The New Americans Economic, Demographic, and Fiscal Effects of Immigration (1997) / Chapter Skim
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6 Do Immigrants Impose a Net Fiscal Burden? Annual Estimates
6 Do Immigrants Impose a Net Fiscal Burden? Annual Estimates
Pages 254-296
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From page 254... ...
Judging by the 1996 welfare reform legislation restricting the access of legal and illegal immigrants to a variety of federally funded transfer programs, citizen approval in 1994 of Proposition 187 in California denying funding for public services to illegal immigrants, and recent suits by Arizona, California, Florida, New York, New Jersey, and Texas to recover additional funding from the federal government for immigrant services, many people believe the effect of immigrants is both negative and large. This chapter outlines how the fiscal impacts of immigrants on U.S.
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From page 255... ...
Third, although estimates of the annual fiscal impacts are important for understanding the economic consequences of immigration for the current year, estimates of how an immigrant family consumes public services and pays taxes over time are also important in order to know the full consequences of admitting additional immigrants into the United States. Almost no family stays just one year.
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From page 256... ...
The next section outlines the appropriate methodology for measuring the annual fiscal impact of immigrants on native households.3 Afterward comes a section that applies this methodology to estimate the annual fiscal impact of immigrants in two states with a heavy concentration of immigrants: New Jersey 2Immigrants may impose a variety of external costs and benefits on society, some of which are not described here. Immigration may be associated with more diverse restaurants in an area, a benefit to some residents that is not directly measured in the fiscal analysis.
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From page 257... ...
ESTIMATING THE ANNUAL FISCAL IMPACT OF NEW IMMIGRANTS The annual fiscal impact of immigrants on the economic well-being of native residents can be estimated in two steps.4 Step one approximates the effect of the added tax burden imposed on native residents to fund the current level of services received by natives and now extended to immigrants. The reader should note that this analysis is carried out under the assumption that there are no behavioral changes in response to changes in the number of immigrants it is what is known as a "partial-equilibrium" exercise.
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From page 258... ...
If NAFIN is negative, then the fiscal effects of immigration make the native resident worse off economically.5 5NAFIN provides a first-order approximation of the change in native residents' economic welfare when new immigrants affect the public services that natives receive and the taxes that natives pay. This specification of the fiscal effects of immigration on native residents' economic well-being is part of a more general analysis, one that combines the labor market effects of immigration with the fiscal effects.
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From page 259... ...
which can be rewritten more simply as: AV = AUN/(DUN/DYN) ~ MN + NAFIN where AV is the monetary value to a native resident of the change in utility caused by new immigration, MN is the change in pretax incomes, and NAFIN is the net annual fiscal impact of new immigrants defined as the effect of new immigrants on public services received by native residents (,uNAgN)
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From page 260... ...
; to previous immigrants at a cost of EM per immigrant times the number of immigrants (= EM · M) ; and to businesses and nonresidents, including holders of current government debt raised to finance past deficits at a cost of XN per native resident times the number of native residents (= XN.
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From page 261... ...
This difference, /\TN' is what the average native household must pay to protect government services after immigration and - /\TN is the net annual fiscal impact (NAFIN) of this tax change.
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From page 262... ...
- Of course, if new immigrants are richer and better educated than previous immigrants, then average spending on immigrants may fall (AEM < 0) and average immigrant taxes may rise (/\TM > 01, reducing the average tax burden or increasing the average level of tax relief for native residents.
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From page 263... ...
To the extent that the increase in nonresident revenues is larger than any increase in nonresident spending, the additional tax burden of new immigration on the average native resident will decline. Fiscal Accounting: Implementation Steps one and two detail how to measure, in principle, the annual fiscal impact of new immigrants on current residents.
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From page 264... ...
intensely than previous immigrant households;l7 or (4) new immigrant households may permit economies of scale through the sharing of public facilities with previous immigrants allowing a reduction (AEM < 0)
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From page 265... ...
(8) When public services are pure public goods, adding new immigrant households does not require an increase in government spending; the government can provide the same level of benefits to old and new users without an increase in public facilities.
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From page 266... ...
This total burden is then shared among all current native residents, requiring each native resident to pay /\TN. Measuring Revenues and Revenue Changes Current taxes paid per immigrant household equal the sum of all taxes paid by previous immigrant households divided by the previous immigrant population.
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From page 267... ...
Property taxes on businesses will be borne by the investors in the business, by the firm's workers if wages can be reduced, or by the firm's customers if prices can be increased; best estimates suggest that business capital bears the burden of that tax (see Mieszkowski, 1972; Aaron, 1975~. Similarly, business income taxes may be borne by business capital, by workers, or by customers; again, best estimates suggest that business capital bears the burden of business income taxes (see Shoven and Whalley, 1972; Pechman, 1985~.2° In summary, current economic evidence argues that immigrants should be assigned the burden of sales and excise taxes and public-sector user fees when they consume the taxed goods and services, should be assigned the burden of labor and all of payroll taxes as they earn labor income, should be assigned all of 20At the state and local level, however, mobile businesses may be able to escape the burden of business property taxes and business income taxes by exiting to another locality with lower taxes.
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From page 268... ...
If not, then again, average revenue estimates from previous immigrant households must be adjusted following new immigration, downward if tax bases are smaller and upward if tax bases are larger.21 Third, if the tax system is progressive, so that tax rates rise as incomes rise, then if new immigrant households have higher (or lower) incomes than previous immigrants, then the average tax rate must be adjusted upward (or downward)
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From page 269... ...
400,000 new immigrant households (about 1 million new immigrants) will dilute the typical native household's share of the proceeds from public wealth by about $7.26 per year ( = - ($1782)
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From page 270... ...
Together the two studies allow estimates of the average fiscal balance (T - E ~ for immigrant-headed households (TM - EM ~ and native households (TN - EN) ' the key first step to estimating the net annual fiscal impact (NAFIN)
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From page 271... ...
Almost half of New Jersey' s immigrant population is from Europe or Canada; families from Latin America account for about a third; and families from Asia about a fifth of the state's immigrant population. Compared with native households, immigrant households have more children, earn slightly lower incomes, and use welfare services a bit more often.
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From page 272... ...
Services provided by state government and included in the study are general government administration, public safety and criminal justice, health, community development, transportation, environmental management, employment training, education administration and state aid for K-12 education, higher education, the state share of
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From page 273... ...
, and Supplemental Security Income (SSI) , general state welfare assistance, pharmaceutical assistance for the elderly and disabled, municipal aid to local governments, and property tax reimbursements.27 All these local and state government services are treated as private goods by Garvey and Espenshade, each requiring a 27The PUMS data base allows Garvey and Espenshade to allocate education spending at both the state and local level to native and immigrant households by their geographic location; higher education spending by enrollment status; all state and local transfers to households (Medicaid, AFDC, SSI, general assistance, pharmaceutical assistance)
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From page 274... ...
In fact, current economic evidence suggests that roadways, police protection, and fire protection may allow some sharing in their provision. If so, the estimates here will overstate the true fiscal burden imposed by immigrants on residents and should be viewed as conservative that is, the Garvey and Espenshade estimates are more likely to overstate than understate true net fiscal burdens.
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From page 275... ...
Table 6.2 shows that in New Jersey in fiscal year 1989-90 there was a net fiscal redistribution from native households to immigrant households at both the local and state levels of government. At the local level, the average native household in New Jersey paid an additional $144 per native household to offset the negative fiscal balance of $922 per immigrant-headed household imposed by current New Jersey immigrants.30 Table 6.2 reveals that the negative fiscal balance for immigrant households originates from the differentially high spending for immigrant families, particularly on K-12 education services.
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From page 276... ...
If the average fiscal balance > 0, then the average household in this category makes a net contribution to the state or local treasury. If the average fiscal balance < 0, then the average household in this category receives a net notes continue on next page
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From page 277... ...
Combining the state and local public sectors, native households in New Jersey bear a total net fiscal burden of $232 per native household from the fact that the average immigrant-headed household receives $1,484 per immigrant household more in state and local services than it contributes in state and local taxes (see Table 6.2~. There is wide variation across immigrant households as to the total state and local burdens they impose.
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From page 278... ...
Public services provided at the state level to California households include Medi-Cal health care coverage and AFDC and SSI income transfers, state aid for K-12 education, state support for higher education, state police, corrections, and justice, public works, government administration, transportation, environment and recreation, and state assistance to local governments. Services provided by local governments include local spending on K-12 education, community colleges, police and fire protection, transportation, libraries, public health, public works, general low-income assistance, and general government administration.
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From page 279... ...
When providing local services, the average native household contributes a fiscal surplus of $283 per household to fund a fiscal deficit of $831 per immigrant-headed household (see Table 6.3~.34 When providing state services, the average native household contributes a fiscal surplus of $895 per household to cover an average negative fiscal balance of $2,632 per immigrant household (see Table 6.3~.35 Comparing services received and revenues paid across native and immigrant households 33state income taxes and payroll taxes are assigned to households according to each households eligible tax base. state and local sales taxes are allocated to households according to the household's consumption of the taxed goods; downward adjustments (= $72/immigrant household)
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From page 280... ...
Combining the state and local public sectors, native households pay an additional $1,178 per household in revenues above services received to support a net fiscal transfer to the average immigrant-headed household of $3,463 household (see Table 6.3~. As in New Jersey, the immigrant group making the biggest contribution to this net fiscal burden on native households in California is families from Latin America.
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From page 281... ...
Foreign- Europe/ Latin AllNativeBornCanadaAsia America Other Expendituresa Local K-12 education $974 $768 $1,581 $435 $1,453 $1,888$1,561 All other 4,549 4,522 4,627 4,587 4,732 4,5874,624 Total 5,523 5,290 6,208 5,022 6,185 6,4756,203 State K-12 education 1,537 1,212 2,496 687 2,294 2,9812,465 Transfers to households 817 594 1,474 698 1,758 1,581903 All other 780 704 1,003 686 1,140 8821,086 Total 3,134 2,510 4,973 2,071 5,192 5,4444,454 Revenuesb Local Property tax 1,059 1,092 965 1,117 1,239 7761,233 All other 4,464 4,481 4,412 4,453 4,467 4,3704,484 Total 5,523 5,573 5,377 5,570 5,706 5,1465,717 State Income tax 1,738 1,964 1,070 1,549 1,635 6201,806 Sales tax 688 727 570 662 696 473736 All other 708 714 701 620 749 703657 Total 3,134 3,405 2,341 2,831 3,080 1,7963,199 Average fiscal balances Local _ 0 283 -831 548 -479 -1,329-486 State _ 0 895 -2,632 760 -2,112 -3,648-1,255 Total _ 0 1,178 -3,463 1,308 -2,591 -4,977-1,741 Note: Other = Africa or Oceania. aLocal government expenditures by community, school district, and county governments include the local share of outlays for K-12 education and an estimate of the household sector's share of "other" local expenditures for such services as public safety, public works, general health, recreation, and the local share of general assistance; see text.
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From page 282... ...
The Total Net Fiscal Burden of Current Immigrants The estimates of local and state fiscal balances from Tables 6.2 and 6.3 can be combined with the estimates of the federal government fiscal balances adjusted for defense spending in Table 6.4 to yield estimates of the net annual fiscal impact (NAFIN) of all current immigrant-headed households in New Jersey and California on the native residents of those states (see Table 6.5, panel A)
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From page 283... ...
CAverage fiscal balance equals total revenues minus total expenditures. If the average fiscal balance > 0, then the average household in this category makes a net contribution to the federal treasury.
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From page 284... ...
284 ·_4 Cq a' ·_4 Cq a' a' .> ~7 fat o Cut o Cot o a' a' set bet .
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From page 285... ...
From Table 6.2, an average immigrant household in New Jersey is seen to have a negative average fiscal balance (TM - EM) of -$922 at the local government level and -$562 at the state government level.
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From page 286... ...
If so, then the net fiscal contribution of a New Jersey immigrant family, adjusted for defense spending, equals $520 per immigrant household.41 Again, this contribution should be aggregated over all New 41This estimate follows from applying the New Jersey distribution of immigrant households by country of origin (Table 6.1) to the estimated average fiscal balance adjusted for defense spending for each immigrant cohort in Table 6.4: $520 per immigrant household = (.063/.135)
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From page 287... ...
.42 Combining the local, state, and federal estimates of the net fiscal burdens imposed by immigrant households on native residents in New Jersey and California shows that the average native household bears an overall fiscal burden of $229 in New Jersey and $1,174 in California. The fiscal burden borne by Californians is larger primarily because of the larger burdens imposed at the local and particularly the state levels.
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From page 288... ...
immigrants is estimated by multiplying these per-immigrant burdens by the number of immigrant households in the nation as whole. In 1994-95, there were 9,156,000 immigrant-headed households in the United States.47 The aggregate net annual fiscal impact imposed on native households by all immigrant-headed households in the United States is therefore estimated to range from -$14.77 billion (New Jersey budgets)
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From page 289... ...
Thus, the net fiscal impact of doubling "all immigrants" will be slightly smaller than the burden of previous immigrants because the tax base over which to share the costs of the new immigrants will be larger. Whereas, as we've said, the current stock of immigrant households imposes a NAFIN on native households of about -$229 per household in New Jersey and -$1,174 per household in California, doubling "all immigrants" will impose a net annual fiscal impact on native New Jersey households of $199 per household (Table 6.6)
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From page 290... ...
In both New Jersey and California, older immigrant households make a positive fiscal contribution at the local government level, paying more in taxes than they use in services (Tables 6.6 and 6.7~. These positive contributions partially offset the negative net annual fiscal impact imposed by immigrant-headed households whose heads are younger than 65.
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From page 291... ...
The relative contributions of the two age groups to the federal net annual fiscal impact shows that the younger immigrant groups make a net contribution in both New Jersey and California; older immigrants impose a fiscal burden on the federal budget. Tables 6.6 and 6.7 also report the results of a decomposition by country of origin of the net annual fiscal impact from doubling immigrant-headed households.
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From page 292... ...
The state and local net annual fiscal impact of current immigrant-headed households on native residents measured as the difference between the costs of state and local services received and state and local taxes paid for New Jersey residents (for fiscal year 1989-90 adjusted to 1996 dollars) is estimated at $232 per native household.
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From page 293... ...
Current immigrants over the age of 65 are net fiscal contributors to native residents in New Jersey, but they are a small net fiscal burden on native residents in California. However, almost all of the fiscal burdens imposed on native households by immigrants come from immigrant households whose head is younger than 65.
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From page 294... ...
The analysis here of the annual fiscal impact of today's immigrant households provides a starting point for understanding the future fiscal consequences of immigration. Predictions as to the long-term fiscal consequences of current or new immigration policies, however, must be based on a truly dynamic analysis of the fiscal incidence of immigration.
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From page 295... ...
Espenshade 1996 Fiscal Impacts of New Jersey's Immigrant and Native Households on State and Local Governments: A New Approach and New Estimates. Office of Population Research, Princeton University, September.
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From page 296... ...
McCarthy 1995 The Fiscal Costs of Immigration: Analytical and Policy Issues.
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