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July 6, 1999
New Study Blows Up Many Myths About Immigrants
A P Kamath in New York
This Fourth of July, when thousands of immigrants became citizens across America, a pro-immigrant group issued the results of a year-long study to prove that the recent immigrants -- mostly Asian and Hispanic -- are not far different than those who arrived from Europe at the turn of the 20th century.
Decrying those who complain that the recent crop of immigrants are ethnically too diverse and are slow to appreciate American social and civic institutions, the report asserted that the new immigrants joined the mainstream eagerly.
"People may start in an ethnic enclave but they move to the suburbs soon, their children speak English, and their grandchildren have inter-racial marriages," said Frank Sharry, executive director of the non-profit National Immigration Forum. "And this is a process as old as America."
The Forum publishes lengthy reports and booklets about immigrants.
One of its most quoted reports, issued two years ago, discussed the economic profile of new immigrants. The report sought out to curb the anti-immigration groups shrill criticism that new immigrants were too much of a drain on American economy.
Immigrants wear many hats in American society, the study asserted. They are family members, students, workers, business owners, investors, clergymen, and members of the armed services -- to name just a few of their roles.
But immigrants -- like native-born citizens -- are also taxpayers. Through their tax payments, America's immigrants help finance the costs of schools, health care, roads, welfare payments, Social Security, and the nation's defense. Of course, immigrants are also users and beneficiaries of these government programs.
The study investigated the fiscal impact of the 25 million immigrants -- legal immigrants, refugees, and undocumented immigrants -- now living in the United States. It reviewed the findings of more than two dozen recently published studies from the nation's most prestigious universities and research institutions. The study also derived new fiscal estimates based on the latest 1996 data recently released from the US Census Bureau to help answer two critical public finance issues related to immigrants.
First: How much total taxes do immigrants pay each year?
Second: Do the taxes immigrants pay cover the cost of the public services they use?
To be sure, there is far from complete agreement on these issues. But our key conclusions reflect what we believe is an emerging consensus on the issue of immigrants as taxpayers:
Immigrants and their children bring long-term economic benefits to the United States as a whole. In the most comprehensive study ever conducted on immigration, the National Research Council of the National Academy of Sciences found that immigrants raise the incomes of US-born workers by at least $ 10 billion each year. This estimate is highly conservative because it does not include the impact of immigrant-owned businesses or the impact of highly-skilled immigrants on overall productivity. Still, the NRC estimates that the typical immigrant and his or her children pay an estimated $ 80,000 more in taxes than they will receive in local, state, and federal benefits over their lifetimes.
Immigrants who become US citizens typically pay more in taxes than do native-born Americans. Drawing upon data from the US Census Bureau Current Population Survey, the CRS recently found that families with an adult, foreign-born, naturalized citizen actually have higher adjusted gross incomes -- averaging $ 40,502 -- than families with US-born citizens only ($ 35,249). The immigrants' taxable income averages $ 32,585, compared with $ 27,076 for families with all native-born members. The federal taxes paid by families with a naturalized citizen average $ 6,580 per year, compared with $ 5,070 for US-born-only families.
By conservative estimates, in 1997 immigrant households paid an estimated $ 133 billion in direct taxes to federal, state, and local governments.
Immigrant businesses are a source of substantial economic and fiscal gain for US citizens. In this study we identify 10 high-tech firms founded by immigrants whose total revenues topped $ 28 billion in 1996 and whose total employment totalled nearly 70,000 US citizens. Most studies on the fiscal impact of immigrants do not account for the taxes paid by immigrant-formed businesses and the tax streams generated from the US-born workers employed by those firms. For this reason, in our estimation, most studies underestimate the tax payments of immigrants by at least $ 29 billion a year. Adding the tax receipts paid by immigrant businesses brings the total annual tax payments of immigrants to about $162 billion.
Not all immigrants make the same tax payments or impose the same costs. The best predictors of immigrant success and thus their tax payments are their skills, their education, and their ability to speak English. In general, less-skilled, less-educated immigrants and non-English-speaking immigrants use more government services and pay less in taxes than those who are highly skilled.
Immigrants' earnings rise over time as they continue to climb the economic ladder of success in America. Hence, in their first low-earning years in the United States, immigrants typically are net drains on the public coffers, but over time -- usually after 10 to 15 years in the United States -- they turn into net contributors. This economic assimilation pattern varies by ethnicity and country of origin, but it is as evident today as it was 30 years ago, when researchers first began to study the rate of economic success by immigrants over time.
The age profile of immigrants is one of the key characteristics that makes them a fiscal bargain for native-born US taxpayers. Most immigrants arrive in the United States in the prime of their working years.
For example, more than 70 per cent of immigrants are over the age of 18 when they arrive in the United States. That means that there are roughly 17.5 million immigrants in the United States today whose education and upbringing were paid for by the citizens of the sending country, not American taxpayers. The total discounted present value windfall to the United States of obtaining this human capital at no expense to American taxpayers is roughly $ 1.43 trillion. So immigration can be thought of as an enormous $ 1.43 trillion transfer of wealth from the rest of the world to the United States.
Another fiscal consequence of the age profile of immigrants is that they are huge net contributors to the Social Security and Medicare programs. Only 3 per cent of immigrants are over the age of 65 when they enter the United States -- whereas 12 per cent of Americans are over 65 -- and that percentage will grow substantially in the future. This study estimates the total value to the Social Security system from current levels of immigration based on the calculations of the actuaries at the Social Security Administration. The study finds that the total net benefit (taxes paid over benefits received) to the Social Security system in today's dollars from continuing current levels of immigration is nearly $ 500 billion for the 1998 to 2022 period and nearly $ 2 trillion through 2072. Continuing immigration is an essential component to solving the long-term problem of financing the Social Security system.
Immigrants use more state and local services -- particularly schools, hospitals, and roads -- than they pay for in state and local taxes. The average immigrant imposes a net lifetime fiscal cost on state and local governments of $ 25,000, according to the NRC (under the NRC analysis, natives are a net cost to states and localities as well). There is no evidence that states or cities with large immigrant populations perform worse economically than those with small immigrant populations. In fact, just the opposite is generally true.
There are recent signs of increased poverty rates and increased use of welfare -- such as Supplemental Security Income and food stamps -- among new immigrants. Nonetheless, the claim that there has been a decline in immigrant quality has been exaggerated (because of statistical problems comparing one generation of immigrants with another) and does not reduce the overall favorable fiscal impact of the foreign born. Only refugees and elderly immigrants are more likely to receive welfare than natives. Working-age immigrants who have been in the United States for more than 10 years are less likely to receive welfare than natives, according to a 1998 Urban Institute study. Moreover, given that recent welfare rules enacted by Congress in 1996 will make newly-arriving immigrants ineligible for most welfare benefits, the net fiscal benefit of future immigrants will be higher than it is today.
Of course, the value of immigrants is not primarily measured by the dollar calculation of their fiscal impact. Immigrants contribute to America in many ways other than the size of their tax payments. Their enrichment of our culture and the overall vitality they bring to American society are not measured here -- and in many cases are immeasurable -- yet they are vital benefits to all Americans.
It is also worth emphasizing that many of the immigrants who have made the greatest contributions to our society in recent times came to the United States without the characteristics that often presage success. Andrew Grove, co-founder of Intel, and his family came to America as refugees with no money, no skills, and no special prospects for greatness. Probably no economist would have predicted the greatness he achieved. Just as with natives, it is impossible to predict with great accuracy who will succeed and who will fail in American society.
Overall, the research findings cited in this report suggest, first, that the American economy is greatly enriched by immigrants of all educational levels and ethnicities and, second, that immigrants are a fiscal bargain for American taxpayers.
The National Immigration Forum, 220 I Street, NE #220, Washington, DC 20002-4362; (202) 544-0004 • Fax: 202-544-1905.
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