Raise immigration quotas, not taxes
AFTER the demands of programs for the elderly and defense, there is precious little remaining for other worthy federal programs. Privatizing social security may reduce the squeeze in the long run, but not in the short run. And with the current low birthrate, there is no hope that a larger number of working-age people will eventually enter the labor force to distribute the cost of supporting the elderly more widely. Other than raising taxes, only a larger legal immigration quota can immediately help the federal budget. Immigration mainly increases the number of young skilled working people who pay high taxes and use few government services.
The average immigrant begins working - and contributing to the public coffers - quite soon after arriving in this country. The immigrant's own eventual receipt of social security benefits, decades down the pike, does not offset these immediate benefits to others.
Those benefits stem in large part from the difference in age composition between the native population and that of each immigrant group. Immigrants tend to move when they are near the start of their work lives. For example, perhaps 4 percent of immigrants are aged 60 or over, while about 15 percent of the United States population is 60 or over. And while perhaps 26 percent of the US population is in the early prime labor force ages of 20 to 39, perhaps 46 percent of immigrants is in that age bracket. Moreover, even the small number of immigrants who are elderly are not eligible for social security. Therefore, each group of new immigrants, in proportion to its numbers, contributes substantially to reducing the social security burden of natives in the new country.
Anti-immigration lobby groups pooh-pooh this benefit from immigrants by saying that the total dependency burden of the US population is not now increasing, owing to the decreasing number of dependent children. Over the next generation, the reasoning goes, each member of the labor force will support fewer nonworkers, even with less immigration than at present. There will be more older nonworkers to support, but fewer young ones.
Dependent children, however, affect the taxpayer differently than do the elderly. Parents pay most of the cost of raising their own children in this country. Also, yearly living costs of a child are far less than the living costs of an aged adult. This is obvious when one reflects on the comparative costs of housing, medical care, and transportation. Children's public school expenses do not much alter the overall picture.
Must US natives pay the piper for this benefit from immigrants when the immigrants get older and themselves receive social security? The answer is ``no,'' for two reasons. First, the impact of this year's immigrants on social security perhaps 30 years from now properly has little weight in the overall economic assessment, because a dollar to be received or paid out in 30 years is worth little now when discounted at even a modest rate. Second and more important: By the time new immigrants retire, they typically have raised children who are then contributing to social security, balancing out the parents' receipts, just as with native families. Hence there is a one-time benefit to natives because the immigrants arrive without a generation of elderly parents who receive social security.
Immigration is not a complete cure for the social security problem, because the number that might be admitted under any likely US policy is limited. But the extent to which immigrants can be at least a partial remedy is easily underestimated.
One reason that social security taxes per worker are now high is that - contrary to the impression suggested by the anti-immigration lobby - in recent decades this country has admitted far fewer immigrants as a proportion of the population than it did around the turn of the century.
As a result, only about 6 percent of the present US population - a bit more than one person in 20 - is foreign born. That includes the aged immigrants who came many years ago, as well as those who came as children and grew up as American as apple pie. Not exactly a nation of raw immigrants. If instead, say, a quarter of our labor force were now immigrants, the social security tax would be almost a quarter lower than it now is. That ain't chicken feed.
But what about disadvantages of immigration that most concern Americans?
Welfare payments. You hear it said that immigrants come to the US and get fat on welfare and other support programs. Solid evidence shows that the average immigrant family gets no more welfare support than the average native family, even aside from social security. This is mainly because immigrants average as much education and earning power as do natives, and participate in the labor force at least as much. In fact, immigrants are predominantly in the highest educational brackets.
Job displacement. It is frequently asserted that immigrants push natives out of jobs. Even putting aside the obvious fact that, after they are working, immigrants create new jobs for natives through their purchases, there is no evidence that immigrants even temporarily displace natives from jobs to a measurable extent. Apparently the extent to which new jobs are created in response to the supply of new workers, and the demand for the goods that they purchase, is so rapid that little or no displacement of natives can be detected.
Public facilities. Immigrants increase the need for school buildings and other public facilities. But much of such construction is paid for by bonds and taxes. Thus immigrants pay enough ``rent'' on such facilities, past and present, to largely cover their costs.
So the main objections commonly raised against immigration turn out not to hold water. The United States should take advantage of immigration as a way of lightening the social security burden in particular and the tax burden in general. At the same time, we improve the lives of the immigrants by offering them the advantages of living a free and fruitful life in the US.
Julian L. Simon is a professor at the College of Business and Management, University of Maryland. He is the author of ``The Economic Consequences of Immigration.''