New Estimates of Immigration Reform: What They Say
Both the Social Security Chief Actuary and the CBO have already weighed in on the Senate's immigration reform bill, showing that it would give a short-term boost to Social Security and a slight cost to the rest of the budget. Now that the bill has passed the Senate, the CBO and the Chief Actuary have put forth more in-depth analyses of the legislation.
First, we'll start with CBO's estimate. They show that the bill would reduce total deficits by $158 billion over ten years, about $40 billion lower than their initial estimate. This is due to the extra border security money that was added into the final bill. The on-budget deficit increase has now risen to about $50 billion, making it more necessary for the final version to offset this on-budget cost to make it compliant with PAYGO rules. The off-budget portion is estimated at $210 billion of deficit reduction, about the same as the previous estimate.
|CBO Final Estimate of S. 744 (billions)|
|On-Budget Deficit Effect||-$6||-$5||-$5||-$5||-$6||-$6||-$6||-$5||-$5||-$6||-$52|
|Off-Budget Deficit Effect||$1||$5||$14||$20||$22||$24||$26||$29||$34||$37||$210|
|Subtotal, Deficit Effect||-$6||*||$10||$15||$17||$18||$20||$24||$29||$31||$158|
Note: Positive number denotes deficit reduction.
*Less than $500 million
CBO also updated its rough estimate for the second decade, projecting $685 billion in deficit reduction from 2024-2033, similar to what they previously estimated. Unlike in the first decade, the on-budget effect is a net $110 billion of deficit reduction rather than a deficit increase, and the off-budget estimate contains $575 billion of deficit reduction. For context, as a share of the economy, the total impact of deficit reduction in the second decade is small, at 0.2 percent of GDP.
|Comparing the Old and New CBO Estimates (billions)|
|2014-2023 Deficit Reduction||$197||$158|
|2014-2023 Deficit Reduction with Interest||$229||$182|
|2024-2033 Deficit Reduction||$690||$685|
Given that the entirety of the deficit reduction in the bill comes from the Social Security portion of the budget, it is perhaps no surprise that the Chief Actuary finds that the bill would be a positive for Social Security over 75 years. It would reduce the 75-year shortfall by 0.21 percent of taxable payroll -- the amount of payroll subject to the payroll tax -- or 8 percent of the projected shortfall. It would extend the life of the Social Security trust fund by two years to 2035. Most of the positive effect is upfront when immigrants are paying payroll taxes, but most are ineligible to receive benefits or are only receiving small benefits due to a short official work history. By the end of the 75-year window, the effect is largely a wash.
Somewhat counter intuitively, the improvement is shown as a 0.25 percentage point reduction in benefits as a percent of payroll and a 0.04 percentage point reduction in revenue. Even though both benefits and revenue increase in dollar terms, the denominator in this case, taxable payroll, increases enough to actually lower the overall ratio for benefits and revenue. In the graph, we did our best to estimate what spending (cost) and revenue (income) would look like if they were evaluated based on the current taxable payroll.
Social Security Costs and Income as a Percent of Current Payroll
Source: SSA, CRFB calculations
In addition, we have also shown how the trust fund ratio (the ratio of trust fund assets to benefits) would change. As you can see, it is not a significant amount.
Trust Fund Ratio
Source: SSA, CRFB calculations
The American Enterprise Institute's Andrew Biggs, though, argues here and here that the estimate is somewhat overly optimistic because the Social Security Administration's model assumes that immigrants will have similar characteristics to native-born workers. Generally, immigrants earn less than natives, which matters since Social Security pays low earners higher benefits relative to their earnings and taxes. Biggs also cites a 2001 study showing that immigrants live about three years longer than natives. Using a model that accounts for these differences, he estimates that immigration reform would be a wash, reducing the 75-year shortfall by less than 1 percent.
What we said before about needing to offset the on-budget cost of the bill is even more necessary now with the added border money. The off-budget deficit reduction will (at least without other action) go to Social Security, so it cannot be used to simultaneously reduce the deficit. Otherwise, immigration reform appears to be a slight positive for the budget and Social Security program over the long term, although obviously it is only a drop in the bucket compared to the size of the problem.