Wednesday, August 7, 2024

Sorry GOPs, but CBO says Biden-era immigration has increased growth, and will lower deficits

Since an already-desperate Republican Party is going to try to stop their bleeding of voters by scaring them with "BROWN IMMIGRANT FEARS", let's look at what immigration has done for the country in the Biden years, and whether it'll cost us more or less today, as well as down the road.

Fortunately, the Congressional Budget Office recently released a report on this. CBO says there has been a sizable wave of immigration to America in the last 3 years, and it's well beyond what was expedcted as President Biden took office.
The number of people entering the United States has increased sharply in recent years. Most of the increase comes from a surge in people whom the Congressional Budget Office categorizes as other foreign nationals. Some of them have received permission to enter or remain in the country, and some have not; more detail on the composition of immigrants in that category is provided below. On the basis of pre-2020 trends, CBO would have expected the net immigration of people in that category to average around 200,000 per year. In the agency’s projections, the net immigration of other foreign nationals exceeds that rate by a total of 8.7 million people over the 2021–2026 period.

And unlike what the longtime trope of “immigration hurts our services and costs us” claims, the CBO says the 2021-2023 increase in immigrants is going to have a mostly positive impact on our economy and overall budget situation. This is mostly due to increased tax payments and economic activity.
CBO estimates that the immigration surge will add $1.2 trillion in federal revenues over the 2024–2034 period. The annual increase in revenues grows over time and reaches $167 billion (or 2.2 percent of total revenues) in 2034 in the agency’s projections. Individual income taxes and payroll taxes paid by immigrants who are part of the surge are responsible for most of the effects on revenues. In addition, the surge is projected to boost economic activity and, in turn, tax revenues.

The immigration surge adds $0.3 trillion to outlays for federal mandatory programs and net spending for interest on the debt over the 2024–2034 period in CBO’s projections. Annual outlays for certain mandatory programs increase over time as more immigrants in the surge population and their children who are born in the United States receive benefits. In 2034, those benefits add $23 billion (or 0.4 percent) to total mandatory spending. In addition, the economywide effects of the surge boost annual spending by growing amounts that reach $27 billion in 2034. Most notably, spending for interest on the government’s debt increases, primarily because of the higher interest rates resulting from the surge in immigration. In total, projected outlays in 2034 are boosted by $50 billion because of the surge.
The “higher interest rates” part seemed odd to me, but the CBO argues later on in the analysis that the increased economic activity causes more demand for housing and capital needs, and squeezes rates higher by 0.1%. On the flip side, the CBO says the lower budget deficits due to immigration will lower debt costs in the later 2030s and early 2040s.

The CBO concedes that there may be other parts of the US budget that will require more funding for US Border Patrol and other agencies to deal with the higher amount of costs needed to encounter a larger number of immigrants, and that a higher overall population in America likely would lead to more costs for services.
CBO expects the immigration surge will put pressure on the budgets of many programs and activities funded through discretionary appropriations, including some administered or undertaken by the Department of Homeland Security and the Office of Refugee Resettlement (in the Department of Health and Human Services). Funding for certain discretionary activities related specifically to immigration totaled $37 billion in 2024—an increase of $1 billion from the 2019 amount after the effects of inflation are removed—and the Administration has requested additional funding for 2024.

In addition, the surge is likely to affect other discretionary programs whose operations are affected by the size of the population, including those that provide funding for elementary and secondary education, income support, and infrastructure. If discretionary funding for the broad budget categories that are likely to be affected by a larger population was increased in proportion to the increase in the population from the surge, those funding increases would total $24 billion in 2034 and $0.2 trillion over the 2024–2034 period, CBO estimates.
But CBO says the biggest effect of the increased amount of people coming to America is that our economy and total wages paid grows by quite a bit more over the next 10 years.
Some of the projected budgetary effects of the immigration surge stem from broader changes in the economy that the surge is expected to bring about. In CBO’s projections, the surge boosts total nominal gross domestic product (GDP) by $1.3 trillion (or 3.2 percent) in 2034 and by $8.9 trillion over the 2024–2034 period. The surge increases the total amount of wages paid each year by a percentage that grows steadily over that period and reaches about 3 percent in 2034. Those additional wages are a major contributor to the boost in revenues because they are subject to both payroll and income taxes. In addition, two main factors resulting from the surge—faster growth of the labor force and greater demand for residential investment—boost the rate of return on capital and put upward pressure on interest rates. The increases in interest rates are a major contributor to the boost in federal spending.

Along those lines, the Federal Reserve Bank of San Francisco says that the early 2020s' jump in immigration means more jobs have been able to be added in recent years beyond what we would expect.
Short-run breakeven employment growth is estimated to be higher than long-run growth under each scenario, as shown in Figure 3. Under the baseline scenario, short-run breakeven employment growth is estimated to be around 140,000 jobs per month in the first quarter of 2024 (dark blue line). It is somewhat more elevated under the high immigration Census scenario at 151,000 jobs per month (not shown) and significantly higher at 230,000 jobs per month under the CBO high immigration scenario (red line), reflecting the recent surge in immigration that is projected to largely continue in the near term. Under the baseline projections, short-run breakeven growth will converge on the long-run breakeven growth rate (gray line) by the end of 2025. However, this return to the long-run trend stretches further out to 2027 for the CBO high immigration scenario.

These estimates are largely consistent with other contemporaneous work. Edelberg and Watson (2024), for instance, estimate the recent surge in immigration as estimated by the CBO caused an upward shift in short-run breakeven growth of 100,000 jobs per month in 2024, pushing the upper range of the estimate to 200,000 jobs per month (see also Feroli 2024). The estimates in Walker (2024) also are in concordance with our conclusions under the baseline scenario, with an estimate of long-run breakeven growth of 75,000 jobs per month, and a short-run breakeven rate of 125,000 per month in 2024.

This also seems to help explain how the US could be adding more jobs than we were in the 2 years before the COVID pandemic broke out, but are seeing unemploynment rise above 4% instead of staying at the sub-4% levels that we had for most of 2018 and 2019.

Even with slightly higher (albeit still low) unemployment, I'd argue that the better growth and larger capacity from our early 2020s immigration surge is a good thing, both for keeping growth going now, and for our future economic outlook. It beats stagnation from low population growth and a lack of workers to replace the large population of Baby Boomers that have already retired, and the large number that will retire over the next few years.

Lastly, the fact that we've had a large number of new immigrants coinciding with a significant decline in violent crime during the Biden years should be pointed out by anyone that hears Republicans trying the "IMMIGRANT CRIME" scare tactic. And isolated incidents and stories from GOP hacks don't override the boost to the economy and the overall increase in public safety that we've seen in the last 3 years of surging immigration.

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