David J. Bier
Today, the Cato Institute published “Immigrants’ Recent Effects on Government Budgets: 1994–2023,” a study on the fiscal effects of immigrants—legal and illegal—that builds upon the National Academies of Sciences, Engineering, and Medicine (NASEM) fiscal effects model. The paper, which I coauthored with Michael Howard and Julián Salazar, is the first to analyze three decades of federal, state, and local government budgets to determine how immigrants affected the total US government debt and deficit.
In this paper, we wanted to accomplish two main things:
1) Provide the first-ever assessment of the total net fiscal effect of all immigrants from 1994 to 2023, rather than a one-year snapshot or forward-looking projection like many other studies. We wanted a sufficiently long period to assess claims like those by White House Deputy Chief of Staff Stephen Miller, asserting that immigrants have already sucked us dry.
2) Provide the clearest explanation for the mechanisms driving the fiscal effects of immigration on government budgets.
Immigrants Have Reduced the Deficit Every Year
Every year since 1994, when data collection began, immigrants have paid more in taxes than they received in benefits from the federal, state, and local governments. The fiscal benefits have continued to rise, reaching their highest level ever in 2023.
The fiscal surplus from all immigrants from 1994 to 2023 was $14.5 trillion, compared with a deficit of $48 trillion without immigrants. That means that immigrants cut deficits by nearly a third in real terms over the last three decades.
Why the Average Person Is Fiscally Positive
How can immigrants be so fiscally beneficial when the country overall is running such extreme deficits? The answer is that a big part of the US budget is pure public goods—primarily the military and interest payments on past debt accrued before the immigrants came—which don’t scale with population growth. These are essentially fixed costs or sunk obligations that the United States will have to cover whether immigrants come or not.
The figure below shows how, in most years, tax revenue exceeds the costs of providing benefits—that is, everything that requires scaling with population growth. Thus, immigrants will be fiscally positive so long as they are at least average in their revenue creation and benefits received. In fact, immigrants are significantly better than average in both aspects of the fiscal equation.
Immigrants Pay More Taxes, Receive Fewer Benefits
Immigrants pay more in taxes than the average person. This is counterintuitive because they have lower hourly wages, but because they work at much higher rates (the blue line), they end up with higher per capita incomes (the gray line) and pay more in taxes than their share of the population predicts (the dotted line). Thus, immigrants have been better at generating revenue for the government than the average person.
Are their tax revenues overwhelmed by the costs they impose? Here’s everything the federal, state, and local governments spent money on over the last 30 years in per capita dollar amounts. Immigrants did not create significantly higher costs for any items and saved the government enormously in two areas: old-age benefits and education costs.
Immigrants cost less as retirees: First, the savings on old-age benefits are not because immigrants are significantly less likely to retire. Instead, it is because they are far less likely to receive a government pension, since they were less likely to have government jobs and thus less likely to receive expensive government pensions. The main reason, though, is that they were simply barred from applying for Social Security and Medicare because they either arrived too late in life to earn the necessary qualifying work history, or they are here illegally or in a temporary status and ineligible for that reason.
Immigrants cost schools less: Immigrants arrive in the United States at the average age of about 25, meaning that the United States gets workers without having to pay to educate them. Even though they are more costly when in school—due to bilingual education needs—they are much less costly overall because they are so much less likely to be in school. The result is that immigrants cost the US education system about half as much as the US-born population.
Immigrants aren’t big welfare users. The savings on education aren’t lost in the welfare state. Immigrants are much more likely to be in poverty but use roughly an average amount of what we call “needs-based” assistance. That includes traditional welfare, food assistance, Medicaid, refundable tax credits, and unemployment insurance. The entire reason for this disconnect between poverty rates and welfare use rates is that many immigrants are here illegally and so are ineligible to apply for welfare in most states. This conclusion, that immigrants use welfare at the same rate as the US-born population, matches the Trump administration’s conclusion in 2018.
Here is the full picture of spending and taxes for immigrants from 1994 to 2023. Immigrants—legal and illegal—paid more in taxes every single year than they received in benefits, broadly defined, and the gap has grown over time.
Immigrants Don’t Cause Deficits
Here’s another way to look at our main conclusion. Immigrants accounted for 14 percent of tax revenue and 7 percent of government spending from 1994 to 2023. Even if the government had not spent a dollar on immigrants, while somehow still getting all their tax revenue, the US government at all levels would still have run a $20 trillion deficit. Immigrants are not to blame for government deficits. Indeed, they reduced the deficit by about $14.5 trillion.
We use the highest-quality data available for this report and the best methods for this type of analysis. Although there are undoubtedly methodological finer points that can be debated, these broad conclusions are inescapable:
1. The average additional person is fiscally positive because pure public goods are such a big portion of the budget.
2. Immigrants generate more tax revenue. Immigrants’ employment rates are well documented. The correlation between income and taxes is well established.
3. Immigrants use fewer benefits. The effects of status-based limits on welfare and entitlements are clearly apparent in numerous data sources. The savings from education are indisputable, as immigrants are less likely to be enrolled in school.
Since these effects are not driven by the absence of immigrant retirees, we shouldn’t expect our conclusion to reverse after tracking a specific cohort of immigrants over time. Indeed, when we do follow the cohort that entered from 1990 to 1993, we find that after three decades, the cohort was still paying far more in taxes than they received in benefits, and that the fiscal gains had grown over time. In total, this cohort reduced the deficit by $1.7 trillion.
Our paper also concludes:
- Without the contributions of immigrants, public debt at all levels would already be above 200 percent of US GDP—nearly twice the 2023 level and a threshold some analysts believe would trigger a debt crisis.
- Even low-skilled immigrants—those without bachelor’s degrees—reduced the debt by $2.8 trillion.
- Immigrants in all categories of educational attainment, including high school dropouts, lowered the ratio of deficit to gross domestic product (GDP) during the 30-year period.
- Illegal immigrants likely reduced the deficit by at least $1.7 trillion.
- Even including the second generation, who are mostly still children who will become taxpayers soon, the fiscal effect of immigration was positive every year, reducing the debt by $7.9 trillion.
The table at the end of this post provides the effects on the deficit-to-GDP by educational attainment and citizenship status.
Concluding Thoughts
Overall, the main conclusion of our paper is that there is nothing systematically wrong with US immigration policy regarding the fiscal effects of immigrants. There is nothing unsustainable about the US immigration system. We could have scaled immigration as it existed without burdening government budgets. For years, nativists in Congress and the administration have wrongly claimed that immigrants are behind the growth in debt and that the US immigration system allows foreigners to take advantage of Americans’ generosity. Our data completely repudiates this view. Immigrants are subsidizing the US government.
The best way to balance the budget is to reduce spending—particularly on wealthy retirees—but rather than hinder our efforts to control deficits, immigrants are helping.
You can read the entire study here: Immigrants’ Recent Effects on Government Budgets: 1994–2023