Immigration reform: How much will it cost US taxpayers?

The war over how much immigration reform will cost American taxpayers has begun.

The conservative Heritage Foundation estimated Monday that legalizing the roughly 11 million undocumented people in the US could cost $5 trillion more than the status quo over the next 50 years.

“Amnesty consists of a very, very large burden that will be placed on the US taxpayer ... at a time when the country is already going bankrupt,” said Heritage analyst Robert Rector, the report’s author, in a conference call with reporters. “It’s simply something we cannot afford to do.”

But that estimate is a matter of intense dispute, and some of the study’s most vocal critics include conservative analysts and lawmakers who point out that it ignores any economic benefit from new American workers and points more to problems with welfare than immigration reform.

How the debate is resolved could play a crucial role in determining whether budget-conscious conservatives who have balked at immigration reform in the past will be able to get on board this time.

Douglas Holtz-Eakin, a conservative economist who once helmed the Congressional Budget Office, has estimated that the Senate’s immigration reform measure would cut the deficit by more than $2.5 trillion over the next decade alone, for example. 

The Heritage report argues that the undocumented will consume $9.4 trillion in government services, particularly Medicare and Social Security, and pay only $3.1 trillion in taxes over next half-century. That’s versus roughly $1 trillion in costs for the same population should no reform occur, Mr. Rector said.

The study argues that while the children of undocumented immigrants will likely be better off than their parents from an educational and economic standpoint, they will represent only a slight drag on US government services and won’t come close to paying off the $6 trillion gap.

“We desperately need welfare reform,” said Derrick Morgan, Heritage’s vice president for domestic and economic policy. “Putting unlawful immigrants into our current welfare state would be disastrous for them and our fiscal situation.”

Heritage’s estimate has been much-anticipated because a similar study in 2007 was used by critics of the comprehensive immigration reform effort to bludgeon that bill among conservatives.

Critics of the 2013 study say that the 50-year horizon for calculating costs is designed to induce a level of sticker shock for Republican politicians. Looking at the bill over the standard 10-year window would show the bill actually reduces the fiscal drag from the undocumented by more than $130 billion, because those being legalized are forbidden from accessing many government support programs as they progress toward US citizenship.

“This study is designed to try to scare conservative Republicans into thinking the cost here is going to be so gigantic that you can’t possibly be for it,” said Haley Barbour, a former Republican governor of Mississippi now working with the Bipartisan Policy Center on its immigration reform efforts.

But also troubling to conservative proponents of the current Senate legislation is that the analysis ignores a central conservative tenet: pro-growth policies, whether they be tax cuts or immigration reform, amp up economic activity and thus generate more tax dollars.

Among the positive parts of the Senate bill, conservative advocates say, are a slew of new ways for highly-educated STEM (science, technology, engineering and math) graduates to come or stay in the US, for example, or for investors and entrepreneurs to set up shop.

“What’s left out entirely are the benefits of more rapid economic growth,” said Mr. Holtz-Eakin.

Moreover, conservatives cringe at the Heritage report’s assertion that “many conservatives believe that if an individual has a job and works hard, he will inevitably be a net tax contributor (paying more in taxes than he takes in benefits). In our society, this has not been true for a very long time.”

“This study assumes that the experience we’ve had in America for generations, [with] immigrants coming here, their children becoming educated [and] getting better jobs ... this study pretends that it’s not going to happen,” said Mr. Barbour.

For their part, the Heritage authors argue that a tide of new, low-skilled workers will depress wages for Americans in similar jobs, actually dampening any positive economic impact to near zero.

Whichever side triumphs in the court of public opinion, however, the legislative analysts who actually put a price tag on the legislation have already spoken. In a blog post last week, the Congressional Budget Office said it would take immigration reform’s impact on the labor force and US economic production into account when evaluating the bill’s likely cost over the next decade.

That’s just what immigration reform proponents, like House Budget Committee Chair Paul Ryan (R) of Wisconsin, want to hear.

“The Congressional Budget Office has found that fixing our broken immigration system could help our economy grow,” said Representative Ryan in a statement. “A proper accounting of immigration reform should take into account these dynamic effects.”