Any Analysis of Immigration Reform Must Count Economic Growth

May 6, 2013

Newly naturalized American citizens attend a Naturalization Ceremony at the Jacob K. Javits Federal Building in New York City. Photographer: Victor J. Blue/Bloomberg.

The Heritage Foundation released a study purporting that immigration reform would cost Americans $6.3 trillion. However, a glaring flaw in Robert Rector’s and Jason Richwine’s headline-grabbing analysis is its static nature. They argue that reform would generate a $6.3 trillion fiscal deficit all things being equal.

That’s the kicker. All things would not be equal. Comprehensive immigration reform would not leave the economy in the same state only with people shifted from the “unlawful” (Heritage’s term) to the lawful category. Reform would create a larger, more dynamic labor market with workers of various skill levels complementing each other, leading to faster economic growth.

James Pethokoukis at the American Enterprise Institute notes this flaw:

The study, however, fails to capture indirect but important economic impacts of immigration such as increasing economic activity or positively affecting American employment. Both of those would lead to higher tax revenues and reduced transfer payments. Surely every effort should be given to factoring in such dynamic impacts of immigration reform. The Heritage study says, for instance, that “taxes and benefits must be viewed holistically.” So, too, immigration overall. Big policy changes don’t exist in a vacuum, isolated from the rest of the economy.

Others have looked at how comprehensive immigration reform would affect the economy. Recently, Douglas Holtz-Eakin, President of the American Action Forum, wrote a paper arguing that by increasing the labor force, reform would cause the economy to grow faster, resulting in higher per capita income and a reduction in the federal budget deficit.

The Congressional Budget Office (CBO) also took the dynamic route when analyzing immigration reform legislation in 2006. It noted, “The work performed by those added employees would increase the production of goods and services and raise gross domestic product, other things being equal.” CBO will take a similar approach when studying immigration bills like the one introduced by the Gang of Eight.

It should also be noted that the Heritage Foundation didn’t always invoke fears of huge costs from immigration reform. In a paper on the economic benefits of immigration in 2006, Tim Kane and Kirk Johnson wrote, “The argument that immigrants harm the American economy should be dismissed out of hand,” and “Whether low-skilled or high-skilled, immigrants boost national output, enhance specialization, and provide a net economic benefit.”

The think tank’s rhetoric has changed dramatically. Today, it tosses around trillion-dollar cost figures that needlessly scare the public.  

As this important discussion continues, we must remind ourselves that our immigration system isn’t serving our economy or society. We need comprehensive immigration for a more competitive, dynamic economy and more secure nation.

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