CBO immigration cost-estimate brings reasonable skepticism
On Tuesday, the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) released a joint score of the Gang of Eight’s immigration reform bill, which is currently being debated in the United States Senate.
According to the report, S. 744 — the Border Security, Economic Opportunity, and Immigration Modernization Act — would increase the number of permanent residents by 10.4 million and reduce the budget deficit by $197 billion over the next 10 years. Stepping outside the normal 10-year budget window, the report also found that long-term deficit reduction would be much more significant.
“Taking into account a limited set of economic effects, the cost estimate shows that changes in direct spending and revenues under the legislation would decrease federal budget deficits by $197 billion over the 2014–2023 period and by roughly $700 billion over the 2024–2033 period,” noted the CBO/JCT report. “[T]he economic impacts not included in the cost estimate would have no further net effect on budget deficits over the 2014–2023 period and would further reduce deficits (relative to the effects reported in the cost estimate) by about $300 billion over the 2024–2033 period.”
To put that in more understandable terms, the CBO and JCT report says that the immigration reform bill will reduce federal budget deficits by nearly $1.2 trillion over the next 20 years (2014 to 2033).
The conclusion was reached by weighing the impact on various effects on the economy, including the increased tax base and labor force, higher average wages, and increased capital investment. Those effects, which were absent from the Heritage Foundation’s score of the immigration reform proposal, should be weighed to better understand the cost of legislation. But there is a catch.
While the score is being touted by supporters on both sides of the aisle as proof that the immigration reform proposal is pro-growth, opponents of the law are skeptical of the report — and for good reason.
The CBO does not have a solid history when it comes to reporting the budgetary effects of major legislation. Perhaps the best example is the CBO’s credibility gap is its scoring of ObamaCare.
Initially, the CBO had reported that ObamaCare would cost $940 billion over 10 years and reduce the budget deficit by $138 billion. That projection was based on rosy scenarios that aren’t consistent with reality in Washington.
But the initial score, as Michael Tanner of Cato Institute pointed out in March 2012, “included only six years of actual expenditures,” meaning that it didn’t accurately the 10-year window. When the CBO updated its cost-estimate, the price tag of ObamaCare jumped to $1.76 trillion.
“[M]any observers warned at the time that the original $940 [billion] estimate was misleading because it included only six years of actual expenditures, with the ten-year budget window. The new estimate is, therefore, a more accurate measure of how expensive this law will be,” wrote Tanner. “Yet even this estimate covers only eight years of implementation. And it leaves out more than $115 billion in important implementation costs, as well as costs of the so-called doc fix. It also double-counts Social Security taxes and Medicare savings.”
“Some studies suggest a better estimate of Obamacare’s real ten-year cost could run as high as $2.7–3 trillion,” he added. “And this does not even include the over $4.3 trillion in costs shifted to businesses, individuals, and state governments.”
During an appearance on Fox News, Sen. Tom Coburn (R-OK) expressed doubts about the score because CBO included Social Security as part of the bill’s deficit reduction. The problem with this is that Social Security spending is off-budget.
“Most of the claimed savings come into payment to the Social Security Trust Fund — that’s not even a part of the calculation of the deficit. So it has no effect on the deficit. It has an effect on the debt, but not on the deficit. It’s not even part of the budget,” Coburn told Martha MacCallum, co-host of America’s Newsroom. “So when we actually look at what they’ve calculated it’ll have no effect whatsoever on the deficit. It may have some effect on the Trust Fund, but they’re highly inaccurate.”
Coburn noted that many undocumented and illegal immigrants are already paying Social Security taxes, but he noted that they’re barred from collecting benefits. You can’t say that Social Security’s in good shape and then say, ‘Oh, by the way, this bill’s going to solve Social Security’ and claim it as deficit money as well,” he added. “So it’s smoke and mirrors from Washington.”
None of this is to say that immigration reform is not a policy worth pursuing. Indeed, immigration is a pro-growth and with significant economic benefits. For example, a 2006 study by the Texas Comptroller showed that illegal immigrants had a positive effect on tax revenues and added $17.7 billion to the state’s economy. Similarly, the University of North Carolina found that immigrants, both legal and illegal, had a net-cost to the state of $61 million; however, they contributed $9 billion to gross domestic product.
But in the end, it is hard to blame opponents of the immigration reform bill for taking a skeptical view of the CBO’s cost-estimate. If the CBO’s estimation of ObamaCare is any bellwether, immigration policy makers should expect a pretty large margin of error.