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Immigration: The Demographic and Economic Facts7. Taxes Paid by Immigrants and the Net BalancePublished by the Cato Institute and the National Immigration Forum
The amount of taxes a group pays depends largely upon the group's
income. Hence we must discuss the absolute and relative trends in
immigrant incomes.
Again, we have the problem that the only comprehensive data
available on family income are two decades old. Therefore,
results of the data discussed in the first section must be
modified by the more recent partial data for individual male
earners shown in the next section.
Data from the 1976 Survey of Income and Education
Data from the Census Bureau's 1976 SIE on family earnings
and taxes paid by the various cohorts of immigrants are shown in
Table 7.1. These earnings data enable one to estimate the taxes
paid by immigrant families.
Within three to five years after entry, immigrant family
earnings reached and surpassed earnings of the average native
family (as of 1976); this catch-up is due largely to the youthful
non- retired age composition of immigrant families. The average
native family paid $3,008 in taxes in 1975. In comparison,
immigrant families in the United States 10 years paid $3,369,
those here 11-15 years paid $3,564, and those here 16-25 years
paid $3,592. All the cohorts' payments substantially surpassed
natives' payments.
Akbari found the same pattern in Canada for 1980. Immigrants
who arrived in Canada between 1946 and 1976 contributed
substantially more in taxes than did natives (1989, Table 4). And
though the results vary somewhat, Akbari's data for 1990 also
show much the same pattern (1994, Table 5).
These data, ranging over 15 years and two countries,
corroborate each other that immigrant families tend to pay more
taxes than do natives in most relevant cohorts.
It is family data such as these that are relevant for policy
discussions, because the family is the relevant economic unit.
Data to be considered later in this section (for completeness
only) generally pertain to individuals.
Have There Been Changes in the Pattern of Taxes Paid?
As discussed earlier in Chapter 3, the earnings of
successive cohorts of immigrant men since the 1960s have fallen
relative to native men, both at the time of arrival and also
later on. (See Table 3.3.) The gap between the mean earnings of
(a) all new immigrant men and (b) adult natives 25-64 was wider
in the 1980s than in the previous decade--27.9 percent versus
21.3 percent (averaging age-education adjusted cohorts, Borjas
1994, 1678). The gap between the mean earnings of immigrant men
who entered in the 1970s and adult natives 25-64 also was wider
in the 1980s than the comparable gap in the previous decade. This
continues a downward relative trend from men who entered in the
1960s, a gap of about 10.5 percent.
As noted in Chapter 3, these relative shifts in earnings do
not imply that the newer immigrants have a negative economic
effect. But this trend does imply that the size of tax
contributions by recent cohorts of immigrants relative to those
of natives has diminished over the three decades. Or to put it
differently, this trend (if it exists) brings persons who
contribute a lower amount of "excess" taxes to the public fisc
than would persons with higher earnings. From an analytic point
of view, differences among cohorts imply that a present-value
analysis using the synthetic method I applied to the 1975 data
requires additional adjustments and qualifications.
The Net Balance of Costs and Benefits
The most important question from the point of view of
economic policy is not directly about welfare, but rather about
the overall effect of immigrants on the standard of living of
natives by way of the public coffers, taking into account their
effect through taxes as well as the welfare system. This sort of
analysis--discussed at the start of this chapter--is appropriate
with respect to the key policy decision about whether more or
fewer immigrants should be admitted.
Flows from the Public Coffers
By summing the categories for the 1975 expenditures in the
Census Bureau SIE, we find that the average immigrant family
received $1,404 in welfare services in years 1-5 in the United
States, $1,941 in years 6-10, $2,247 in years 11-15, and $2,279
in years 16-25. Natives averaged $2,279, considerably more than
the immigrants get during their early years in the United States.
The early years are more relevant than are later years because
rational policy decisions weigh the distant future less heavily
than the near future, for exactly the same reasons that a dollar
in hand is worth more to us now than a dollar that will be in
hand 10 years from now.
As to Social Security when immigrants grow older: The
children of retired immigrants support them with their taxes,
just as the children of natives do for their parents, so the
retired immigrants are no special burden upon natives. This
matter is discussed at length in Simon (1989, Chapter 5).
Flows to the Public Coffers
As shown above, the average native family paid $3,008 in
taxes in 1975. In comparison, immigrant families here 10 years
paid $3,369, those here 11-15 years paid $3,564, and those here
16-25 years paid $3,592--in all those cases, substantially
surpassing natives' payments.
Net Effect on the Public Coffers
Having in hand both the amounts of taxes paid by immigrants
and the amounts of welfare services they use, one may then
compute the net balance, positive or negative, for immigrants as
a group. Additionally, one can then compare their impact on the
public coffers with that of natives. I will now present these
calculations for the United States as of 1975, based on the SIE.
Assuming that 20 percent of taxes finance activities that
are little affected by population size (for example, maintaining
the armed forces and the Statue of Liberty), the consolidated
data on services used and taxes paid show substantial differences
to the benefit of natives: an average of $1,354 yearly for the
first 5 years the immigrant families are in the United States,
and $1,329, $1,525, and $1,383 for years 6-10, 11-15, and 16-25,
respectively. These are the amounts that natives are enriched
each year through the public coffers by each additional immigrant
family on average. Evaluating the future stream of differences as
one would evaluate a dam or a proposed harbor, the present value
of an immigrant family discounted at 3 percent (inflation
adjusted) was $20,000 in 1975 dollars, almost two years' average
earnings for a native family; at 6 percent the present value was
$15,000; and at 9 percent it was $12,000. (All these data are
based upon the total stock of immigrants in the United States,
without distinction as to whether they are legal or illegal.
Illegals are likely to be underrepresented in the survey because
of their reluctance to deal with public officials, but the Census
Bureau has found that a large proportion of them do respond to
such surveys. The underrepresentation is not likely to have a
significant effect upon the overall calculations above, and, if
anything, it is likely to cause an understatement in the benefit
to natives.)
There are other costs for some groups of immigrants, too.
For example, during the period prior to the SIE, the federal
government paid $1,000 per person to resettlement organizations
to cover overhead and start-up money for Vietnamese, Soviet
Jewish, and other refugees. This expense and such costs as
special refugee schooling should be deducted from the above
present-value calculation for the average immigrant family. But
it is unlikely that these deductions would make the calculation
negative.
Qualification
As discussed above, the data for the 1980s for relative
earnings (and hence taxes) for individual native and immigrant
men are sufficiently different from the data for earlier cohorts
that it may be prudent not to rely on a synthetic-lifetime study
which includes later cohorts along with the earlier cohorts. But
taken together, these data do not indicate that the earlier
findings are no longer relevant.
Furthermore, the 1975 data for the United States are
corroborated by two similar studies for Canada by Ather Akbari
(1989; 1995), one using 1981 data and the other using 1991 data,
from two different sources (census data for 1981 and Survey of
Consumer Finances for 1991). The results of Akbari's study of
1981 data are entirely consistent with my study for the United
States using 1970s data, and his study of 1991 data shows no
major differences from the study of the 1981 data or my study of
U.S. 1975 data.
Net Balance for Undocumented Aliens
In the previous chapter, the expenditures on illegal aliens
were estimated to be about $1,390 per capita, which is
considerably less than for legal immigrants and about 38 percent
of the level for natives. This means that, if, on average,
illegal immigrants pay at least 38 percent as much taxes as
natives, they will be paying their own way.
Clark et al. (Table 6.2) estimate that the 2.8 percent of
the undocumented population in the seven states pays 1.3 percent
of the total of sales, income, and property taxes, or 1.3/2.8 =
46 percent as much taxes as natives. If--and there seems little
reason to estimate a higher or lower figure--the same proportion
holds for total taxes, then taxes paid by illegals more than
offset the costs of the services that they use. That is, the 46
percent of the average natives' inflow that immigrants pay in
taxes is a greater amount than the 38 percent of the average
natives' outlays on the illegals. And assuming that total U.S.
inflows balance total outlays, and that other public outlays on
account of illegals are not greater than for natives (indeed,
they surely are much less), illegals are more than paying their
own way and are contributing to the public coffers. If one were
to make any reasonable accounting for the low marginal
expenditures on public goods such as defense and foreign
activities in connection with illegals, the accounting would look
even more favorable for illegals.
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