President Obama would love to have immigration reform as part ofhis legacy. Republican leaders in Congress want their party to be competitive in the 2016 presidential election and to show they canget things done. So although the odds are odds are steep especially if the presidentsparks the indignation of conservative lawmakersand follows through on his promise to take executive action to remove the threat of deportation for millions of undocumented immigrants our leaders are likely to at least make a serious attempt at putting together a bipartisan, bicameral deal on immigration in 2015. Their starting point will beS.744, the sweeping overhaul of the immigration systemapproved by the Senate on a 68-32 vote on June 27, 2013.
This wide-ranging reform bill is known mostly for its heightened border security, increased requirements for employers to verify the legal status of employees, and the complete revision of pathways to legal status for both currently undocumented and aspiring future immigrants, particularly those who are highly skilled. With all its focus on hot-button issues, sometimes it is forgotten that S.744 is also major deficit reduction legislation. According to theestimates jointly produced by the Congressional Budget Office and the Joint Committee on Taxation, the bill would generate $158 billion in deficit reduction over 10 years.
Most of the money in the CBO-JCT immigration reform estimate is tax related. The net $158 billion of deficit reduction is a combination of a $456 billion revenue increase offset by $298 billion of increased discretionary spending. (See the figure below.) Refunds of earned income credits, child credits, and premium assistance credits officially scored as discretionary spending account for nearly four-fifths of the estimated spending increase.
S. 744 is not so much a tax increase as it is an increase in the number of taxpayers. According to the official estimates, the legislation will make the U.S. population larger by 9.6 million in 2023. The number of residents with legal status will increase by a total of 16.1 million by 2023.
Three broad shifts in population drive these estimates, as shown in the figure below. The first and the largest is the 12.1 million increase in legal immigrants into the United States. The second is the change of 6.5 million currently unauthorized residents to new legal status that would allow them to work in the United States. The third major shift is a 2.4 million reduction in the net annual inflow of future unauthorized residents.
The vast majority of new revenues come from the first categorynew entrants into the United States. Not only would there be more new immigrants than newly legalized current residents, but new entrants have higher incomes than currently unauthorized residents. Also, many current unauthorized residents about 44 percent, according to the Social Security Administration already pay tax, so from a fiscal perspective there is little gain from their new legal status.
In a new article appearing in the latest issue ofTax Notes, I use two different methods to estimate this distribution of revenue changes attributable to new legal residents and revenue changes attributable to the change in status of unauthorized residents.
The table below summarizes the estimates derived using the two different methods. Using the first method, 86 percent of revenue raised by S.744excluding the effect of refundable creditsis attributable to new immigrants entering the United States. Using the second method, 94 percent of revenue raised, excluding credit refunds, is from new legal immigrants.
Including the effect of refundable credits in the revenue estimate skews the distribution even further toward new immigrants. Under the first method, they account for 94 percent of the revenue net of refundable credits. Under the second method, they account for more than 100 percent because the increase in currently unauthorized residents filing returns actually reduces revenue.
In their efforts to shrug off arguments that granting legal status to unauthorized immigrants isamnesty, proponents of immigration reform stress that the attainment of legal status would be accompanied by the payment of penalties and back taxes. While the payment of fees and back taxes gets a lot of attention in the political debate, it is not significant for the overall fiscal picture.
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Immigration Reform In 2015? We Could Use The Money