Tag: welfare

Heritage Immigration Study Fatally Flawed

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.

U.S. Cuts Welfare Payments to Portugal, Portuguese Unhappy

American alliances are systems that transfer wealth from U.S. taxpayers and their debtors to citizens in wealthy allies. With Uncle Sam paying for those countries’ defense, their governments are free to use their own revenues for welfare programs or other domestic priorities. This is a sucker’s bet from an American perspective, but pretty great from the perspective of the citizen of a rich country who benefits from this largesse.

The Wall Street Journal’s news section over the weekend showed this phenomenon in an article illustrating the wages of sequestration. In the course of trimming the U.S. troop presence in Europe from 74,000 to 67,000 over two years, the strategically vital hamlet of Praia da Vitória in the Azores will be particularly hard hit. You see, the U.S. military presence will be reduced there, possibly by more than 1,000, devastating the economic well-being of the village, population 22,000.

One sympathizes with the Portuguese citizens who, over three generations, have come to rely on U.S. taxpayer dollars for their well-being. They don’t really know a world without that economic nourishment, so it must be unnerving to think about what will happen without it.

The story reads like a bad breakup. One U.S. official quoted in the article charged with breaking the news that we’re just not that into them remarked that the Portuguese felt “we are no longer important to you and we have been your best friend. They took it personally.” Worse, they felt “strategically devalued.” Other unnamed officials rubbed salt in the wound, noting the danger that the removal of U.S. troops threatened to “diminish the continent’s value as a strategic partner,” implying that its strategic value is provided by Washington.

The article also noted that the Portuguese are already whispering about having their eye on another suitor:

Since word of possible cutbacks at the base surfaced a year ago, rumors began circulating that the Americans would leave [the base] entirely, and that China, which has growing economic ties with Portugal, would establish a naval base their to patrol the Atlantic.

An American conservative movement worthy of the name would realize the economic strain the country is under and wouldn’t be embracing situational Keynesianism and trying to insulate the bloated military budget from cuts. It would be pointing out that this system of transferring money from U.S. taxpayers to taxpayers in Japan, or Germany, or Portugal is bad for Americans, unconservative, and unnecessary.

Unfortunately, we don’t have that kind of conservative movement.

Immigrants Are Attracted to Jobs, Not Welfare

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. 

More Evidence that Uncle Sam Is Uncle Sucker (but U.S. Voters Aren’t)

As has become an annual tradition, my colleague Charles Zakaib has sifted through the data from the latest edition of the International Institute for Strategic Studies’ The Military Balance and created several illuminating charts. They are enclosed below and show U.S. security spending as a share of the global total, U.S. per capita spending as compared with some of our leading allies, and U.S. spending vs. the rest of NATO as a share of GDP.

The data demonstrate that Americans in 2010 spent vastly more in every sense of the term. We accounted for 47.65 percent of global security spending. We each spent more than $2,200 on the Pentagon’s budget, and hundreds more when you factor in other security spending (e.g., Homeland Security, Veterans Affairs, and nuclear weapons). That represents a 72 percent increase in real, inflation-adjusted dollars since 1998, whereas the United Kingdom and Denmark increased by 5 and 6 percent, respectively. Six NATO countries saw per capita spending decline: Italy’s has fallen by 35 percent since 1998; France by 14 percent; and 12 percent in Portugal. The aggregate numbers paint a similar picture: between 1999 and 2010, U.S. spending as a share of GDP rose from 3.15 to 4.77, whereas the rest of NATO declined from 2.05 to 1.61 percent.

The reason why those trends prevail is straightforward: people aren’t inclined to pay for something if someone else is willing to buy it for them. Conservatives understand that dynamic when it applies to housing allowances or food stamps for the less fortunate here in the United States. They ignore it when it applies to buying security for the relatively well off in Europe and Asia.

That blindness is evident in Paul Ryan’s latest budget plan. As Chris Edwards and Tad DeHaven observed earlier this week, Ryan is willing to reduce spending on many domestic programs, but he could have gone much further on the grounds that the federal government does many things that are more appropriately handled by state or local governments or, even better, by the private sector.

Ryan makes an exception for the Pentagon, allowing its budget to grow on top of the massive increases from the past decade. Ryan and others contend that national defense is a core function of government, and therefore should not be treated equally with spending on other programs that are not.

I agree: The Constitution clearly stipulates that the federal government should provide for the “common defence.” It makes no mention of subsidizing mortgages, Amtrak, or sugar. But I anxiously await Rep. Ryan’s explanation for why American taxpayers should be expected to subsidize social welfare spending in other countries. By relieving other governments from their solemn obligation to provide for the common defense of their citizens, we have allowed and encouraged them to divert their resources elsewhere.

That realization is dawning on a growing number of Americans, and they aren’t happy about it. In a just-published book, The People’s Money: How Voters Will Balance the Budget and Eliminate the Federal Debt , pollster Scott Rasmussen explains the looming gap between voters and the Political Class. Rasmussen will be at Cato next week to talk about his book, and I’ll be writing more about his findings in the future. In the meantime, I’ll leave you with just three poll findings that should trouble Republicans who believe Paul Ryan’s approach to military spending is a political winner.

  • 82 percent believe economic challenges are a bigger concern than military ones.
  • Only 35 percent of voters would leave DoD spending off the table in the search for savings.
  • 79 percent of voters think we spend too much defending others. A mere 4 percent think we don’t spend enough.

Pennsylvania Moves to Starve Poor People

That’s the message I came away with after reading an online article from a Philadelphia Inquirer reporter about a decision by the state of Pennsylvania to limit eligibility for food stamps. The article is a perfect example of the difficulty advocates for limited government face in communicating their ideas through the mainstream press.

At issue is the PA Department of Public Welfare’s decision to eliminate eligibility for food stamps for people under the age of 60 who have more than $2,000 in assets (the value of one’s house, retirement benefits, and car would be excluded). The DPW estimates that only “2 percent of the 1.8 million Pennsylvanians receiving food stamps would be affected by the asset test.” Indeed, the DPW’s website notes that “Because of changes to SNAP, most Pennsylvania households are not subject to a net income limit, nor are they subject to any resource or asset limits.”

(SNAP is the acronym for the federal Supplemental Nutrition Assistance Program, which was known as the Food Stamp program until 2008 when Congress changed its name to sound more palatable. The program is run jointly by the U.S. Department of Agriculture and state governments, but federal taxpayers pay for the direct benefits.)

One of the “changes” that the DPW refers to is categorical eligibility, which basically means that Pennsylvania households already receiving benefits from other welfare programs, including cash welfare and Supplemental Security Income, automatically qualify for food stamps. In recent years, both the state of Pennsylvania and the federal government have made it easier to qualify for food stamps benefits.

Unfortunately, the Inquirer reporter either wasn’t aware of these details or didn’t deem them important enough for inclusion. Instead, he quotes ten—let me repeat that, ten—critics of the DPW’s decision. The critics include a “national hunger expert,” the legal director of a “leading anti-hunger group,” the executive director of the Greater Philadelphia Coalition Against Hunger, the executive director of the “liberal Pennsylvania Budget and Policy Center,” and an older woman who says that she’ll “have to give up paying for my health insurance.”

It took me all of two minutes to get a quote from Nathan Benefield, the director of policy analysis at Pennsylvania’s pro-liberty Commonwealth Foundation:

Unfortunately for taxpayers, politicians in Harrisburg and Washington have for the past few years considered it a “success” to have more families on welfare. Pennsylvania welfare eligibility and spending—including for food stamps—has exploded, threatening to crowd out everything else in the state budget. Means testing for assets is a common-sense reform to ensure those who truly need aid get it.

There, was that so hard?

Of course, journalists who are interested in getting the pro-liberty take on welfare reform are welcome to contact my colleagues and me at the Cato Institute. Honestly, we don’t want people to starve in order to save a buck—we just believe that the federal government is an improper and less effective means for assisting those who are truly in need. Pressed for time? Here are Cato essays on food subsidies, welfare, and federal subsidies to state and local government.

Five Lessons for America from the European Fiscal Crisis

I’ve written about the fiscal implosion in Europe and warned that America faces the same fate if we don’t reform poorly designed entitlement programs such as Medicare and Medicaid.

But this new video from the Center for Freedom and Prosperity, narrated by an Italian student and former Cato Institute intern, may be the best explanation of what went wrong in Europe and what should happen in the United States to avoid a similar meltdown.

I particularly like the five lessons she identifies.

1. Higher taxes lead to higher spending, not lower deficits. Miss Morandotti looks at the evidence from Europe and shows that politicians almost always claim that higher taxes will be used to reduce red ink, but the inevitable result is bigger government. This is a lesson that gullible Republicans need to learn - especially since some of them want to acquiesce to a tax hike as part of the “Supercommitee” negotiations.

2. A value-added tax would be a disaster. This was music to my ears since I have repeatedly warned that the statists won’t be able to impose a European-style welfare state in the United States without first imposing this European-style money machine for big government.

3. A welfare state cripples the human spirit. This was the point eloquently made by Hadley Heath of the Independent Women’s Forum in a recent video.

4. Nations reach a point of no return when the number of people mooching off government exceeds the number of people producing. Indeed, Miss Morandotti drew these two cartoons showing how the welfare state inevitably leads to fiscal collapse.

5. Bailouts don’t work. This also was a powerful lesson. Imagine how much better things would be in Europe if Greece never received an initial bailout. Much less money would have been flushed down the toilet and this tough-love approach would have sent a very positive message to nations such as Portugal, Italy, and Spain about the danger of continued excessive spending.

If I was doing this video, I would have added one more message. If nations want a return to fiscal sanity, they need to follow “Mitchell’s Golden Rule,” which simply states that the private sector should grow faster than the government.

This rule is not overly demanding (spending actually should be substantially cut, including elimination of departments such as HUD, Transportation, Education, Agriculture, etc), but if maintained over a lengthy period will eliminate all red ink. More importantly, it will reduce the burden of government spending relative to the productive sector of the economy.

Unfortunately, the politicians have done precisely the wrong thing during the Bush-Obama spending binge. Government has grown faster than the private sector. This is why this new video is so timely. Europe is collapsing before our eyes, yet the political elite in Washington think it’s okay to maintain business-as-usual policies.

Please share widely…before it’s too late.

New Video Shows the War on Poverty Is a Failure

The Center for Freedom and Prosperity has released another “Economics 101” video, and this one has a very powerful message about the federal government’s so-called War on Poverty.

As explained by Hadley Heath of the Independent Women’s Forum, the various income redistribution schemes being imposed by Washington are bad for taxpayers – and bad for poor people.

The video has a plethora of useful information, but the data on the poverty rate is particularly compelling. Prior to the War on Poverty, the United States was getting more prosperous with each passing year and there were dramatic reductions in the level of destitution.

But once the federal government got involved in the mid-1960s, the good news evaporated. Indeed, the poverty rate has basically stagnated for the past 40-plus years, usually hovering around 13 percent depending on economic conditions.

Another remarkable finding in the video is that poor people in America rarely suffer from material deprivation. Indeed, they have wide access to consumer goods that used to be considered luxuries - and they also have more housing space than the average European (and with Europe falling apart, the comparisons presumably will become even more noteworthy).

The most important message of the video, however, is that small government and economic freedom are the best answers for poverty. As Hadley explains, poor people can be liberated to live meaningful, self-reliant lives if we can reduce the heavy burden of the federal government.

Last but not least, the video doesn’t address every issue in great detail, and there are three additional points that should be added to any discussion of poverty.

  1. The biggest beneficiaries of the current system are the army of bureaucrats that receive very comfortable salaries administering various programs.
  2. The Obama Administration is looking to re-define poverty in a way that would expand the welfare state and increase the burden of redistribution programs.
  3. The welfare reform legislation of the 1990s was a small step in the right direction because it eliminated a federal entitlement and shifted responsibility back to the state level. This success story should be replicated for programs such as Medicaid.

This last point is worth emphasizing because it is also one of the core messages of the video. The federal government has done a terrible job dealing with poverty. The time has come to get Washington out of the racket of income redistribution.