Costs Of Illegal Immigration

WASHINGTON (August 25, 2004) — A new study from the Center for Immigration Studies is one of the first to estimate the impact of illegal immigration on the federal budget. Based on Census Bureau data, the study estimates that households headed by illegal aliens used $10 billion more in government services than they paid in taxes in 2002. These figures are only for the federal government; costs at the state and local level are also likely to be significant. The study also finds that if illegals were given amnesty, the fiscal deficit at the federal level would grow to nearly $29 billion.

The study, entitled The High Cost of Cheap Labor: Illegal Immigration and the Federal Budget, is on line at https://www.cis.org/articles/2004/fiscal.html . Among the findings:

* Illegal alien households are estimated to use $2,700 a year more in services than they pay in taxes, creating a total fiscal burden of nearly $10.4 billion on the federal budget in 2002.

* Among the largest federal costs: Medicaid ($2.5 billion); treatment for the uninsured ($2.2 billion); food assistance programs ($1.9 billion); the federal prison and court systems ($1.6 billion); and federal aid to schools ($1.4 billion).

* If illegal aliens were legalized and began to pay taxes and use services like legal immigrants with the same education levels, the estimated annual fiscal deficit at the federal level would increase from $2,700 per household to nearly $7,700, for a total federal deficit of $29 billion.

* With nearly two-third of illegals lacking a high school diploma, the primary reason they create a fiscal deficit is their low education levels and resulting low incomes and tax payments — not their legal status or their unwillingness to work.

* Amnesty increases costs because illegals would still be largely unskilled, and thus their tax payments would continue to be very modest, but once legalized they would be able to access many more government services.

* The fact that legal immigrants with little schooling are a fiscal drain on federal coffers does not mean that legal immigrants overall are a drain. Many legal immigrants are highly skilled.

* Because many of the costs are due to their U.S.-born children, who are awarded U.S. citizenship at birth, barring illegals themselves from federal programs will not significantly reduce costs.

* Although they create a net drain on the federal government, the average illegal household pays more than $4,200 a year in federal taxes, for a total of nearly $16 billion.

* However, they impose annual costs of more than $26.3 billion, or about $6,950 per illegal household.

* About 43 percent, or $7 billion, of the federal taxes illegals pay go to Social Security and Medicare.

* Employers do not see the costs associated with less-educated immigrant workers because the costs are spread out among all taxpayers.

Why Legalization Is So Costly. Costs rise unavoidably because amnesty will not change the low education levels of illegal aliens or the fact that the American economy offers such workers very limited opportunities, regardless of legal status. The vast majority of illegal aliens will continue to have very low incomes, and make very modest tax payments. However, legal status would allow them to use many more programs. We know that cost would rise dramatically because legal immigrants with the same levels of education make extensive use of public services. Thus, even though we estimate that average tax payments would rise by 77 percent, we also find that costs would rise 117 percent. To understand why this happens it is helpful to consider a program like the Earned Income Tax Credit, which pays cash to low-income workers. Illegals currently account for only 1.5 percent of the program’s total costs, but if they were legalized their use of the program would grow tenfold because with legal status they would no longer need stolen or bogus Social Security numbers to get the credit. This dramatic rise in cost is not due to laziness on the part of immigrants. In fact, only those who work receive the EITC. The dramatic rise in costs simply reflects the low educational attainment of illegals and their resulting low incomes.

If Illegals Stay, So Will the Costs. To the extent that policy makers have considered the fiscal costs of illegal immigration, they have generally tried to reduce the costs while allowing illegals to remain. But this strategy has not been effective because the average illegal already receives less than half as much in services from the federal government as do other households. Moreover, many of the costs are due to their U.S.-born children, who are awarded American citizenship at birth under current law. Other programs are simply too politically sensitive to cut, such as the Women, Infants and Children nutrition program. And others costs are unavoidable, such as incarcerating illegals who have been convicted of crimes. Conversely, enforcing immigration laws is both popular with voters and administratively more feasible. There are really only two options: either we begin to enforce the law, significantly reducing the number of illegals in the country, or we accept the costs created by the presence of a large pool of unskilled workers.

Results Similar to Other Studies. A 1997 report by the National Research Council (NRC) on the fiscal impact of immigrants concluded that education levels and resulting income is the primary determinant of tax payments and service use, which is also a central finding of this report. The results of this study closely match the findings of a 1998 Urban Institute study. Our estimated average tax payment for illegal households in New York State are almost identical to that of the Urban Institute, when adjusted for inflation. The results of this study are also buttressed by an analysis of illegal alien tax returns done by the Inspector General’s Office of the Department of Treasury in 2004, which found that about half had no federal income tax liability, very similar to our findings of 45 percent.