Analyzing the CBO Score: S.744 is a Bad Deal for the American People
The political arguments made in support of S.744 are that the bill would end illegal immigration, increase tax revenues, reduce deficits, and grow the economy to the benefit of all Americans. According to the Congressional Budget Office (CBO), none of this is true.
The CBO projected that if S.744 were passed, illegal immigration would be reduced by 25 percent than it would "under current law." There are two problems with that. First, the current law is not the reason that there are 12 million illegal aliens in the country. It is the failure to enforce the law which is the problem. S.744 does nothing to change that fact. Second, S.744 only requires a plan for border security and interior enforcement, not its implementation. The CBO ignores the almost total suspension of enforcement that would occur under S.744, as well as the likelihood that more illegal aliens would attempt to enter the United States in an attempt to benefit from the legalization provision in the bill.
It is true that the CBO projected that the passage of S.744 would result in a deficit reduction by $197 billion by 2023, but this would only be achieved if the Social Security and Medicare "trust funds" were raided, which would bankrupt these programs in the future — something the CBO failed to acknowledge. It is true that the CBO projected that the passage of S.744 would be reduced by $197 million by 2023, but this would only be achieved if the Social Security and Medicare "trust funds" were raided, which would bankrupt these programs in the future — something the CBO failed to acknowledge. If only general funds were used to fund the new costs incurred by S.744, as under law should be the case, the CBO projects a deficit of $14.2 billion.
The CBO score affirmed that the negative economic effects of mass immigration will continue — higher unemployment and lower wages for American workers, higher profits for corporations, and growing income inequality. It short, the wealthy will grow wealthier while working American and the majority of taxpayers will take a hit.
- Lacks a detailed explanation of its assumptions and calculations;
- Confirms massive increases in immigration levels;
- Exposes the lack of border security and enforcement in the bill;
- Confirms the depressive effect of mass immigration on wages;
- Predicts the further tipping of the balance of power from labor to capital;
- Debunks the argument that S.744 is "pro-growth";
- Projects rising unemployment;
- Predicts increased income inequality;
- Employs incorrect and misleading accounting techniques;
- Selects the "dynamics" most favorable to the legislation;
- Does not take into account state and local costs;
- Concentrates on the size, not the composition, of the workforce;
- Contradicts itself on the benefit to the "average worker";
- Projects an historically unprecedented rate of job creation.
- The CBO did release a 22 page summary to provide background to some of its projections, yet what is lacking is a full methodological explanation of how and why it came up with the numbers it did. This is standard practice for any academic or serious research publication, and it should be required for any CBO score. By not providing one, the CBO's projections come across as little more than guesses, some more educated than others.
- The report confirms S.744 will add tens of millions of new immigrants to the U.S. population. The CBO's relatively conservative estimate projects that the bill will add 16.2 million to the 22 million immigrants that are already projected to enter the United States if S.744 were not passed. On top of this are 8 million illegal aliens who the CBO projects will receive amnesty (an extremely conservative estimate). The total projection of additional immigrant inflows due to S.744, according to the CBO, is 46 million, increasing the U.S. population by an additional 4 percent by 2033. The CBO also projects a doubling of guest workers by 2023 that would increase by 250 percent by 2033.1
- The CBO says the bill will reduce illegal immigration by only 25 percent (guest workers won't go home is one of their arguments), yet even this estimate is based on the political arguments made by the Gang of Eight, not on border security and enforcement provisions in the bill, whose implementation is not required by the bill. The CB) also ignored the failure of the Obama Administration to enforce existing law. Even as it accepted that enforcement would increase under S.744, the CBO projected that illegal immigration would continue at a pace of 500,000 a year, and would result in an illegal alien population of around 7.5 million by 2033.2
...aspects of the bill would probably increase the number of unauthorized residents — in particular, people overstaying their visas issued under the new programs for temporary workers. CBO estimates that, under the bill, the net annual flow of unauthorized residents would decrease by about 25 percent relative to what would occur under current law...3
- The CBO admits the truism that adding million of additional foreign workers to the labor force would drive down wages even further.
Taking into account all of those flows of new immigrants, CBO and JCT expect that a greater number of immigrants with lower skills than with higher skills would be added to the work- force, slightly pushing down the average wage for the labor force as a whole, other things being equal."4
Wages would be lower than under current law through 2024. That small initial reduction in average wages would occur primarily because the amount of capital available to workers would not increase as rapidly as the number of workers and because the new workers would be less skilled and have lower wages, on average, than the workers under current law.5
- The CBO projected that profits of employers who hire immigrant workers would increase while wages for working Americans would be suppressed, continuing the trend of the last forty years:
Because the bill would increase the rate of growth of the labor force, average wages would be held down in the first decade after enactment by a reduction in the ratio of capital to labor, which would make workers less productive — and therefore lower their wages, on average, relative to what would occur under current law.6
- One of the main arguments that proponents of S.744 have made is that the bill is "pro-growth," and just like the claims that the bill would end illegal immigration, the economic benefits of S.744 were debunked by the CBO. It is true that the economy will expand simply by adding tens of millions of more people to the U.S. population. But the pro-growth argument made by those who support S.744 is that it will generate the type of economic growth that is broadly beneficial to the American people. The CBO found those claims to be false. As pointed out above, the CBO projects that wages and per capita GDP will decrease on average, while profits and dividends for employers and investors will increase. That is not pro-growth, that is the dissolution of America's middle class.
- The CBO also estimates that the Senate bill would cause the unemployment rate to increase between 2014 and 2020.
CBO estimates that S. 744 would cause the unemployment rate to increase slightly between 2014 and 2020....While the economy adjusted to the increased inflow of immigrants, the increase in demand for labor could lag behind the increase in demand for goods and services.7
Although the average wage would be lower than under current law over the first dozen years, the minimum wage would keep the wages of some less-skilled workers from falling, dampening businesses' demand for those workers.8
- The CBO projected a greater return on capital corresponding with lower wages and higher unemployment. This would lead to a decrease in per capita Gross National Product [GNP] until at least 2031, which would result in greater income inequality.
According to CBO's central estimates, S. 744 would reduce per capita GNP by 0.7 percent in 2023 and raise it by 0.2 percent in 2033. Under the full range of estimates, the bill could lower per capita GNP in 2033 by as much as 0.2 percent or raise it by as much as 0.6 percent.9
- The GDP projects that the bill would reduce the budget deficit by $197 billion, but that is only because it erroneously (deliberately or otherwise) included Federal Insurance Contributions Act (FICA) taxes as revenue dedicated to the general fund, ignoring the fact that FICA taxes are dedicated to funding Social Security and Medicare.10 The CBO is counting FICA contributions as a net plus while failing to point out that this would result in the future bankruptcy of the programs these taxes are supposed to fund. If the FICA revenue is not added to the general fund, CBO calculates that the budget deficit would increase by $14.2 billion, but it does not explicitly acknowledge this in its summary of findings.11
The CBO also estimates that most illegal aliens will pay all fines and application fees, despite the fact that the DHS Secretary has the discretion under S.744 to waive all fines and fees for any reason. Lastly, the increased revenue from tax payments by amnestied aliens is based on the assumption that the average wage for amnestied aliens would be rise after amnesty by 12 percent. There are arguments to be made that the average wage of amnestied aliens may go up, and arguments to made that they will not. However, the CBO does not indicate why they chose the former over the latter, and or how it came up with the projected increase of 12 percent. This number simply appears and is crucial to its overall revenue and economic calculations.
- There was controversy preceding the release of the CBO score over whether or not it would be "dynamic" instead of "static." Dynamic scoring means trying to predict and quantify changes in economic performance over time in relation to the enactment of particular fiscal policies — something that is extremely difficult to do, and is arguably something that is impossible to do with any accuracy. The CBO did dynamically score some portions of the bill:
Following the long-standing convention of not incorporating macroeconomic effects in cost estimates — a practice that has been followed in the Congressional budget process since it was established in 1974 — cost estimates produced by CBO and JCT typically reflect the assumption that macroeconomic variables such as gross domestic product (GDP) and employment remain fixed at the values they are projected to reach under current law. However, because S. 744 would significantly increase the size of the U.S. labor force, CBO and JCT relaxed that assumption by incorporating in this cost estimate their projections of the direct effects of the bill on the U.S. population, employment, and taxable compensation.12
- Unfortunately, CBO only considered factors that were most favorable to the legislation.
"The bill also would have a broader set of effects on output and income that are not reflected in this cost estimate."13
- With that one sentence, CBO glosses over the fact that it counted upfront revenues while ignoring future costs, and that its analysis beyond ten years is entirely superficial. The CBO also ignores remittances sent home by immigrants ($61 billion to Latin American alone in 2011), as well as the cost of the next wave of illegal immigration this bill will fuel (the CBO admits that there would continue to be a high level of illegal immigration if S.744 is passed).
- The CBO also failed to consider whether adding tens of millions of more people to the U.S. population would drive up housing prices, gas prices, food prices, etc. The CBO ignored most of the macroeconomics variables that would be affected by S.744. It selected the dynamics most favorable to the bill, which is what the proponents of dynamic scoring were arguing for in the first place.
- The CBO scoring does not factor in costs at the state and local levels, which are where most of the costs of immigration are generated. While S.744 may prohibit aliens from accessing certain federal welfare programs, it does not prohibit them from benefitting from state and local programs, even those which dispense federal monies.
The substantial increase in population that would occur if S.744 is enacted would have many other effects (both negative and positive) on the budgets of state, local, and tribal govern- ments, but CBO does not estimate the overall effects of legislation on the budgets of those governments.14
- The education and skill level of the workforce is important and any projection of the effects that adding millions more additional immigrant workers to the U.S. labor force must take into account these factors. The CBO failed to do so. It assumed that adding more workers to the labor force always increases productivity and provides substantial economic and fiscal gains, even while it admitted that S.744 would have major negative effects on unemployment and wage rates in the short-term. The CBO does break down the U.S. workforce into low-skill, high-skill, and "average-skill" cohorts, but it goes no deeper than that. It simply brushed aside the huge differences between native-born and immigrant workers that result in different employment and mobility outcomes. In a footnote, the CBO states:
Differences in earnings among immigrants and native-born workers tend to diminish over time as immigrants acquire skills, such as fluency in English the language, that are important to success in the U.S. labor market. CBO did not incorporate such changes in wages over time into its analysis.15
- This indicates that CBO did not take into account education levels and job skills, including English proficiency, when calculating the earnings of new immigrants. It immediately counted up-front any gains that might accrue to immigrants over time, such as a 12 percent increase in wages for amnestied aliens. The CBO did this in spite of an enormous amount to available research literature that would have allowed it to make a more accurate projection of performance of immigrant workers over time.
...average wages for workers in the middle three quintiles (typically, a portion of high school and college graduates and workers with some postsecondary education) would increase by 0.5 percent relative to overall average wages.16
- Putting aside the projected infinitesimal increase in projects wages over a twenty year period, the CBO directly contradicts this conclusion elsewhere. The CBO argued that an influx of workers in both the high-skill and low-skill sectors of the labor market would drive down wages for workers in these sectors but that S.744 "would have less effect on the number of workers with average skills."17 Yet the CBO had already stated that:
...new programs for temporary workers and an increase in the number of workers eligible for H-1B visas — and would allow somewhat greater numbers of workers with skills in the middle of the distribution to enter as well.18
- The CBO projected that workers in the middle, those with "average skills" would face increasing competition from new immigrant workers, the same as workers in low- and high-skills, yet it projected an increase wages for average workers.
- The CBO also made the case that:
the increase in immigration — particularly of highly skilled immigrants — would tend to generate additional technological advancements, such as new inventions and improvements in production processes.19
- Future technological advances made by skilled immigrants, a defensible but highly questionable assumption to make, would correspondingly lead to less demand for the millions of low-skilled immigrants who would come to the United States under S.744. The CBO failed to account for this, and once again contradicted itself on the positive economic benefits of the bill.
- How did CBO calculate job gains that would occur if S.744 were passed? Certainly not by looking at the last six years of job creation, or the last decade. In fact, in order for the CBO projections to come to fruition the pace of job creation would have to essentially triple from where it is now and would have to proceed at that rate for 36 months — a job creation rate that would far outpace any other period in history. Where and how did the CBO account for this? It didn't say. But the CBO did admit that creating more jobs would not result in a reduction of Americans who are out of work.
Employment would increase as the labor force expanded, because the additional population would add to demand for goods and services and, in turn, to the demand for labor. However, temporary imbalances in the skills and occupations Demanded and supplied in the labor market, as well as other factors, would cause the unemployment rate to be slightly higher for several years than projected under current law.20
Footnotes and endnotes
- "S. 744: Border Security, Economic Opportunity, and Immigration Modernization Act," Congressional Budget Office, June 2013, pp. 13-15.
- "CBO Projects the Gang of Eight Bill Fails to Stop Illegal Immigration," Center for Immigration Studies, June 2013.
- "S.744," CBO, p. 23.
- "The Economic Impact of S. 744, the Border Security, Economic Opportunity, and Immigration Modernization Act," Congressional Budget Office, June 18, 2013, p. 7.
- "The Economic Impact of S. 744," CBO, p. 6.
- "The Economic Impact of S. 744," CBO, p. 7.
- Ibid, p. 9.
- "The Economic Impact of S. 744," p. 14. Figure 2 on page 18 shows the projected per capita GNP below the baseline estimate for per capita GNP without the passage of S.744 until 2031.
- "S. 744," CBO, p. 2.
- Ibid. p. 12. The summary of findings is pp. 1-4.
- "S. 744," CBO, p. 3.
- "S.744," CBO, p. 3.
- "The Economic Impact of S. 744," p. 4.
- Ibid, fn 10, p. 7.
- Ibid, p. 8.
- Ibid, pp. 4-5, 8.
- Ibid, p. 7.
- Ibid, p. 5.
- Ibid, p. 6.