CBO: Immigration Reform Would Cut Deficit, Boost Economy

"The CBO analysis made clear that the additional taxes paid by new and legalizing immigrants would not only offset any new spending, but would be substantial enough to reduce the deficit over the 20-year window," the three economic analysts said. "A significant portion of the new taxes would be paid by previously undocumented immigrants. While many of these workers already pay federal taxes, millions more will pay payroll taxes once they are able to obtain legal status and work above board."

Specifically, CBO and Joint Committee on Taxation estimate in their report that enacting S. 744 would have the following budgetary effects:

• Increase federal direct spending by $262 billion over the 2014–2023 period. Most of those outlays would be for increases in refundable tax credits stemming from the larger U.S. population under the bill and in spending on health care programs—particularly for the Medicaid program and for subsidies provided through insurance exchanges created under the Affordable Care Act (ACA).
• Increase federal revenues by $459 billion over the 2014–2023 period. That increase would stem largely from additional collections of income and payroll taxes, reflecting both an increase in the size of the U.S. labor force and changes in the legal status of some current workers.
• Decrease federal budget deficits through the changes in direct spending and revenues just discussed by $197 billion over the 2014–2023 period. Because enacting the bill would affect direct spending and revenues, pay-as-you-go procedures apply. Those procedures consider only the on-budget effects of legislation and not the off-budget effects, such as the effects on Social Security taxes and spending.

As to the legislation's effect on Social Security, Burwell, Krueger and Sperling cite comments made by the Social Security chief actuary in early May that the bill "will strengthen the solvency of the Social Security Trust Fund in the short run and the long run by reforming the legal immigration system and increasing by millions the number of currently undocumented workers who will be paying payroll taxes."

The Chief Actuary said that, "Overall, we anticipate that the net effect of this bill on the long-range OASDI [Social Security] actuarial balance will be positive."

Because most immigrants are young, Burwell, Krueger and Sperling write in their blog, "additional immigration helps balance out the increase in retirees per worker that will occur as the Baby Boom generation retires." The recently-issued 2013 Social Security Trustees Report shows "that an increase of about 25% in annual net immigration flows would reduce the 75-year Social Security imbalance by 7%."

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Check out Immigration Reform May Bruise Stocks by Alexei Bayer on AdvisorOne.