An American aging population is exacerbating labor shortage across the country. In its simplest terms, America’s population is getting older faster than younger Americans enter the labor force. According to Census Bureau data, in 1980, 11.3% of Americans were 65 or older. Children, those under 19 years of age, comprised 31.9% of the population. The rest, 56.8% comprised America’s workforce, those aged between 20 and 64 years of age. Fast forward to 2020 and working age Americans comprised 57.3% of the population. However, the retired population increased to 16.3% of the population and children decreased to 26.5% of the population. As can be observed, America’s workforce is aging out. It needs to be replaced faster than the current birthrate allows.
The Census Bureau estimates that by 2040, America’s workforce will be 53.6% of the population and those who are 65 and older will be 20.4% of the population. Less Americans will be working and the Americans drawing from Social Security and Medicare will have increased putting pressure on America’s retirement system. Less people working and more drawing retirement translates into an unsustainable system.
Medicare is a government insurance system where workers pay into the system to be allowed to draw from it upon retiring. An insurance system assumes that those paying into the system outnumber those that take out of it. In the case of Medicare, a 2017 report to congress states that Medicare “is not projected to be sustainable over the long term with the projected tax rates and expenditure levels.” [1]
Things were made worse in 2020 with Covid-19. The 2021 report to congress states that the trust fund that supports Medicare will run out of money by 2026, only five years from now. [2] The “Trustees have determined that the fund is not adequately financed over the next 10 years.” [2]
In essence, there are not enough payroll taxes funding Medicare.
Medicare was enacted in 1965. It is sustained by two trust funds, the Hospital Insurance trust fund and the Supplementary Medical Insurance trust fund. The Hospital Insurance fund is funded primarily by payroll taxes. Fifty years after Medicare was enacted, a study by the American Academy of Actuaries studied whether Medicare would be sustainable for another 50 years. Actuaries analyze data to calculate insurance rates and associated risks.
According to the 2015 actuary’s report, in 2015 Medicare was spending as much as it was receiving. However, the actuary study determined that Medicare faced running out of money by 2030 due to increased health expenses and increased retirements due to America’s aging workforce. This was before the Covid-19 pandemic. The report added that, “fewer workers will be paying into the system to support the growing number of retirees.” It went on to state that “in 1980 there were four workers for every Medicare beneficiary, by 2040 that ratio is expected to fall to about two workers for every beneficiary.” [3]
It takes almost 20 years to put an American to work feeding into the Medicare system. Even if Americans increase their fertility rates today, at the earliest it would be 2041 before enough American workers start to fill the Medicare trust fund again.
America’s fertility rate has been steadily decreasing since the 1950’s. Immigrant mothers accounted for 23% of all births in 2017, although immigrants were 14% of American population suggesting that immigrants accounted for a disproportionate share of American births. It should be noted that the fertility rate in American has shifted away from Mexican immigrant mothers towards Asian mothers since 2018. [4]
The Social Security Office of Retirement and Disability Policy has stated that social security has taken “more tax revenue than it has spent providing benefits for more than two decades.” However, that is changing as America’s workforce continues to age. According to the Social Security Administration, between 1975 and 2010, “there have been about 3.3 workers per beneficiary.” By 2030, the Social Security Administration projects that there would only be two workers per beneficiary. Coupled with rising costs, the social security fund is expected to be exhausted by 2037, according to the social security administrators.
For years there has been talk about how to solve the solvency problem for social security and Medicare. Most of the solutions center on increasing contributions, reducing benefits and raising the retirement age. But there is a solution that is seldom discussed – immigrants.
The Immigrant Solution
America needs an immigrant labor force to sustain the American aging population. However, the general narrative about immigrants is that they strain America’s social benefits, including social security. “Immigration strengthens the solvency of the Social Security system by boosting the number of new workers without immediately adding more new beneficiaries,” says a 2018 left of center report. [5] However, the Federation For American Immigration Reform (FAIR), an organization “that seeks to reduce overall immigration to a more normal level,” argues that reducing access to immigrant labor would tighten America’s labor force increasing wages, leading to larger payroll contributions to social security. FAIR’s argument is based on the notion that higher wages translate into more contributions into the Medicare and Social Security systems. [6]
But FAIR, and other anti-immigrant groups, ignore the reality that America’s labor force is shrinking due to low fertility rates. FAIR adds that “the influx of migrants” will “someday be ready to claim retirement benefits as well.” [6]
According to FAIR, the problem with an immigrant workforce is that “since the average careers of migrants is much shorter than native-born Americans, they become a net burden to the Social Security program.” [6] In essence, FAIR argues that because immigrants arrive to America older, they contribute less to the system. FAIR, however, in addition to misleading the labor contributions of immigrant in America’s labor force, ignores the payments made into Social Security by undocumented immigrants who do not draw from it because of their immigration status.
Since 2017, FAIR has argued that immigrants cost Americans over $100 billion a year. FAIR’s cost analysis is based on assumptions that immigrants generate federal and state costs through law enforcement and general government services. Education and medical expenses round out the cost analysis by FAIR. Another group wanting to limit immigration to America, the Center for Immigration Studies (CIS), also argues that immigrants are burden to the American taxpayer. A 2004 CIS report argues that undocumented immigrants impose a $1.9 billion cost to WIC and school lunch programs and a total cost of $10.4 billion by undocumented immigrants annually. (2004 report)
Both anti-immigrant entities acknowledge that under current laws, undocumented immigrants are prohibited from accessing most welfare benefits. However, both argue that undocumented immigrants are a burden through indirect costs such as access to medical facilities for emergency medical care and free meals to school-age children who tend to be American citizens by birth.
But the problem with the figures is that they are seldom balanced with what immigrants input into the system. For example, even undocumented immigrants contribute to social security by using fake social security numbers for payroll purposes. The taxes paid by them and their employers only add to the system and are unlikely to be taken out by the contributors because of the use of fake social security numbers. Moreover, immigrants – documented and undocumented – pay property taxes through rents or homeownership. These are the taxes that go towards roads and local law enforcement.
The problem is that other than the anti-immigrant analysis few other reports exist that investigate the question of the cost of immigrants on the American taxpayer versus what they contribute into the system. Much of the reason for this is the nature of immigration, its clandestine nature and the polarizing debate over it.
Interestingly, the only report that attempts to answer the question of what the cost-benefit of immigration to America is a Texas State Comptroller report from 2006. Considering that immigrants are often blamed for higher taxes and are a costly burden to Americans, the fact that a government report analyzing the costs versus benefits of immigration seems to betray the notion that it is better to allow the belief that immigrants are burden to taxpayers rather than to offer empirical evidence to support the belief. This is true for other nations as well as the immigration debate seems to be centered around the them versus us narrative, notwithstanding that several reports have been generated that suggest that immigrant contributions outweigh the costs they impose on a country.
For example, a 2018 Organization for Economic Co-operation and Development (OECD) report states that “existing studies show that the economic effects of immigration in the countries of destination, though limited, are usually positive.” [7] The OECD is a group of 38 countries, including the US, that is intended to stimulate world trade.
Although the OECD report does not distinguish between documented and undocumented immigration, however, in some cost respects, undocumented immigrants cost more than their documented counterparts. For example, the cost associated with immigration enforcement. But that cost must also be weighed against the benefit recognized by the undocumented immigrants that pay into the social welfare system using fake documents but have no realistic expectation of taking those benefits out later because of their undocumented status which precludes them from accessing benefits like social security.
Thus, although not perfect and because of the lack of research into the topic we must accept that a cost-benefits analysis based on imperfect data is the best we can do at this time. It should also be noted that the costs alleged by CIS and FAIR are, at best, guesses also based on imperfect data.
Another report, this from the UK Department of International Development in 2019 found that “evidence suggests that international migration can boost aggregate income (GDP growth) in high-income host countries over the long term.” [8] The United States is a “high-income” country. As country’s GDP grows, it opens new job opportunities for workers.
The 2006 Texas Comptroller report is the first and so far the only comprehensive analysis into the impact of immigrants to a state’s budget. We will delve deeper into the Texas report further down. Other studies have analyzed specific costs like education and healthcare but have not been as comprehensive as Texas’ report. One such governmental report was the 2007 United States Congress Congressional Budget Office (CBO) report looking into the costs immigrants impose on state and local governments. The CBO report states that “over the past two decades, most efforts to estimate the fiscal impact of immigration in the United States have concluded that, in aggregate and over the long term, tax revenues of all types generated by immigrants – both legal and unauthorized – exceed the cost of services they use.” [9]
The CBO report notes that CIS and FAIR are contradicted by numerous other reports that show immigrants consume less benefits than they pay into the American system. The CBO goes on to add that “many estimates also show that the cost of providing public services to unauthorized immigrants at the state and local levels exceeds what the population pays in state and local taxes.” However, the CBO is quick to add that the “currently available estimates have significant limitations” making them unreliable for analytical use to determine whether immigrants are a burden to the local taxpayers. [9] This is because the impact on the state and local tax base differs from state to state. As the CBO report notes, using the estimates is “difficult and prone to errors.” [9]
However, some attempts to address the impact immigrants have on local economies suggest that their associated costs are outweighed by the benefits they bring to the local economy. For example, a 2003 California Polytechnic State University research paper argued that the “total estimated cost to California was approximately $10 billion dollars in direct spending in education, Medi-Cal, CalWRORKs, and Supplemental Nutrition Assistance,” suggesting that undocumented immigrants were “a fiscal burden to California” in 2008. However, the report adds that although the $1.7 billion in income taxes paid by undocumented immigrants in California is not enough to cover the costs associated to them, their “nearly $158 billion” economic impact on California’s economy far outweighs the perceived burden they impose. [10]
Another useful metric we can use to look at the costs immigrants impose on local economies is homeownership. This is especially true for the homeownership rate of undocumented immigrants. On average nationally, 31% of undocumented immigrants in America own a home. Homeownership by undocumented immigrants vary from a low 19% in New York to a high 45% in New Mexico. Of particular interest should be Texas – at 41% – because, as we will explore further down, it produced a cost-benefits analysis of immigrants in the state in 2006. [11] Property taxes in Texas fund most state services as there is no income tax.
A March 2017 report by the Institute on Taxation & Economic Policy (ITEP), a non-profit that analyzes tax policy found “undocumented immigrants contribute significantly to state and local taxes, collectively paying an estimated $11.4 billion (emphasis in original) a year.” The analysis also found that undocumented immigrants “pay on average an estimated 8 percent of their incomes in state and local taxes,” higher than the nationwide 5.4% rate “the top 1 percent of the taxpayers” pay on average. [11]
It is a general fallacy to assume that undocumented immigrants do not pay local property taxes or that they do not pay other local fees like automobile registration. As can be observed by the homeownership rate of undocumented immigrants, they pay property taxes through their homes. Even those that rent, pay property taxes through their rent payments, often at a higher rate then homeowners because commercial property often carries higher property tax rates then their private counterparts. Moreover, undocumented immigrants who live family member households live in properties that pay taxes. In the case of automobiles, at some point the automobile owned and operated by the undocumented immigrant paid sales taxes and operating fees even if they were paid by others.
Likely the most important analysis to date is the 2006 Texas report.
The Texas Report
In December 2006, Carole Keeton Strayhorn, then-Texas Comptroller released a comprehensive cost-benefits analysis on undocumented immigrants in Texas. Strayhorn ran as a Republican for the comptroller’s seat. Strayhorn’s report proved “the unthinkable: Illegal immigrants not only pay their fair share in taxes, but they are also good for the economy,” according to the Washington Post shortly after the report was made public. [13] Strayhorn’s report remains to this day the most comprehensive analysis of the economic impact by undocumented immigrants on America’s economy. Dan Stein, then spokesperson for FAIR told the Washington Post that Strayhorn’s report had “design flaws, assumptions and conclusions in direct contrast to our years of exhaustive studies” on undocumented immigrants. According to Stein, undocumented immigrants “cost Texas taxpayers $3.7 billion annually.” [13]
Strayhorn’s report, on the other hand argues that “undocumented immigrants in Texas generate more taxes and other revenues than the state spends on them.” [13]
The report states that most reports into the economic impact of undocumented immigrants “tie the costs…to education, medical expenses, incarceration and the effects of low-paid workers on the salaries” of American workers. [12] Strayhorn’s report addressed an often-erroneous belief that undocumented immigrants have access to tax-financed benefits like Medicare and Medicaid. They do not. According to the Texas report, at the time, undocumented immigrants had access to K-12 education for their children, emergency medical care, access to children’s special-needs services, substance abuse and mental health services, immunizations WIC programs and other medical emergency services. However, access to Medicare, Medicaid, CHiP, food stamps and public housing, among other public services remained off limits to undocumented immigrants. [12] This is true to this day.
The Strayhorn report acknowledged that “it is difficult to count a population that does not want to be counted.” (emphasis in original) [12] Clearly, if a population that lives in the shadows demonstrates a positive cost-benefit to the Texas’ economy, then it stands to reason that the same population who is allowed to openly contribute to the Texas’ economy will likely dramatically positively impact that economy.
The Texas report found that in 2005, Texas paid $1.1 billion ($1,156,400) in costs for education, healthcare and incarceration associated to undocumented immigrants. [12] However, undocumented immigrants are not just a cost factor, they also contribute to the economy. Thus, the question becomes, do their contributions outweigh the cost to the taxpayers?
Do Immigrants Contribute To The American Economy?
Before looking at the contributions made by immigrants to the Texas economy we should answer one question, what is the impact of simply removing the undocumented immigrants from the equation? More specifically, what would be the economic impact on Texas, for example, by removing all undocumented immigrants and the costs and revenues associated to them? What would be the short-term and long-term impact on the Texas’ economy?
Overall the 2006 Texas report suggests that Texas’ workforce would decline by over 20% across the state by removing undocumented immigrants. Clearly some areas of Texas, like the border areas, would feel the impact more than others. According to the report, almost twenty years after removing the undocumented workforce, assuming 2006 as the starting point, “product declines would remain sizable, indicating that the economic impact of undocumented immigrants is unlikely to be replaced by other economic changes.” [12] In other words, removing undocumented immigrants from Texas’ workforce would not be replaced by other economic benefits even 20 years later. Texas’ economy would suffer as a result. And what about the cost-benefit equation? Do undocumented immigrants cost more than they produce for Texas?
According to the 2006 Texas report on the impact of Texas’ undocumented population, Texas received $1.5 billion ($1,581,100) in 2005 from its undocumented immigrant population. Texas, unlike other states, does not have an income tax. Texas’ revenues mostly come from consumption taxes like sales taxes and property taxes.
The Texas report concluded that “the absence of the estimated 1.4 million undocumented immigrants in Texas in fiscal 2005 would have been a loss to our Gross State Product of $17.7 billion.” The report also concluded that undocumented immigrants paid $424.7 million more in revenues for Texas than they cost. [12]
FAIR Disagrees
FAIR disagreed with the Texas report when it came out and consistently discounts the studies that contradict its position on the costs imposed by undocumented immigrants in the United States. “FAIR states that ‘most illegal aliens do not pay income taxes,’ without citing any study to support the assertion,” is an often-cited criticism of FAIR’s assertions on the matter. FAIR consistently ignores the benefits of undocumented immigrants and “relies on poor methodology” to make its case. [14]
As discussed previously, the Texas study was the first and last government-sponsored comprehensive study looking into the cost-benefits of undocumented immigrants to America’s economy. In March 2021, Texas Attorney General argued that undocumented immigrants cost Texas “over $850 million each year.” [15] Paxton did not cite the source of his figures in his press release, nor did he make mention of how much undocumented immigrants contribute to the Texas economy.
Healthcare Costs
As stated above, undocumented immigrants are restricted by law from accessing many healthcare benefits available to citizens. However, emergency care is available to all regardless of immigration status. It is argued that by limiting access to primary care, the cost of emergency medical care is exacerbated because of the delay of access to medical care before the condition becomes severe.
An interesting observation made by the Strayhorn report was that in 2006, “almost 96 percent of children under the age of five have received all their vaccinations, compared to 79 percent of U.S. children under the age of three.” [12] The report pointed this out because at the time México was the largest country of immigrant origin and their impact on the cost to immunize children of undocumented immigrants to Texas was negligible as they were more likely to immunized than their Texas counterparts.
The Cost To Educate The Children
Another often-cited expense that opponents to undocumented immigrants often cite is the cost to educate the children of undocumented immigrants. As the Strayhorn report noted, the controller’s office chose “not to estimate” the associated costs for U.S. children born to undocumented immigrants. As the Comptroller’s office stated, there are “uncertainties concerning the estimated population and the question of whether to include the costs and revenues associated only with the first generation or to include subsequent generations.” [12] The problem being two-fold. First, at what point does an American lose their right to access benefits for American citizens? Many of the children are born in the United States as American citizens, notwithstanding their parents’ immigration status. Until the law changes, their American citizenship is without question.
The second problem is how do you quantify their contributions to the tax base as American citizens? Presumably they, like other citizens, enter the workforce and pay taxes. Some will argue that the children of undocumented immigrants may not be as productive as their second and subsequent generation citizen counterparts are, but, at best that is subjectively unquantifiable due to many factors impacting access and willingness towards higher education attainment that goes beyond immigration status. Thus, quantifying the economic impact of the children of undocumented immigrants cannot be reliably concluded one way or another.
However, the Texas report addressed the cost to educate the children of undocumented immigrants in Texas in 2005. As the report pointed out, the cost of education in Texas is paid for by a combination of federal and state funds. According to the report, in 2005 it cost Texas $7,085 per student. Thus, the report estimated that Texas taxpayers paid about $957 million to educate an estimated 135,013 students from undocumented households. [12]
The Texas report excluded the associated federal costs as the report was focused on the cost to the state. FAIR, on the other hand estimated that cost to educate Texas children at about the same the time (2003-04) to be about $1.7 billion. It included the federal dollars. [12]
Law Enforcement Costs
There is another cost often included in the debate over immigration. It is the cost associated with law enforcement. Do immigrants increase law enforcement costs in their communities? To address this question, we must separate the associated costs into two elements. The first is whether immigrants in a community increase the crime rates thereby increasing the burden on law enforcement. The second question is whether interdicting and detaining immigrants is costly to Americans. On this point it is important to note that the cost associated in interdiction and incarcerating immigrants is strictly a government choice made by policy decisions. The policy decisions can be simply increased vigilance or public policy that incentivizes undocumented migration instead of documented immigration.
However, the 2006 Texas analysis into the costs associated with undocumented immigrants estimated that it cost Texas taxpayers $130.6 million in 2006 to incarcerate them. It should be noted that this figure did not include revenues from federal detainer fees paid to house immigrants to be deported by Texas jails. [12]
Moreover, a more recent comprehensive study using Texas Department of Public Safety criminal records addressed the criminality of undocumented immigrants in America. A 2018 study by Department of Sociology, University of Wisconsin researchers found that between 2012 and 2018, “US-born citizens are over 2 times more likely to be arrested for violent crimes, 2.5 times more likely to arrested for drug crimes, and over 4 times more likely to be arrested for property crimes.” [16]
Other research overwhelmingly demonstrates that immigrants, both documented and undocumented are less likely to commit a crime then their citizen counter parts showing that the cost incurred for law enforcement purposes involving undocumented immigrants is a policy decision about enforcement rather than about rising crime rates. Thus, the cost of incarceration and enforcement is a consequence of a broken immigration system and the policy decision to enforce immigration laws.
It is well understood that America’s immigration policies are outdated and in need of reform. Both sides agree on this point. The point of contention is on how to go about it. Because all can agree that immigration in American needs reform it can be argued that the cost of enforcing immigration law is a policy one, thus its associated costs are the result of government policy and not the immigrants.
Granting Legal Status
“Granting legal status to all undocumented immigrants in the United States as part of a comprehensive immigration reform and allowing them to work legally would increase their state and local tax contributions by an estimated $2.8 billion (emphasis in original) a year,” said the 2006 Texas report. [11]
The Biden Administration issued a call for substantial immigration reform earlier this year. California Representative Linda T. Sánchez (D-CA) introduced the U.S. Citizenship Act of 2021 a month later. The legislation remains controversial in Congress with little signs of moving forward. Last month, the White House published a blog on its official website about the benefits of legalizing America’s undocumented immigrants. “Immigrants also make an important contribution to the U.S economy,” says the White House. The statement added that “most directly, immigration increases potential economic output by increasing the size of the labor force.” [17] Basically, the White House is arguing that an increased labor force creates more products for export increasing America’s revenues leading to an increase in Americans’ quality of life as a result.
The evidence and studies support this, notwithstanding the uncollaborated evidence produced by anti-immigration organizations like CIS and FAIR who misconstrue data to support their positions of lessening immigration to America. As the evidence has demonstrated, undocumented immigrants contribute more than they take from American taxpayers. Legalizing them would increase their contributions to the American taxpayer simply by allowing them to come out of the shadows and openly work and continue to pay taxes. It would also forestall the impending funding problem facing Medicaid and Social Security.
Footnotes:
- The Board of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, “The 2017 Annual Report of The boards of Trustees Of The Federal Hospital Insurance And Federal Supplementary Medical Insurance Trust Funds,” Report to Congress, July 13, 2017.
- The Board of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, “The 2021 Annual Report of The boards of Trustees Of The Federal Hospital Insurance And Federal Supplementary Medical Insurance Trust Funds,” Report to Congress, August 31, 2021.
- American Academy of Actuaries, “Medicare At 50,” July 2015.
- Amanda Barroso, “With a potential ‘baby bust’ on the horizon, key facts about fertility in the U.S. before pandemic,” Pew Research Center, May 7, 2021.
- Theresa Cardinal Brown, Jeffrey Mason, Kenneth Megan and Cristobal Ramón, “Immigration’s Effect on the Social Security System,” Bipartisan Policy Center, November 2018.
- Spencer Raley, “Mass Immigration Won’t Save Social Security,” Federation For American Immigration Reform, August 20, 2020.
- “Immigrants’ contribution to developing countries’ economies: Overview and policy recommendations,” Economic Co-operation and Development, January 24, 2018.
- Evert-jan Quak, “The effects economic integration of migrants have on the economy of host countries,” Institute of Development Studies, April 5, 2019.
- “The Impact of Unauthorized Immigrants on the Budgets and Local Governments,” Congressional Budget Office, The Congress of the United States, December 2007.
- Bryan Cortes, “Unauthorized Immigration: Is it really a fiscal burden for California?,” Economics 464: Applied Senior Project, California Polytechnic State University, San Luis Obispo, California, Spring 2003.
- Lisa Christensen Gee, Mathew Gardner, Misha E. Hill and Meg Wiehe, “Undocumented Immigrants’ State & Local Tax Contributions,” Institute on Taxation & Economic Policy, March 2017.
- Carole Keeton Strayhorn, Texas Comptroller, “Special Report: Undocumented Immigrants in Texas: A Financial Analysis of the Impact to the State Budget and Economy,” Office of the Comptroller of Texas, December 2006.
- Darryl Fears, “Texas Official’s Report Ignites a New Border Conflict,” Washington Post, December 15, 2006.
- Alex Nowrasteh, “A FAIR Criticism,” Competitive Enterprise Institute WebMemo, October 25, 2011.
- Ken Paxton, Texas Attorney General, Press Release, “AG Paxton: Illegal Immigration Costs Texas Taxpayers Over $850 Million Each Year,” March 31, 2021.
- Michael T. Light, Jingying He, and Jason P. Robey, “Comparing crimes rates between undocumented immigrants, legal immigrants, and native-born US citizens in Texas,” Proceedings of the National Academy of Sciences of the United States of America Research Article, December 22, 2020.
- Cecilia Rouse, Lisa Borrow, Kevin Rinz and Evan Soltas “The Economic Benefits of Extending Permanent Legal Status to Unauthorized Immigrants,” The White House Blog, September 17, 2021.
