Would legalizing undocumented workers really cost $6.3 trillion?

Big policy changes don’t exist in a vacuum, isolated from the rest of the economy

By James Pethokoukis 

Even if US budgets were deep in the black, it would be perfectly legitimate to examine the fiscal costs of legalizing millions of currently undocumented workers. But such analysis should provide as full an economic picture as possible for policymakers. A new Heritage foundation study, while providing some useful data points, is frustratingly incomplete.

Certainly pundits and activists with axes to grind will run hard with Heritage’s claim that “former unlawful immigrants together …  would generate a lifetime fiscal deficit (total benefits minus total taxes) of $6.3 trillion.” Quite a talking point — one researchers arrive at via a fairly straightforward calculation. They simply determine the difference between their forecast of futures taxes paid and benefits received. Fair enough and good to know.

The study, however, fails to capture indirect but important economic impacts of immigration such as increasing economic activity or positively affecting American employment. Both of those would lead to higher tax revenues and reduced transfer payments. Surely every effort should be given to factoring in such dynamic impacts of immigration reform. The Heritage study says, for instance, that “taxes and benefits must be viewed holistically.” So, too, immigration overall. Big policy changes don’t exist in a vacuum, isolated from the rest of the economy. (And, of course, the study only focuses on a single part of comprehensive immigration reform.)

Not making these added calculations raises red flags as to the study’s completeness. What about studies of US states that find economic contributions of low-skill immigrants “dwarf their fiscal costs.” Another example: Heritage claims “that unlawful immigration appears to depress the wages of low-skill US-born and lawful immigrant workers by 10 percent, or $2,300, per year.” Yet other highly regarded research finds wage gains at all education levels for US-born workers.

Is immigration reform that potentially expands the population of less-skilled individuals a smart economic policy or not? It’s impossible to draw a reasonable conclusion based only on the Heritage study.