Factoids That Won't Die

I am always surprised by the resilience of some factoids in the immigration debate. Many of us know that some of these factoids are, at the very least, misleading. Yet they keep making guest appearances. I thought that this blog could be a useful place where, from time to time, I would illustrate where some of those numbers come from. Even though driving a stake through the heart of these factoids will not annihilate them (they are much too useful to advocates), at least readers will know what the stake looks like.

One such factoid that has always caught my attention made its latest comeback in a recent WSJ editorial:

In a comprehensive 1997 study, the National Academy of Sciences concluded that over their lifetimes immigrants and their children pay an estimated $80,000 more in taxes to all levels of government than they receive in benefits.

This simple statement, a variation of which has probably been repeated hundreds if not thousands of time in the debate, is right as far as it goes--except that it suspiciously leaves a lot of inconvenient details out of the picture. (Full disclosure: I was a member of the National Academy panel that wrote the "comprehensive 1997 study").

The NAS panel tried to estimate the long-run fiscal impact by considering what happens over the 300 years following the admission of a particular immigrant. In other words, it added up the fiscal expenditures and tax contributions of the immigrant, and his children, and his granchildren, and his great-grandchildren, and so on.

The graphic in this post illustrates the net contribution made by the immigrant and his or her descendants in each year of the 300-year period (p. 341 in the NAS report). Initially, the immigrant creates a burden for the taxpayer. The burden suddenly turns into a surplus in the year 2016. Adding up over the 300 years implies that admitting one immigrant today yields an $80,000 fiscal surplus.

One does not have to be a mathematical genius to see that something funny happens in 2016--and that this spike in the trend has a lot to do with generating the $80,000 number. A reading of the fine print reveals why. The simulation assumes that the federal government will put its fiscal house in order in the year 2016, and take actions, such as a huge tax increase, to ensure that the debt problem does not worsen thereafter. The specific assumption is: “Starting in 2016, and thereafter, fiscal policy will hold the debt/GDP ratio constant at the level of 2016” (p. 325). If one got rid of this single (and completely out-of-the-blue) assumption, the $80,000 benefit quickly turns into a $15,000 loss (p. 337; see the row for "no budget adjustment").

An additional problem is that it is downright ridiculous to make predictions based on a 300-year time horizon. We were barely out of the Renaissance 300 years ago. Who the heck knows what things will be like in the year 2300? In fact, when the National Academy confines itself to a 25-year period, the $80,000 gain turns into a nearly $20,000 loss (p. 343). And keep in mind that a 25-year time horizon is itself quite a long time to predict any kind of economic outcome: would you trust current predictions of per-capita GDP and unemployment rates for the year 2032?

Elsewhere, the NAS report estimates the current fiscal impact of immigration by looking at expenditures and taxes in a single fiscal year. That calculation concludes that the fiscal drain caused by immigration increased the tax bill for a typical California native household by $1,174 a year (p. 284). Needless to say, this particular factoid--which itself depends on various assumptions and obviously does not account for long-run consequences--is often ignored by those who stress the $80,000 benefit.

Comments

[Kyle de Beausset]

I came across your blog through a technorati search and I was wondering if you'd be interested in a link exchange with Immigration Orange. I'm always looking for different perspectives to interact with and value all viewpoints. Email me at kyledeb at gmail dot com if you're interested.

[Paul]

How did these absurd assumptions end up in the report to begin with? It is quite an interesting disclosure that you were one of the authors.

Was there a drive to demonstrate that immigrants brought more benefits than costs, leading the authors to create the assumptions that lead to the desired result?

Stories like this make me question whether analytical approaches can ever shed light on a loaded issue like immigration, when it is so hard to find an "objective" analysis that is not driven by a political agenda that predisposes it to come to certain conclusions.

Clearly we need to throw away the $80,000 number. I wonder how many other of our statistics we should be throwing away...

[Tino]

Weren't immigrants without high-school education a 98.000 drain, despite this and assuming full convergence in 3 generations?

[Adam]

Good post Mr. Borjas. I'm glad to see you finally have a blog up and running.

[Dave]

So the fiscal impact of immigration is dependent on tax policy.