Compelling new research finds immigrants, including those with less than a high school degree, provide enormous fiscal benefits and a significant subsidy to U.S. taxpayers. The research has implications for legislation to admit more employment-based immigrants and immigration more broadly.
The most well-regarded fiscal estimates have found immigrants are a net positive for taxpayers. However, some of those estimates concluded that immigrants with less than a high school degree were not, on average, net contributors to government coffers. (Note: A group can be economically beneficial, such as by increasing the supply of productive labor and performing tasks that make others more productive, even if not a net tax contributor.) New research corrects a flaw in earlier analyses that underestimated the fiscal benefits of immigrants, including immigrants with less than a high school degree.
Economist Michael Clemens, a senior fellow at the Center for Global Development and an economics professor at George Mason University, has produced new fiscal estimates on the impact of immigrants likely to change the way economists analyze the entry of immigrants for tax and budget purposes.
In a paper for the Centre for Research and Analysis of Migration at University College London, Clemens notes the most influential method “simply counts the direct fiscal flows to and from individual immigrants by education level.” He points out this method “omits substantial indirect, dynamic effects of immigration.”
Clemens makes a “simple adjustment” to these estimates. The adjustment? “It is to include conservative estimates of tax revenue from capital income caused by an immigrant worker’s presence in the economy.” (Emphasis added.)
“Omitting tax revenue from capital contradicts economic theory if the firms that employ immigrants are profit-maximizing,” according to Clemens. “Intuitively, after a firm has set its demand for labor and capital to maximize profits, suppose it raises its labor demand by one to hire an immigrant. Without general-equilibrium shifts in prices or productivity, this increase in labor demand would by definition reduce profits if it occurred without also hiring capital—such as buying an additional computer or renting additional retail space for the worker to use.”