As immigration reform legislation makes its way through Congress in the coming months, one of the first questions on the minds of many observers will be how much it will cost. More precisely, will the bill yield a net increase in government revenue, or will it constitute a net drain on taxpayer dollars? While this is a straightforward question, calculating an answer is not simple. There are many variables at play. For instance, in a revamped immigration system, more immigrants will become eligible to draw upon publicly funded programs, but there will also be more immigrants paying taxes. Which will be greater? In the case of the 2006 immigration reform bill, the Congressional Budget Office (CBO) estimated that, over 10 years, the bill would have cost $54 billion, while raising $66 billion in new revenues. In other words, the bill would have generated a slight surplus for the federal treasury.
However, gauging the economic impact of an immigration reform bill involves more than a CBO-style fiscal accounting. As the wages of immigrant workers increase over time, not only do their tax contributions, but their consumer purchasing power as well. This represents dollars spent in U.S. businesses, which creates jobs and generates even more tax revenue in the process. In addition, some immigrants will use their increased wages to start their own businesses, which also creates jobs and tax payments. These are what is known as “multiplier” effects: ripples created throughout the U.S. economy by the incorporation of immigrant workers, taxpayers, consumers, and entrepreneurs. In judging whether an immigration reform bill amounts to a net economic cost or benefit, accounting for these multiplier effects is crucial. There have been a number of studies in recent years which have found immigration reform to be overwhelmingly positive for the U.S economy thanks to its multiplier effects.
Is this the case?
How will immigration reform impact the economy?