CBO Scores the Immigration Reform Bill and Finds... (Wait for It)... It Reduces the Deficit

Opponents who wanted to make the case that comprehensive reform of our current "system" would be a net cost just got some pretty bad news.
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Well, would you look at that: CBO just released their analysis of the fiscal impact of the immigration reform legislation from the Senate and it turns out that the bill is expected to lower the budget deficit by $197 billion over the next decade.

That means that opponents who wanted to make the case that comprehensive reform of our current "system" would be a net cost -- e.g., the Heritage folks -- just got some pretty bad news.

Nor will the CBO score help them in their quest to kill the bill through fiscal alarmism if they want to tell a longer term story about immigrants raising deficits once they've been here for awhile. The CBOs guesstimate of the bill's impact over its second decade -- 2024-2033 -- is $690 billion in deficit reduction (and by $300 billion more if you're willing to include the impact of their predicted GDP growth impacts on the deficit; the agency avoids this type of "dynamic scoring" on their deficit impacts-they do include population and employment effects but not, e.g., the revenues spun off by faster GDP growth-but this too is a serious slap at opponents who've argued that the dynamics go strongly the other way).

What's going on here is that the budget agency expects immigration to generate more costs but even more revenues. Between health programs, entitlements, SNAP, etc., they expect spending to go up about $260 billion over the next ten years. But they estimate revenues to go up about $460 billion. The net difference, about $200 billion, is the projected impact on the deficit.

What's also interesting here is the CBO's analysis of the economic impact of comprehensive reform. Here are their topline findings:

-- the increase in immigration would increase real GDP by 3.3% in 2023 and 5.4% in 2033;

-- but per capita income would be slightly lower through 2031 "...because the increase in the population would be greater, proportionately, than the increase in output; after 2031, however, the opposite would be true."

-- The CBO estimates that average wages would be 0.1% lower in 2023, because the capital/labor ratio (which boosts average wages in economic models) would fall and "...because the new workers would be less skilled and have lower wages, on average, than the labor force under current law."

-- But average wages would be 0.5% higher ten years later.

-- They stress, however, that the wage and per capita income results do not "necessarily imply that current U.S. residents would be worse off, on average, under the legislation than they would be under current law. [These predictions] represent differences between the averages for all U.S. residents under the legislation -- including both the people who would be residents under current law and the additional people who would come to the country under the legislation-and the averages under current law for people who would be residents in the absence of the legislation."

Those projected economic impacts are interesting and important, and I'll have more to say about them. But for now, it's the deficit numbers that matter. I know people will find lots more reasons to oppose the bill, and the bill itself will change, but for now, CBO has spoken on this critical aspect of the deal. It may not change the minds of those who are just fundamentally opposed to reform with a pathway to citizenship, but it certainly takes away a potentially damaging critique.

This post originally appeared at Jared Bernstein's On The Economy blog.

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