This post was originally published on the Cato-at-Liberty blog here and is republished with the permission of the author.
The Congressional Budget Office has fiscally scored the Senate’s immigration bill, S. 744, and found that it will decrease fiscal deficits over the next 20 years—giving a huge boost to reform proponents. In line with criticisms made by me and others, the CBO departed from orthodoxy and assumed that S. 744 would affect economic growth (i.e., they dynamically scored the bill)—arguing that the economic and fiscal gains from immigration reform are clear. These findings are broadly consistent with Cato’s findings here.
The CBO produced two scores of S. 744. The first was less dynamic, assuming that GDP and the workforce would grow as a result of immigration. Increased numbers of workers will add to GDP, producing growth by definition, and not displacing many other workers. The second score is more dynamic, taking into account many of the economic effects of immigration reform using an enhanced Solow model.
The less-dynamic CBO score found that immigration reform will reduce the federal deficit by about $197 billion by increased GDP and tax revenues through adding six million people to the workforce by 2023. Over a period of 20 years, the CBO estimated that this legislation would reduce deficits by about $700 billion—a sizeable decrease. In what seems to be a specific dig at the 50-year span of the recent Heritage study, the CBO wrote that, “we cannot determine whether enactment of S. 744 would lead to an increase in on-budget deficits … in any of the three 10-year periods starting in 2033.”
The more dynamic CBO score found that S. 744 would not affect the budget by 2023. However, because the dynamic economic effects of S. 744 would affect the economy slowly, the CBO predicts a $300 billion decrease in deficits from 2023-2033 greater that the $700 billion reported in the less-dynamic score.
The more-dynamic CBO model predicts $1.197 trillion in reduced deficits over the next 20 years if immigration reform is passed.
Delving into the details of the CBO’s more-dynamic score, they estimated that S. 744 would increase GDP by 3.3 percent in 2023 and 5.4 percent in 2033, relative to the baseline. Per capita GNP would lower by .7 percent by 2023 but be higher by .2 percent in 2033. Wages would be .5 percent higher in 2033 under S. 744.
The more-dynamic score takes into account these effects from S. 744:
- Increased size and employment in the economy.
- Increased average wages after 2025.
- Slightly increased unemployment rate through 2020.
- Increased quantity of capital investment.
- Increased productivity of labor (due to complementary task specialization).
- Increased productivity of capital (due to increase in supply of labor and TFP).
- Higher interest rates.
The CBO took account of some of the main findings in the economic literature about the economic effects of immigration. For example, the CBO predicts there will be a 12 percent increase in the wages of legalized immigrants.
Conceptually, dynamically scoring legislation is a big step toward rationally judging the costs and benefits of policy changes. Legislation that changes the size of the economy or the pace of economic growth will affect future tax revenues that will, in turn, affect the fiscal state of the federal government. CBO scores have been inaccurate over time—many wildly so. They should never be the final word on the estimated net fiscal costs of immigration reform, but this is the most thorough examination to date. The CBO’s findings broadly confirm Cato’s research that immigration reform will be economically beneficial to immigrants and the country as a whole.