June 12, 2007

June 12, 2007 | Commentary on Immigration

Setting the Record - and the Research - Straight: Heritage Responds (again) to the Wall Street Journal

On June 8, the Wall Street Journal published "Immigration Heritage," a second editorial attacking Heritage Foundation research into the fiscal costs of households headed by immigrants without a high school degree (i.e., low-skill immigrants), which currently comprise one third of all immigrant households. Our research shows that low-skill immigrants' households, on average, receive $30,160 per year in government benefits while paying $10,573 in taxes, creating a net fiscal deficit of $19,587.[1] The total net cost to the taxpayers of low-skill immigrant households comes to $89 billion per annum.

The Wall Street Journal editorial suggests that this finding is erroneous: that low-skill immigrants actually pay more in taxes than they receive in benefits, or that, at least, they produce indirect economic benefits that offset the loss.

As in their previous editorial critiquing this research, none of the statistics cited in the June 8 editorial actually pertains to low-skill immigrants. Most relate to all immigrants together, including those with a college education. These data are largely irrelevant to the issue.

Further, some evidence is presented in a skewed manner. For example, to create an impression that the children of low-skill immigrants have extraordinarily high rates of upward mobility, the editorial quotes research by economist David Card, showing that "of the 39 largest country of origin groups, sons [of immigrants] from 33 groups and daughters [of immigrants] from 32 groups have higher average educational attainment than the children of natives." [2] The editorial neglects to mention this is not true for the largest immigrant group, namely those originating in Mexico.[3]

Similarly, the editorial suggests that a 1998 Heritage study by William Beach shows that the typical Hispanic married couple pay $347,000 more in Social Security taxes than they receive in lifetime benefits. In fact, this study shows the opposite, the couple pay $205,502 less in taxes than they receive in benefits.[4] More importantly, neither the Card nor the Heritage study is particularly relevant to the issue of the fiscal balance of low-skill immigrants.

Behind the barrage of not always helpful statistics, the Wall Street Journal editorial advances three basic arguments.

  1. Low-skill immigrants will contribute funds to support Social Security and Medicare.
  2. The cost of educating the children of low-skill immigrants may be offset by the net taxes paid by those children as adults.
  3. Beyond the fiscal balance sheet, low-skill immigrants generate other beneficial economic impacts, particularly lower consumer prices.

The editorial places great emphasis on the contributions of low-skill immigrants to the Social Security Trust Fund, arguing that these immigrants produce a "one generation windfall" for Social Security. Heritage research does show that low-skill immigrant households do pay a small amount of Social Security taxes, on average, about $2,900 per year. But this small inflow of Social Security taxes does not help the fiscal solvency of government, because the average low-skill household consumes general government benefits that are eight to 10 times greater than their Social Security contribution.

What matters is not the tiny annual payment of Social Security taxes but the total fiscal balance of the low-skill immigrant household (total government benefits received minus total taxes paid). This will be particularly clear in future years when Social Security and Medicare benefits will be paid by both Social Security and general tax revenues. If total benefits received by low-skill immigrant households exceed total taxes paid, resources available to support government retirement programs are actually reduced, not expanded, by the low-skill immigrants.

This research shows that, even setting aside the public education costs of immigrant children (as the editorialists would prefer), low-skill immigrants during their working years still receive more in government benefits than they pay in taxes.[5] Hence there is no "one generation net windfall" to government finances as the editorialists would like to believe.

In its second major point, the editorial objects to counting the costs of educating the children of low-skill immigrants without considering the potential net taxes these children may pay as adults. This valid point is discussed in my report[6]; however, the correct response to this question is not to ignore education costs entirely, as the editorial does, but to assess the extent to which the net taxes paid by immigrant children as adults may offset initial costs. The Heritage Foundation is currently analyzing the potential tax contributions of the children of low-skill immigrants; preliminary findings suggest that, while these children will be upwardly mobile, as a group, they are unlikely to become net taxpayers. Total benefits received are likely to exceed total taxes paid.

There is already one major study of the multi-generational fiscal impact of low-skill immigrants: the 1997 New Americans study by the National Academy of Science.[7] The findings in that study correspond with Heritage research: immigrants without a high school degree imposed a substantial initial net cost on the tax payer; moreover, that burden was not erased by the earnings and taxes of subsequent generations. Even when the net taxes paid by the immigrant's descendents over the next 300 years (roughly 10 generations) were estimated, the net present value of low-skill immigrants remained slightly negative.[8]

Finally, the editorial suggests that low-skill immigrants produce indirect economic gains for the general public that may offset their net fiscal cost. In particular, it asserts that low-skill immigrants "reduce consumer prices." The National Academy of Sciences study agrees that low-skill immigration reduces prices, but for a reason most Americans would find unsettling. The study explicitly states, "There is a direct correspondence between the fact that some domestic workers suffer wage reductions and the fact that we gain as a nation" from immigration.[9] Low-skill immigration reduces prices of some consumer goods because it reduces the relative wages of the workers producing the goods, including the wages of millions of low-skill non-immigrants who compete with the low-skill immigrants. As the National Academy of Sciences puts it, "Although wage declines are real losses to the affected [non-immigrant] workers, they are also the source of a national 'gain' from immigration."[10]

Some advocates for low-skill immigration argue that such immigration reduces consumer prices without a decline in the wages of domestic laborers working in the same occupation, but this argument is self-contradictory. A national policy that reduces consumer prices by reducing the wages of the least skilled American workers is hardly a recipe for long-term social and political stability.

There may be other indirect economic benefits from low skill immigration. But these benefits would have to be remarkably large to offset the huge fiscal burden created by low-skill immigrant households which equals roughly two thirds of their average earnings. Moreover, low-skill immigrants and non-immigrants are similar in wages and work performed. If immigrants without a high school degree produce intangible economic gains that are very large in proportion to their earnings, the same should be true for non-immigrants without a high school degree. Is it true that non-immigrant janitors, waitresses and laborers produce large indirect economic gains in excess of their wages?

The Wall Street Journal critique of Heritage research is nothing new. Ten years ago, Nobel Prize-winning economist Milton Friedman admonished the Journal for its "idée fixe" on open borders, stating, "It's just obvious you can't have free immigration and a welfare state."[11] To be fully understood, Friedman's remark should be viewed as applying not merely to means-tested welfare programs but to the entire "transfer state" in which government taxes the upper middle class and transfers economic resources to low-income groups through a wide variety of subsidies. Transfer or redistribution policies are a pervasive, if not predominant, government activity in all modern societies. The Wall Street Journal would like to pretend that transfer policies are irrelevant when comes to immigration, but Friedman understood otherwise.

In the real world, low-skill families--whether immigrant or non-immigrant--are very expensive to taxpayers. In fact, there is a rough one-to-one fiscal balance between low-skill immigrant families and upper-middle class families. It takes the entire net tax payments (taxes paid minus benefits received) of one college-educated family to pay for the net benefits received by one low skill immigrant family.[12] Each extra low-skill immigrant family which enters the U.S. requires the taxes of one college-educated family to support it. This can scarcely be a prudent use of scarce financial resources. Wishful thinking on the part of editorial writers will not make these costs go away.

Robert Rector is a Senior Research Fellow at The Heritage Foundation.



[1] Robert Rector, and Christine Kim, The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer, Heritage Special Report, SR-14, May 21, 2007.

[2] David Card, "Is the New Immigration Really So Bad?" The Economic Journal, November 2005, p. F320.

[3] Ibid. Mexicans and Indians are specifically identified in the charts.

[4] William W. Beach and Gareth G. Davis, "Social Security's Rate of Return for Hispanic Americans," The Heritage Foundation, Center for Data Analysis Report #98-02, March 27, 1998, .

[5] Rector, op. cit. p. 69.

[6] Rector, op.cit., pp. 17-18.

[7] National Research Council, The New Americans: Economic, Demographic and Fiscal Effects of Immigration, National Academy Press, Washington, D.C., 1997.

[8] Ibid., pp., 334, 342.

[9] Ibid.,, p. 140.

[10] Ibid., p.141.

[11] Interview with Milton Freidman, Forbes, December 29, 1997.

[12] The net tax figures for a college educated family relate to a family headed by an individual with a Bachelor's degree.

About the Author

Robert Rector
DeVos Center for Religion and Civil Society