On immigration, the budget gnomes finally do some dynamic scoring.
As the immigration debate is increasingly overtaken by the folks who want to build a “Game of Thrones” ice wall to keep out the wildlings, ironies abound. One is that quadrupling border security funding to $20 billion and doubling border patrol agents to 40,000—that’s the deal GOP Senators struck Thursday—is the sort of public-works and public-employee spending binge that the tea party right would ordinarily denounce and President Obama would praise as stimulus.
Another irony is that immigration reform would be the greatest, and maybe the only, pro-growth achievement of his Presidency. More immigration benefits the economy, and the latest bearer of this reality is the Congressional Budget Office, which this week released a pair of studies on the contributions and costs of immigrants over time.
The CBO concludes in its first estimate that the Senate bill would reduce federal deficits by about $197 billion on net over the next decade and by about $700 billion including the following decade. Washington isn’t overhauling immigration to resolve the fisc, though these days we’ll happily take this side benefit.
The CBO’s results make intuitive sense: The government will spend more—a modern pittance of about $626 billion over a decade—but the fiscal gains from more taxpayers and higher GDP are much larger. On that last point, prosperity is driven by human no less than financial capital and it’s better to have more of both. Free trade in people is as valuable as free trade in goods.
The CBO is not the Oracle of Delphi, and its Keynesian convictions and mandate to “score” as gains even the most unrealistic claims of its political masters normally ensures that it is wrong. But here’s a third irony: This time the CBO ditched its usual methods—a move that tends to discredit its usual work and suggests that these estimates are more accurate.
The budget gnomes normally put an official price tag on legislation on a “static” basis, meaning that it assumes little impact on the economy even when Congress changes the incentives to work and invest. This non sequitur is typically used as a weapon against tax cuts, but it makes even less sense in the case of immigration. By definition a larger labor force from legalized immigrants—about six million new workers in 2023, or a 3.5% increase, the CBO figures—adds to GDP.
So the CBO was forced to make intellectual progress and dynamically score the bill, meaning it incorporates larger economic effects. But it also produced a second, more dynamic and even more unusual analysis that looks at factors such as higher productivity, capital investment and immigration’s effects on wages for workers with different skills.
Under that model, GDP is 3.3% higher in 2023 and 5.4% higher in 2033 over the status quo. Those are multitrillion-dollar gains. In the best-case scenario, GDP is 5.7% higher in 2033, and the deficit falls by about $1.2 trillion.
The restrictionists are seizing on the CBO’s finding that the Senate bill will push down average U.S. wages by 0.1%, but then they also ignore the conclusion that wages will rise by 0.5% in 2033 as the fluid labor market corrects over the long term and this temporary imbalance dissolves.
CBO also sensibly notes that newcomers to the U.S. tend to belong to either the least- or most-skilled groups of workers, so any harm for most average Americans is nonexistent. In fact they will benefit from rising standards of living and higher wages that faster growth makes possible.
New workers with lower skills or less education like farm hands or bar backs fill gaps in the U.S. labor market and will see their earnings rise over time. Let’s also not forget that the Senate bill greatly increases H-1B visa quotas and green cards for tech and science grads, so the U.S. will see an influx of the engineers, Ph.D.s and entrepreneurs who generate the innovations that increase economic output faster. The CBO cites the large body of empirical literature on such “positive spillover effects” as a major reason productivity will rise.
The final irony is that CBO’s dynamic estimates refute the static analysis on immigration recently produced by the ostensibly pro-growth conservatives at the Heritage Foundation. Heritage estimates that immigration reform will cost taxpayers $6.3 trillion, but it does so by assuming that most immigrants are major liabilities who will take more from the public dole than they contribute. The CBO’s refutation is especially notable given that George Borjas of Harvard—a prominent immigration skeptic—was an informal peer-reviewer.
The GOP’s immigration critics denounced the CBO studies upon their release, but they are now saying the studies show that Congress can afford the latest Senate border security blowout, which will station a guard every 1,000 feet along the Mexican border. They may be right about that, but only because the immigration windfall will be so much larger than the security overkill and waste.