and other top workers are likely to pay more in taxes and use fewer government services than native-born residents. Second, immigrants are more likely to be in the workforce than U.S. natives, which boosts the amount of taxes immigrants pay as a group.
Whether an immigrant is a legal or illegal resident of the United States has surprisingly little impact on this question. While undocumented workers may be less likely to pay income and payroll taxes, they are also less likely to pursue or qualify for government benefits.
The higher “labor force participation” of immigrants is largely the result of their younger age and also provides at least a temporary boon to the Social Security and Medicare trust funds.
Of course, these immigrant workers will themselves retire and draw on Social Security and Medicare. But by all estimates, the impact of immigration on the long-term overall fiscal balance is extremely small.
Even so, there is surely a distributional problem. Much of the taxes paid by immigrants go to the federal government , but the costs of serving such residents are borne disproportionately by the state and local governments where immigrants live. There is a simple solution: Redistribute some of the taxes paid to the federal government to the states most affected. Unfortunately, while the economics may be simple, the politics are not.
Small Impact
So, as counter-intuitive as it may seem, the overall economic impact of immigration on U.S. workers, jobs, wages paid, and more is not all that large. One study published 10 years ago estimated that immigration in the 1980s increased total economic output by $1 billion, to $10 billion annually, the midpoint of which translates into one-tenth of one percent of American gross domestic product. Other researchers have concluded that immigration’s net economic impact is negative, at least in the short term, but also small in magnitude.
Such conclusions may seem surprising. But fundamentally, our economy is flexible enough to successfully absorb even sizable population increases.
Of course, the economic situation on immigrants themselves is undeniable. A recent study estimated that Mexican immigrants to the United States saw a real income gain of $5,000 to $8,000 per year.
Such economic opportunity is the driving force behind much of the recent immigration to the U.S., both legal and illegal. And it’s doubtful that much will change in that area as long as the gap between the median incomes of the United States and Mexico remains greater than that between any two other adjoining countries in the world.