How the Manhattan Institute looks at profit and loss from immigration

A Manhattan Institute report estimates the fiscal impact on the federal budget if a “selectionist” program of immigration were imposed. The study attempts to estimate how the lifetime of an immigrant affects the federal budget, summing some two dozen types of tax revenues and disbursements.  I have a feeling that with Republican control the federal government this study will be widely cited.

Also, the Congressional Budget Office has released a forecast of the impact on the federal budget for 2024-2034 which dramatically shows the opposite of the the Manhattan Institute study. The CBO, by taking into account the total impact on the economy including increased productivity overall by recent Biden-era surge of immigration, projects that the net effect on the federal budget during these years will be a positive $0.9 trillion.  The Manhattan Institute study ignores second effects or externalities. (For instance, in an economy with labor shortages in certain industries, by filling open jobs immigrant workers can boost total employment.)

The study ends with what might be called a Dr. Strangelove Scenario whereby we deport half of unauthorized persons who are a net drain, keep the rest as they are not a net drain, at least as much; push up the relative number of young and educated, and thereby move the total net fiscal impact to the positive. I’m not here going to analysis the steps the author takes, but rather hits the high points.

The study was prepared by a Venezuelan immigrant, Daniel Di Martino, a PhD candidate in economics at Columbia University and a graduate fellow at the Manhattan Institute. The study includes many useful facts about the formal education attainment within key classes of immigrants, by age category.

He concludes: “If all the recommendations made in this report are implemented, the U.S. could reduce the debt and grow the economy by potentially $2.4 trillion over the long run, rising by over $200 billion every year that these selectionist immigration policies remain in place. Selectionist immigration requires taking a strategic approach to immigration that prioritizes young and highly educated immigrants over older and less educated immigrants.”

The author writes that the average native-born citizen is expected to cost over $250,000 to the federal government. (All lifetime figures are net present value.) Thus we start with a situation of net fiscal drain without yet considering immigration.

Immigrants without a college education and all those who immigrate to the U.S. after age 55 are universally a net fiscal burden by up to $400,000. (Grandma coming in at age 65 has imposed a lifetime fiscal drain of $406,000). The large positive fiscal impact of young and college-educated immigrants pulls up the overall average. Each immigrant under the age of 35 with a graduate degree reduces the budget deficit by over $1 million during his lifetime. As for those coming to the U.S. to study, the fiscal impact of the average graduate degree holder who entered the U.S., aged 18–24 is outstandingly positive, which is why the author strongly favors keeping STEM students here to live.

For 18 – 24 year old immigrants without a high school degree, the lifetime net fiscal impact is negative $314,000. The author looks at the impact of a U.S. born person with the same profile and estimates negative $256,000.  This is an interesting comparison as it shows that persons with poor formal education of a fiscal net loss, regardless of birth place.

The author’s desired scenario it to reduce annual immigrant from about one million to 850,000, and to tilt every class of legal immigrant towards a young and educated profile. This includes deporting 5 million unauthorized persons who do not meet certain criteria and legalizing another 5 million. The fiscal impact of seven other changes is relatively modest, yet still substantial.  The scenario envisions doubling the share of new immigrants using economic criteria and lowering total immigration.

 

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