Over the past three decades, the rapid influx of immigrants into the United States has increased the percentage of foreign-born citizens in the population. Due to the growing immigrant population in the United States, researchers and policy-makers debate over the contribution of immigrants to the welfare state. With costs of social benefits increasing over recent years, immigrant participation in welfare benefits has severe implications for immigration and welfare policies. Essentially, researchers try to determine if immigrants "pay their way" in the welfare state by studying their tax contributions compared to their social cost according to welfare benefits.
Given the complexity of the issue, conclusions on the impact of immigrants to the American taxpayer are discursive and controversial. While some researchers argue that immigrants do contribute to the welfare state, others conclude that immigrants have a negative effect on federal and state budgets. Although there are mixed results regarding the burden that immigration places on the welfare state, immigrants fail to pay their way on the state level while they contribute to the welfare state on the federal level. Therefore, when taking into account both federal and state budgets, immigrants do not place a significant burden American taxpayer.
The general statistics regarding participation of immigrants in welfare programs suggest that immigration has a negative effect of the welfare state in the United States. The percentage of immigrant households that participate in welfare programs has steadily increased over recent decades. In the early 1990s, 20.7 percent of immigrant households received either cash benefits, Medicaid, vouchers or housing subsidies while only 14.1 percent of native households participated in these programs (Borjas and Hilton, pg 583). In addition, the welfare gap between immigrants and natives has increased over the past couple of decades. However, the benefits included in this study are state-funded programs and therefore only have affect state budgets. When examining immigration statistics of different states independently, California shows the most drastic increase in immigrant participation in welfare programs.
Many researchers of the immigration issue focus on the case of California because of the generous welfare programs and high levels of immigration. In the case of California, immigrants apparently do not pay their way in the welfare state. The participation in welfare benefits by immigrants rose from 13.5% in 1970 to 27% in 1990. In California 21.1% of households are foreign born while 32% of the total expenditure on public benefits go to immigrant households (Borjas, pg 28). Many opponents of the welfare state in California suggest that the increase in immigrant welfare participation results from the tendency of immigrants to "assimilate" into welfare (Borjas pg, 28). In other words, immigrants begin to depend on welfare to supplement their income; in many cases, immigrants come to California expecting to receive these benefits. Overall, immigrants in the state of California are a burden on the native taxpayers; however, these measures fail to include the net fiscal impact of immigrants on the federal budget and the burden on the average American taxpayer.
One way to determine the impact that immigrants have on the American taxpayer is to compare the amount of taxes paid to the amount of benefits received. A study conducted by the National Research Council entitled, "The Future Fiscal Impacts of Current Immigrants" uses tax/benefit analysis to determine the effect of immigrants on government budgets. When combining federal and state budgets, the average immigrant has a net fiscal impact of $1,800 (Smith and Edmonsten, pg 316). However, this number excludes the net fiscal effect that native-born children of immigrants have on federal and state budgets. Initially, native children of immigrants have a negative net fiscal impact because of schooling costs. However, second-generation immigrants pay taxes during their working years that exceed the costs of education and other benefits received prior to working years. Therefore, immigrants contribute to government budgets in more ways than one because of the net fiscal impact of their children.
Statistics concerning the net fiscal impact of immigrants can be misleading because they fail to qualify immigrants into different categories that affect their tax contribution and benefits received. When determining the impact of immigrants on the combined federal, state, and local budgets, the two most important factors are level of education and age upon arrival (Smith and Edmonsten, pg 329). The net fiscal impact (net present value) of immigrants without a high-school degree is –$13,000, while the net fiscal impact of immigrants with more than a high-school degree is $198,000 (Smith and Edmonsten, pg350). In addition, immigrants arriving between the ages of 10 and 25 contribute the most to combined government budgets while immigrants in their mid-sixties bear the greatest cost on government budgets. As age upon arrival increases, immigrants contribute less and less to government budgets. Age upon arrival and level of education are the two most important factors when measuring the net fiscal impact of immigrants.
In order to thoroughly measure the cost of immigrants on the American taxpayer, we must consider the costs of immigrants on state and federal budgets separately. The fiscal impact of the average immigrant dramatically differs when studying federal and state budgets. Immigrants tend to have a negative effect on state budgets while they have a positive effect on the federal budget. State welfare benefits consist of mainly medicaid, SSI (supplemental securities income) and AFDC (aid to families with dependent children), and federal benefits primarily consist of social security and medicare. Immigrant households are more likely to participate in means-tested benefits that are funded by state budgets (Borjas and Hilton, pg578). As a result, immigrants generally receive more in benefits than they give in taxes on the state level. However, immigrants have a net positive impact on federal budgets because they contribute a significant amount in taxes without receiving a disproportionate amount of federal benefits. Therefore, the average immigrant creates a burden on the American taxpayer on the state level, but immigrants actually help fund the federal welfare programs.
Smith and Edmonsten find that immigrants contribute a significant amount to combined government budgets when discounting for the future. The results of Smith and Edmonsten’s study correspond with the assumption that immigrants have a negative impact on state budgets and a positive impact on federal budgets. Given the baseline scenario, the average immigrant has a net present value of -$25,000 on the state/local budget. However, the average immigrant has a federal fiscal impact of +$105,000 and a combined fiscal impact of +$80,000. This analysis does adjust for levels of education or age upon arrival; therefore, regardless of level or education or age upon arrival, the average immigrant significantly contributes to the combined government budgets when discounting for the future.
When trying to determine the burden of immigrants on the American taxpayer, the analysis and results are long and complex; the fiscal effect of an average immigrant can vary dramatically. However, there are several conclusions one can draw from these results. First, general statistics regarding the impact of immigrants on the welfare state suggest that immigrants have a negative effect on government budgets. Evidently, the percentage of expenditure on welfare benefits given to immigrants is disproportionately large compared to the percentage of immigrants in the population. Second, immigrants in California clearly do place a burden on the American taxpayer on the state level. Because most of the benefits received by immigrants are state funded programs (specifically Medicaid, SSI, and education costs), the large population of immigrants in California has a large social cost on the state budget. Third, the cost of immigrants on state budgets drastically differs from the cost of immigrants on the federal level. Immigrants actually significantly contribute to the federal budgets because immigrants primarily receive state funded benefits. Finally, the fiscal impact of immigrants on combined state and federal budgets is insignificant; if anything, immigrants contribute to the combined government budgets especially when discounting for the future. Therefore, immigrants do not place a burden on the average American taxpayer at the national level; however immigrants can have a burden on taxpayers in states with high levels of immigration.
George J. Borjas, "Immigration and Welfare, 1970-1990". National Bureau of Economic Research Working Paper No. 4872, 1994.
George J. Borjas and Lynette Hilton, "Immigration and the Welfare State: Immigrant Participation in Means Tested Entitlement Programs", Quarterly Journal of
Economics, , 1996, pp. 576-604.
National Research Council, "The Future Fiscal Impacts of Current Immigrants" in The New Americans: Economic, Demographic and Fiscal Effects of
Immigration, edited by James P. Smith and Barry Edmonsten, National Academy Press, Washington, D.C., 1997, Chapter 7, pp. 297-354.