There are indications that The Heritage Foundation may soon release an updated version of its 2007 report, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” by Robert Rector. That 2007 report’s flawed methodology produced a grossly exaggerated cost to federal taxpayers of legalizing unauthorized immigrants while undercounting or discounting their positive tax and economic contributions – greatly affecting the 2007 immigration reform debate.

Before releasing its updated report, I urge the Heritage Foundation to avoid the same serious errors that so undermined Mr. Rector’s 2007 study. Here is a list of some of its major errors:

1. Count individuals, not households.[1]  Heritage counts household use of government benefits, not individual immigrant use. Many unauthorized immigrants are married to U.S. citizens and have U.S. citizen children who live in the same households. Counting the fiscal costs of those native-born U.S. citizens massively overstates the fiscal costs of immigration. 
2. Employ dynamic scoring rather than static scoring. [2] Heritage’s report relies on static scoring rather than dynamic scoring, making the same mistake in evaluating the impact of increased immigration on welfare costs that the Joint Committee on Taxation makes when scoring the impact of tax cuts. Instead, Heritage should use dynamic scoring techniques to evaluate the fiscal effects of immigration reform. For example, Heritage should assume that wages and gross domestic product are altered considerably because of immigration policy reforms. In contrast to that economic reality, immigrant wages, gross domestic product, and government welfare programs are unrealistically static in Mr. Rector’s study. His study largely ignores the wage increases experienced by immigrants and their descendants over the course of their working lives, how those wages would alter after legalization, and the huge gains in education amongst the second and third generation of Hispanics.[3] Heritage is devoted to dynamic scoring in other policy areas – it should be so devoted to it here too.[4]
3. Factor in known indirect fiscal effects.[5]  The consensus among economists is that the economic gains from immigration vastly outweigh the costs.[6] In 2007, Mr. Rector incorrectly noted that, “there is little evidence to suggest that low-skill immigrants increase the incomes of non-immigrants.” Immigrants boost the supply and demand sides of the American economy, increasing productivity through labor and capital market complementarities with a net positive impact on American wages.[7] Heritage should adjust its estimates to take account of the positive spill-overs of low-skilled immigration.
4. Assume that wages for legalized immigrants would increase – dramatically.[8]  Heritage did not assume large wage gains for unauthorized immigrants after legalization.  In the wake of the 1986 Reagan amnesty, wages for legalized immigrants increased – sometimes by as much as 15 percent – because legal workers are more productive and can command higher wages than illegal workers.  Heritage should adopt similar wage increases to estimate the economic effects of immigration reform if it were to happen today.[9] 
5. Assume realistic levels of welfare use.[10]  Vast numbers of immigrants will return to their home countries before collecting entitlements,[11] the “chilling effect” whereby immigrants are afraid of using welfare reduces their usage of it, and immigrants use less welfare across the board.[12]  100 native-born adults eligible for Medicaid will cost the taxpayers about $98,000 a year.  A comparable number of poor non-citizen immigrants cost approximately $57,000 a year – a 42 percent lower bill than for natives.  For children, citizens cost $67,000 and non-citizens cost $22,700 a year – a whopping 66 percent lower cost.  Heritage should adjust its estimates of future immigrant welfare use downward. [13] 
6. Use latest legislation as benchmark.[14]  The current immigration plan, if rumors are to be believed, would stretch a path to citizenship out for 13 years.[15]  Most welfare benefits will be inaccessible until then, so Heritage’s report must take that timeline into account.
7. Remittances do not decrease long term consumption.[16]  Remittances sent home by immigrants will eventually return to the U.S. economy in the form of increased exports or capital account surpluses.  Heritage should recognize this aspect of economic reality rather than assuming remittances are merely a short-term economic cost.  
8. Factor in immigration enforcement costs.[17]  Heritage did not compare costs of legalization and guest workers to the costs of the policy status quo or increases in enforcement.  The government spends nearly $18,000 per illegal immigrant apprehension while the economic distortions caused by forcing millions of consumers, renters, and workers out of the U.S. would adversely affect income and profitability.[18]
9. Use transparent methodology.[19]  Heritage’s methodology should replicate that of the National Research Council’s authoritative and highly praised – even by immigration restrictionists – study entitled The New Americans.[20]  That study is the benchmark against which all efforts at generational fiscal accounting – including Heritage’s 2007 report – are measured.  If Heritage deviates from their methods, it should explain its methodology in a clear and accessible way that states why they altered practice.[21]
10. Don’t count citizen spouses.[22]  Heritage counted U.S.-born spouses of unauthorized immigrants as fiscal costs.  Counting the net immigrant fiscal impact means counting immigrants and perhaps their children at most,[23] not native-born spouses who would be on the entitlement roles regardless of whether they married an immigrant or a native-born American.
11. Suggest changes to the welfare state.  Heritage has elsewhere called low-skill migrant workers “a net positive and a leading cause of economic growth”[24] and accurately reported that “[t]he consensus of the vast majority of economists is that the broad economic gains from openness to trade and immigration far outweigh the isolated cases of economic loss.”[25]  Instead of arguing against low-skill immigration, Mr. Rector should instead suggest reforms that would, in the words of Cato’s late Chairman Bill Niskanen, “build a wall around the welfare state, not around the country.”[26]

It is imperative that the economic costs and benefits of increased immigration be studied using proper methods and the most recent data.  A previous report by the Heritage Foundation in 2006 entitled, “The Real Problem with Immigration … and the Real Solution,” by Tim Kane and Kirk Johnson roundly rejected the negative economic assessments of Mr. Rector’s 2007 study.[27]  Not only does Mr. Rector not speak for the broad conservative movement; it appears that economists who have worked for the Heritage Foundation also disagree with Mr. Rector’s conclusions. 

For decades, the Heritage Foundation has been an influential intellectual force in conservative circles.  Its economic analyses have been predicated on consideration of the dynamic effects of policy changes as opposed to static effects.  Unfortunately, Mr. Rector’s past work has not been consistent in this regard, employing the same static scoring conservatives have traditionally distrusted in other policy areas. 

Many conservatives rely on the Heritage Foundation for accurate research about immigration’s impact on the economy.  Before releasing another study assessing the net fiscal impacts of immigration reform, Heritage should correct the errors outlined above to guarantee the most accurate information on this important topic is available.

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Unauthorized and low skilled immigrants are attracted to America’s labor markets, not the size of welfare benefits.  From 2003 through 2012, many unauthorized immigrants were attracted to work in the housing market.  Housing starts demanded a large number of workers fill those jobs.  As many as 27 percent of them were unauthorized immigrants in some states.  Additionally, jobs that indirectly supported the construction of new houses also attracted many lower skilled immigrant workers.

Apprehensions of illegal crossers on the Southwest border (SWB) is a good indication of the size of the unauthorized immigrant flow into the United States.  The chart below shows apprehensions on the SWB and housing starts in each quarter:

Fewer housing starts create fewer construction jobs that attract fewer crossings and, therefore, fewer SWB apprehensions.  The correlation holds before and after the mid-2006 housing collapse. 

What about welfare? 

Here is a chart of the national real average TANF benefit level per family of three from 2003 to 2011 (2012 data is unavailable) and SWB apprehensions:

Prior to mid-2006, TANF benefit levels fell while unauthorized immigration rose.  During the housing construction boom, unauthorized immigrants were attracted by jobs and not declining TANF benefits.  After mid-2006, when housing starts began falling dramatically, real TANF benefit levels and unauthorized immigration both fell at the same time.  If unauthorized immigration was primarily incentivized by the real value of welfare benefits, it would have fallen continuously since 2003.   

The above chart does not capture the full size of welfare benefits or how rapidly other welfare programs increased beginning in 2008.  As economist Casey Mulligan explained in his book The Redistribution Recession, unemployment insurance, food stamps (SNAP), and Medicaid benefits increased in value and duration beginning in mid-2008.  Including those would skew welfare benefits upward in 2008 and beyond, but unauthorized immigration inflows still fell during that time.

In conclusion, housing starts incentivize unauthorized immigration while TANF does not. 

This weekend, New York Times op-ed columnist Ross Douthat wrote a piece full of common sense thinking about immigration control and the E-Verify federal background check system.

“Common sense”—or “what most people think”—is an interesting thing: When generations of direct experience accumulate, common sense becomes one of the soundest guides to action. Think of common law, its source deep in history, molded in tiny increments over hundreds of years. Common law rules against fraud, theft, and violence strike a brilliant balance between harm avoidance and freedom.

When most people lack first-hand knowledge of a topic, though, common sense can go quite wrong. Such is the case with ”common sense” in the immigration area, which is not a product of experience but collective surmise. Douthat, who has the unenviable task of leaping from issue to issue weekly, indulges such surmise and gets it wrong.

Take, for example, the premise that American workers lose when immigration rates are high: “Amnesty,” says Douthat, would “be folly (and a political nonstarter) in this economic climate, which has left Americans without high school diplomas (who tend to lose out from low-skilled immigration) facing a 15 percent unemployment rate.”

On the whole, American workers do not lose out in the face of immigration. To the extent some do, it is penny-wise and pound foolish to retard our economy (in which displaced workers participate) and overall well-being (which affects displaced workers, too) in the name of protecting status quo jobs for a small number of native-borns.

Full immigration reform that includes generous opportunities for new low-skill workers is not folly, whatever its political prospects may be.

But I want to focus on Douthat’s conclusion that E-Verify is the way forward for immigration control. He cites a study finding that Arizona’s adoption of an E-Verify mandate caused the non-citizen Hispanic population of Arizona to fall by roughly 92,000 persons, or 17 percent, over the 2008–2009 period, and concludes:

[M]aybe — just maybe — America’s immigration rate isn’t determined by forces beyond any lawmaker’s control. Maybe public policy can make a difference after all. Maybe we could have an immigration system that looked as if it were designed on purpose, not embraced in a fit of absence of mind.

Though tentative, his implication is that a national E-Verify mandate is the solution. Everything that came before was the product of fevered impulses.  Maybe E-Verify is the most practical solution. Douthat’s calm tone sounds like common sense.

Ah, but neither Douhtat or the authors of the study have thought that problem all the way through (and the study doesn’t claim to): The decline in Arizona was not produced simply by moving illegal immigrants from Arizona back to Mexico and Central America. They went to Washington state and other places in the United States that are less inhospitable to immigrants. A national E-Verify mandate would offer no similar refuge, and the move to underground (or “informal”) employment would occur in larger proportion than it did in Arizona.

The report also cautions that the honeymoon in Arizona may not hold:

[T]he initial effects of the legislation are unlikely to persist if actors in the labor market learn that there are no consequences from violating these laws. Hence, for long-term effectiveness, policymakers should also consider the role of employer sanctions, which have not played a large role in Arizona’s results so far. However, policymakers must weigh the sought-after drop in unauthorized employment against the costs associated with shifting workers into informal employment.

That’s antiseptic language for: investigations of employers, raids on workers, heavy penalties on both, and growth in black markets and a criminal underground. “Balmy” is a way of describing the temperature potatoes pass through in a pressure cooker.

It’s hard, on analysis, to see Arizona’s experience being replicated or improved upon by an E-Verify mandate that’s national in scale without a great deal of discomfort and cost. I surveyed the demerits of electronic employment eligibility verification in “Franz Kafka’s Solution to Illegal Immigration.”

There is more not to love in the Douthat piece. Take a look at this shrug-o’-the-shoulders to the deep flaws in the concept of “internal enforcement” and E-Verify:

Arizona business interests called it unfair and draconian. (An employer’s business license is suspended for the first offense and revoked for the second.) Civil liberties groups argued that the E-Verify database’s error rate is unacceptably high, and that the law creates a presumptive bias against hiring Hispanics. If these arguments sound familiar, it’s because similar critiques are always leveled against any attempt to actually enforce America’s immigration laws. From the border to the workplace, immigration enforcement is invariably depicted as terribly harsh, hopelessly expensive and probably racist into the bargain.

We should disregard these problems because they’re familiar? With regard to E-Verify, they’re familiar because they are the natural consequence of dragooning the productive sector into enforcing maladjusted laws against free movement of people from a particular ethnic category to where their labor is most productive.

Problem-solving is welcome, and columnists like Ross Douthat have to at least point to a solution with regularity. But this effort, sounding in common sense, does not rise to the challenge. The solution is not even more enforcement of laws inimical to human freedom. The solution is reforming immigration laws to comport with … common sense!