The Immigration Debate Studies on the Economic, Demographic, and Fiscal Effects of Immigration (1998) / Chapter Skim
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4 The Fiscal Impacts of Immigrants: A California Case Study
4 The Fiscal Impacts of Immigrants: A California Case Study
Pages 120-182
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From page 120... ...
By 1995,7.7 million California residents were foreign born, 24.4 percent of the state population and 34.3 percent of all non-native U.S. residents.
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Generally, these studies have found that both natives and immigrants make the largest tax contributions to the federal government, that immigrants make lower average tax contributions, and that immigrants are a greater burden on state and local governments (Vernez and McCarthy, 1996; Garvey and Espenshade, 1996~. Three studies have examined fiscal impacts of immigrants in California.
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From page 122... ...
The taxes paid and benefits received are counted as native contributions.2 Third, the analysis follows a micro-level "bottom-up" approach to assigning tax payments and benefit receipt to households. Sample households from survey data serve as the unit of analysis, and characteristics are identified that allow the estimation of each tax payment or benefit amount for each household.
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The methodology for this California study follows largely on the New Jersey studies. The alternative "top-down" approach, used in most other fiscal impact studies, involves making estimates of total taxes paid (or benefits received)
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The Governor's Budget provides supplementary information about transfers to local governments and local spending. After estimation of taxes paid and benefits received, households are classed by the nativity and age of the householder.
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; California and local sales taxes; local property taxes; federal and California tobacco, alcohol, gambling, and fuel taxes; California motor vehicle fees; and federal and California gift and estate taxes. Federal and state personal income tax values imputed by the Bureau of the Census based on income, home ownership, and household size are adjusted proportionally to match budget or empirical figures.34 Assuming that employer shares of employment taxes are passed on and borne by workers, Social Security, unemployment compensation, and state disability insurance taxes are calculated using earned income of household members employed in nonexempt sectors.5 Sales taxes are calculated by estimating the amount of household income spent on taxable items, based on work by Sheffrin and Dresch (1995)
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From page 126... ...
Instead, an adjustment is made in the calculation of household fiscal impacts assuming that corporate and tourist taxes pay for services and benefits received by these entities, and the benefits received by households are reduced by the amounts of these taxes. Benefit Estimation Methodology For each budget item, the amount "paid" to California households by government entities is identified and, where possible, an estimate of administrative costs is added.
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From page 127... ...
For this reason, and because both immigrant and native households experienced increases in the number of school-age children since 1990, it is not clear to what extent capital outlay is attributable to enrollment growth due to immigrant households. Capital outlay was 1.2 percent of the $3.5 billion state corrections budget in 1994-1995 (Department of Finance, 1996a)
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From page 128... ...
Borrowed funds accounted for the remaining 11 percent (Office of Management and Budget, 19951. Federal tax contributions in 1995 from California households and corporations are not directly available and must be estimated based on the percentage of federal revenues paid by California households and corporations during previous years.
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households. Using these historical data, the estimated contributions of California households and corporations are approximately $72 billion in federal individual income taxes, $54 billion in Social Security taxes, and $15.9 billion in federal corporate taxes during fiscal year 1995.
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. CHARACTERISTICS OF CALIFORNIA HOUSEHOLDS California was home to an estimated 31.7 million people living in noninstitutional housing in March 1995.
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21,867,149 22,175,680 Other Federal Operations8,725,563 Other State Operations Other Local Operations 7,815,697 3,962,351 Total Expenditures $ 170,452,683 8,848,675 8,155,559 15,971,256 9,164,556 46,734,10059,861,007 $53,904,848 $58,185,000$283,172,531 SOURCES: Office of Management and Budget, 1994, 1995; Bureau of the Census, 1996b; Department of Finance, 1995a, 1996a; Office of the State Controller, 1995, 1996a, 1996b, 1996c.
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From page 133... ...
More than half of foreign-born householders were born in Latin America. Latin American immigrant households constitute 14.1 percent of California households; Asian immigrant households make up 6.3 percent of the state total.
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around by calculating per capita income for each household and averaging over all households in the category. SOURCE: Current Population Survey, March 1995.
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MICHAEL S CLUNK 135 Foreign-born Households by Region of Origin Second Foreign Europe/ Latin Generation Born Canada Asia America Other 1,578,070 2.36 0.52*
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Gen. Born All Households 4,342,222 2,987,342 2,522,814 464,527 1,354,880 4,623,610 Persons 3.17 2.80 2.76 2.98 3.99 2.95 Children < Age 18 1.26 1.04 1.02 1.13 1.74 0.80 School-age Children 0.77 0.66 0.65 0.71 1.01 0.67 % LEP 19.0% 2.0% 2.0% 2.0% 43.4% 14.8% College Students 0.06 0.06 0.06 0.08 0.05 0.12 Persons age 65+ 0.02 0.01 0.01 0.02 0.04 0.06 Adult Wage Earners 1.56 1.54 1.55 1.51 1.59 1.69 Householders Mean Age 31.4 31.6 31.7 30.7 31.0 49.9 Male 60.8% 58.3% 58.7% 55.7% 66.4% 64.6% Spouse Present 49.0% 43.8% 43.3% 47.0% 60.3% 61.9% Immigrant Spouse I Spouse 42.2% 12.8% 9.0% 30.6% 89.4% 30.9% Educational Attainment < High School Diploma 20.5% 8.2% 6.9% 15.7% 47.5% 14.8% High School Diploma 24.0% 26.2% 27.1% 21.6% 19.1% 21.9% Some College 32.4% 38.8% 39.0% 38.2% 18.3% 30.8% Bachelor's Degree + 23.1% 26.7% 27.1% 24.5% 15.1% 32.5% Household Income,1994 Mean Household Income $41,419 $45,877 $46,584 $42,039 $31,590 $54,610 Per Capitaa $17,012 $20,305 $20,723 $18,031 $9,751 $22,764 Median Household Income $33,356 $39,919 $40,577 $36,700 $31,590 $47,025 Per Capitaa $12,020 $15,655 $15,952 $14,638 $6,370 $18,108 Mean Earned Income $37,669 $42,061 $42,739 $38,380 $27,987 $46,643 Below Poverty Level 20.3% 14.4% 13.7% 17.8% 33.4% 11.6% Income Above $50,000 31.7% 38.0% 38.8% 33.6% 17.7% 47.5% Homeowners 34.5% 39.3% 39.3% 39.2% 24.0% 67.3% n 1,862 1,109 890 219 753 1,866 *
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From page 137... ...
Although nearly 90 percent of native householders have attained at least a high school diploma, only 54.7 percent of immigrant householders have completed high school. Approxi mately one-fifth of European/Canadian and Asian immigrant householders and two-thirds of Latin American immigrant householders did not complete high school.
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SOURCE: Current Population Survey, March 1995.
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MICHAEL S CLUNK 139 Income above Poverty Income below Median Income above Median Income above $50,000 Native Foreign Native Foreign Native Foreign Native Foreign Born Born Born Born Born Born Born Born 7,465,773 2,101,993 2.48 3.53 0.60 1.11 0.44 0.77 2.2% 36.6% 0.06 0.12 0.35 1.42 34.3% 42.7% 23.1% 49.5 62.2% 54.6% 9.7% 8.9% 24.3% 35.8% 31.0% 3,810,733 2.07 0.56 0.39 2.2% 0.05 0.25 0.46 1.76 0.77 42.9% 42.9% 14.1% 45.0 69.7% 65.1% 82.8% 37.2% 20.8% 18.2% 23.8% 34.6% 30.2% 35.2% 52.2 45.1% 29.4% 14.3% 18.9% 32.4% 35.4% 13.3% 1,771,363 4,574,347 1,079,293 3,299,394 678,364 3.55 2.82 3.99 2.94 4.03 1.45 0.71 1.25 0.72 1.21 0.96 0.53 0.89 0.53 0.85 38.7% 2.3% 35.4% 2.3% 33.7% 0.08 0.08 0.14 0.09 0.20 0.26 0.23 0.18 0.20 0.21 1.17 1.79 2.18 1.92 2.29 51.7% 33.0% 15.3% 43.6 59.4% 55.0% 90.0% 58.8% 19.2% 11.7% 10.3% 36.5% 50.9% 12.6% 46.5 71.6% 68.1% 8.5% 3.7% 19.9% 34.9% 41.5% 40.6% 51.8% 7.6% 43.8 74.1% 72.9% 79.7% 23.2% 20.2% 23.1% 33.5% 34.4% 55.0% 10.6% 46.4 75.8% 75.3% 8.4% 2.3% 18.2% 32.5% 47.0% 35.3% 56.3% 8.4% 45.3 77.8% 76.8% 76.7% 17.2% 14.8% 25.4% 42.6% $52,781$44,909 $17,598$16,795 $73,114 $67,262 $85,159 $82,527 $41,362$37,486 $9,613$12,215 65.4%48.9% 47.0%26.4% $60,197 $57,901 $70,925 $70,221 74.1 % 63.6% 79.0% 69.9% 2701 1107 1645 544 1413 988 1179 330
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From page 140... ...
Of foreign-born households, 26.3 percent had incomes below the poverty line, compared with 14.8 percent of native households. Nearly one-third of Latin American immigrant households live below the poverty line.
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, foreign-born households exhibit greater participation in Medi-Cal, food stamps, and the school lunch program and lower participation in AFDC, SSI, and housing benefits. FISCAL IMPACTS OF CALIFORNIA HOUSEHOLDS Tax Contributions of California Households Table 4-5a displays average household tax contributions by nativity of household head.
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From page 142... ...
The differential is due largely to higher adjusted gross incomes among native households, but higher marginal tax rates among native households and larger numbers of exemptions for household members among immigrant households also play a role. To some extent, greater home ownership and itemization of deductions among native households relative to immigrant households reduces the differential.
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From page 143... ...
The immigrant-native difference for Social Security is somewhat smaller, and immigrant households actually pay higher unemployment insurance and state disability insurance taxes. The average Social Security tax for immigrant households is 81 percent of the average for native households.
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From page 144... ...
Because no deductions or exemptions are allowed for Social Security taxes, immigrant households pay an average Social Security tax higher than their average federal personal income tax. Employ TABLE 4-4b Household Participation in Income Transfer, Health Care, and Assistance Programs by Age and Nativity of Householder, 1994 Householders Age 15-39 Social Security3.4% 3.6%3.9% 2.2% 2.8% 11.2% Recipientsa0.039 0.0430.047 0.022 0.03 0.135 1989 mean$5,366 5,5225,522 5,522 4,937 6,419 Medicare1.6% 1.7%1.8% 1.4% 1.4% 8.4% Recipients0.021 0.0210.023 0.014 0.019 0.101 Federal Benefits0.3% 0.5%0.4% 1.1% 0.0% 1.8% Military Benefits0.3% 0.3%0.2% 0.8% 0.3% 2.3% Railroad Benefits0.8% 0.9%0.8% 1.8% 0.5% 1.0% Unemployment Compensation10.5% 11.0%10.9% 11.5% 9.5% 11.6% Workers' Compensation3.4% 3.9%4.0% 3.2% 2.4% 3.7% Veterans' Benefits0.8% 0.9%1.0% 0.0% 0.6% 2.4% Pen Grants7.3% 8.3%8.2% 8.8% 5.2%*
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From page 145... ...
Older immigrant households pay higher employment taxes than similar native households, but older households pay much lower employment taxes than younger households. The average household contributes $938 in sales tax (Table 4-5a)
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SOURCE: Current Population Survey, March 1995; Census of Population and Housing, 1990. $992 in sales tax, compared with $778 for the average immigrant householder These estimates are based on household income only and assume no differences in expenditures on taxable items by nativity within income ranges.
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Also, estimated remittances to the country of origin are not removed from household income before calculating the tax contributions As a result, the actual sales tax contributions of foreign-born households may be smaller. The average property tax contribution is $1,004.
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From page 148... ...
Because they are more likely to own their homes, native householders pay higher average property taxes than immigrant householders. However, because European/Canadian and Asian immigrant householders report higher average property taxes paid and higher average home values in 1990, higher estimates of property taxes result for these region-of-origin classes.
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From page 149... ...
, foreign-born house holds with income below the poverty line pay more in total taxes than similar native households, and among households with incomes below California median income, the tax contribution of foreign-born households is just $100 below that of similar natives. These patterns are generally observed at all three levels of government, but the proportional difference in tax paid is smaller at the local level.
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From page 150... ...
Gen. Born All Federal Individual Income5,5176,5096,7725,0803,3288,829 Social Security5,2185,7995,8775,3733,9376,348 Unemployment Insurance337333333330346339 California Personal Income1,4221,6531,7241,2649122,304 State Disability Insurance220230231228198201 Sales Tax8839669798967001,112 Property Tax9781,0511,0511,0508161,165 Tobacco Tax847776819995 Alcohol Tax95888889111105 Fuel Tax273281281281256333 Motor Vehicle Fees166170170170156202 Gambling Taxes565252536662 Inheritance Tax22831331331340273 Federal Share11,50013,13313,47411,2777,90016,023 State Share2,7293,0443,1242,6062,0353,841 Local Share1,2471,3451,3491,3231,0291,503 Total Contributions15,47517,52217,94815,20610,96421,367
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From page 151... ...
Average benefits from poverty programs total $5,067 for immigrant households, compared with $1,983 for native households. Second-generation households receive poverty program benefits that are higher on average than those received by third-generation households for five of the nine programs.
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From page 152... ...
Secondgeneration and European/Canadian households receive lower average K-12 benefits, and Latin American households receive the highest average benefit. Asian immigrant households receive the highest average benefit from expenditures on higher education.
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Asian, Latin American, young, and middle-age immigrant households were particularly expensive for the state and local governments. Net Costs to Government Table 4-7a shows total contributions and benefits and the net costs to governments by level of government.
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14In Table 4-7a, column 1, the net fiscal impact at the federal level is $1,198 for the average household. This figure includes all federal taxes and expenditures, except debt interest payments, borrowed funds, and payments on behalf of institutionalized persons.
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From page 155... ...
Treating this amount as a current tax, the net federal fiscal impact of an average California household would be a surplus of $1,052. This surplus results from the exclusion of benefits for institutionalized persons and because California pays higher taxes and receives lower benefits relative to other states.
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From page 156... ...
Gen. Born All Social Security2743083301901981,091 Federal Benefits5478611700297 Military Benefits48473511050341 Railroad Benefits384537872351 Medicare1051091167297516 Unemployment Compensation426445441467384469 Workers' Compensation293334272031 Veterans' Benefits454958035135 Fell Grants829089956651 Medi-Cal1,2488888631,0252,042770 AFDC8838117711,0271,041380 SSI19716117584277534 Housing Benefits382384363503378238 Food Stamps390301285386587198 School Lunches12268677523977 General Assistance454136655448 Energy Assistance566545 Earned Income Tax Credit316194193198586160 K-12 Education3,4352,9412,9033,1484,5232,946 Higher Education8108648221,0906921,542 State Corrections321321321321321321 National Defense2,7412,7412,7412,7412,7412,741 Other Federal Operations777777777777777777 Other State Operations1,4211,4211,4211,4211,4211,421 Other Local Operations5,3285,3285,3285,3285,3285,328 Federal Share8,8228,3518,2648,8229,85910,043 State Share5,2174,7764,7085,1426,1905,010 Local Share5,5195,3455,3235,4705,9025,432 Total Benefits19,55818,47218,29519,43521,95120,486 burden for all levels of governments.
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Among immigrant households, European/Canadian households are a net burden on the federal government but provide surpluses for both the state and local
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Asian immigrant households provide a net surplus at the federal level, albeit smaller than that of natives. These households are a net burden on the state and local governments.
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These burdens are smaller, but still notable, among households with incomes below the state median. Foreign-born households with income above $50,000 are a small burden on local governments.
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Relative to native households, foreign-born households contribute lower average taxes to all three levels of government. This is true for all age groups and among most of the income groups.
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From page 161... ...
In contrast, more than two-thirds of the relative deficits at the state and local levels are due to higher relative benefit receipt. Among the age groups, the greatest relative deficit exists between foreign-born and native households headed by persons age 40-64.
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SUMMARY AND DISCUSSION Several important differences between native and foreign-born households interact with fiscal policy to create different fiscal impacts. Among these differences, foreign-born households contain more students and have lower incomes TABLE 4-7b Net Fiscal Impacts by Age and Nativity of Householder, Fiscal Year 1995 (dollars)
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From page 163... ...
In contrast, foreign-born households exhibit relatively high participation in poverty programs and contain more recipients in participating households than native households. These findings persist when households are grouped by the age of the householder and by in Householders Age 40-64 Householders Age 65+ NativeThirdSecondForeign NativeThirdSecondForeign BornGen.Gen.BornAllBornGen.Gen.Born 17,65017,96115,84211,0724,5914,6534,8734,1744,254 4,2254,3063,7562,6701,6641,7011,7551,5811,462 1,5421,5441,5261,387938952964926865 23,41623,81221,12415,1287,1937,3067,5926,6806,581 9,3699,19110,40012,09626,62726,80527,11926,11725,659 4,2354,2164,3477,3702,6142,4252,4272,4213,644 5,1425,1645,0186,3154,2884,2654,2644,2684,416 18,74618,57119,76425,78233,52933,49533,81032,80533,718 8,2818,7705,442-1,024-22,035-22,151-22,247-21,943-21,405 -1090-591-4,701-951-724-671-840-2,181 -3,601-3,620-3,492-4,929-3,350-3,313-3,300-3,342-3,551 4,6705,2411,360-10,653-26,336-26,189-26,218-26,125-27,137 2,1542,1542,1542,1542,1542,1542,1542,1542,154 1,9121,9121,9121,9121,9121,9121,9121,9121,912 3,9453,9453,9453,9453,9453,9453,9453,9453,945 10,43510,9247,5961,130-19,881-19,997-20,093-19,789-19,251 1,9032,0031,322-2,7889621,1881,2411,072-269 344325453-984595632645602394 12,68113,2529,371-2,642-18,325-18,178-18,207-18,114-19,126
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From page 164... ...
Compared with natives, foreign-born households pay lower federal and state income, Social Security, and sales and property taxes. The differences between native and foreign-born households are greatest for the progressive income taxes and smaller for flatter and regressive taxes, such as Social Security and sales taxes.
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From page 165... ...
Native households receive higher average benefits from Social Security and Medicare, while foreign-born households receive higher benefits from all poverty programs, K-12 education, and higher education. These patterns generally persist within age groups and income classifications.
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From page 167... ...
Three interactions between immigrant characteristics and fiscal policy appear to be driving the fiscal impacts observed. First, working-age immigrant households have lower incomes, resulting in large differences between immigrant and native tax contributions.
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From page 168... ...
APPENDIX A: TAX INFORMATION AND METHODOLOGY Federal and State Income Taxes The Census Bureau uses U.S. Internal Revenue Service data to estimate the federal and state income tax contributions paid by CPS households during 1994.
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From page 169... ...
The state tax contributions imputed by the Census Bureau yield an overestimate of total tax contributions by $4 billion. These figures overestimate total tax paid and are adjusted proportionally downward by 16.95 percent to coincide with state budget figures.
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From page 170... ...
If all of a $900 remittance would otherwise be spent on taxable items, the sales tax contribution for a remitting household would decrease by $72. Sheffrin and Dresch (1995)
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From page 171... ...
This method yields a total sales tax contribution from households of $10.5 billion, 45 percent of sales taxes collected. This estimate of the household contribution of sales tax may be low; an alternative top-down approach and assuming businesses pay 35 percent of sales tax and out-of-state tourists pay 8.5 percent of sales taxes collected yields an estimate of household sales tax contributions totaling $13.24 billion.
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From page 172... ...
Self-reported tax amounts in the 1990 Census show that among homeowners, immigrant households pay higher taxes than natives.l7 European and Asian immigrant homeowners report paying the highest average tax amounts while Latin American homeowners pay the lowest average taxes. The averages also decline with the age of the household head, but immigrants as a group report higher average taxes than natives in all three age groups.
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From page 173... ...
Fuel consumption in California generated an estimated $2.9 billion in tax revenues to the federal government in 1994-1995,12.4 percent of total federal fuel tax revenues. The shares of fuel taxes paid by businesses and tourists are estimated to be 35 percent and 8.5, percent, respectively, yielding an estimate of fuel taxes paid by California households of $3.21 billion.
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From page 174... ...
The remaining $1.1 billion is allocated to households based on the number of adults of legal drinking age per household. The average household contains 1.9 persons age 21 and older, and the estimated average tax contribution is $52.32 per adult.
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From page 175... ...
These average benefits were adjusted to reflect the total expenditure in 1995. Earned Income Tax Credit Earned income tax credits received by California households totaled $2.4 billion.
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From page 176... ...
According to the state budget, public school enrollment in 1994-1995 was projected to be 5.316 million, suggesting that 85.9 percent of school-age children attend public school. 19California school districts also receive $734.5 million in a fund called "Education for disadvantaged," but these are not dedicated specifically to educating the children of immigrants (Bureau of the Census, 1996b)
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From page 177... ...
In 1990, college students in native households were also more likely than students in households from Latin American countries to attend private colleges, but they were less likely to attend private colleges than students in European/Canadian and Asian immigrant households. Finally, costs will vary across students due to differences in enrollment patterns.
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From page 178... ...
Because of the poor data, incarceration costs are allocated as a public protection benefit received by households, and each California household is allocated an average benefit. ACKNOWLEDGMENTS I gratefully acknowledge the research support, direction, and valuable comments of the Panel on Demographic and Economic Impacts of Immigration.
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From page 179... ...
Fix 1994 "Fiscal Impacts of Undocumented Aliens: Selected Estimates for Seven States." Washington, D.C.: The Urban Institute.
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From page 180... ...
DuBay, Ann 1990 California's Tax Burden: Who Pays? Part I, An Analysis of the California Personal Income Tax, Bank and Corporation Tax, Property Tax.
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From page 181... ...
MaCurdy, Thomas, Thomas Nechyba, and Jay Bhattacharya 1996 "An Economic Framework for Assessing the Fiscal Impacts of Immigration." Department of Economics, Stanford University. National Research Council 1997 The New Americans: Economic, Demographic, and Fiscal Effects of Immigration.
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From page 182... ...
1993 "Property Taxation, Property Base, and Property Value - An Empirical Test of the New View." National Tax Journal 46(2)
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