Robert Rector has been peddling this paper to argue illegal immigration adds $400 billion per year to the deficits of the various U.S. governments (Federal, state, and local). Byron York gives this paper a favorable review. I’m glad he did as his review inadvertently underscores what this Heritage analysis is misleading. The title gives us the first clue:
The Fiscal Cost of Low-Skill Households to the U.S. Taxpayer
He takes the most detailed look yet at the economics of the 17.7 million American households made up of people without a high-school degree … Against that, Rector found that low-skill households paid an average of $9,689 in taxes. (The biggest chunk of that was the Social Security tax — $2,509 — followed by state and local taxes, consumption taxes, property taxes, and federal income taxes, but Rector counted everything, including highway levies and lottery purchases.) In the final calculation, he found, the average low-skill household received $22,449 more in benefits than it paid in taxes
Notice what this 17.7 million American households both includes and excludes. It excludes immigrants who have decent to high incomes. Immigrant households with decent to high incomes turn out to pay more in taxes than they receive in benefits. But more importantly, it includes much more than illegal immigrants as Rector has included not only legal immigrants but also American citizens. If we someone tossed all illegal immigrants out the nation, we would not save $400 billion per year as Rector and York would have us believe. Of course, the agenda of the Heritage Foundation and the National Review just might be to cut all poor people off from transfer payments. I’m not sure if that’s true so let these two speak for themselves. If they are not suggesting that governments should be so draconian, then this $400 billion figure is just stupid.
Having grossly overstated the cost of illegal immigrants, York continues to pile with even more stupidity:
Rector excluded from that figure the cost of public goods and interest; with those included, he says, each low-skill household receives an average of $43,084.
Is he kidding me? Rector excludes the average cost of public goods as the marginal cost of letting one more person use a park is zero. Not allowing illegal immigrants to live here would not materially reduce the cost of providing public goods. York continues:
At a cost of $22,449 per household per year — well, multiply that by an adult lifespan of 50 years and you have an average lifetime cost to the taxpayer of $1.1 million per unskilled worker. Increase that population with a wave of unskilled immigrants, and you’re talking a lot of money.
Rector takes a snapshot and York wants to extrapolate this by assuming that a person with low income today will always have low income. But wasn’t the whole argument behind those consumption inequality measures the premise that current income is not always a good proxy for lifetime income?
Update: Mark Thoma features an interesting discussion of the need to redesign a guest workers program from Gordon Hanson entitled Free Markets Need Free People. Also see Hanson’s The Economic Logic of Illegal Immigration.