CBO Offers Little Reason for Anyone to Support S.744

On Tuesday evening, Senator Chuck Schumer (D-NY) came rushing to the Senate floor to announce that the Congressional Budget Office (CBO) had determined that the Gang of Eight amnesty legislation (S.744) would reduce the budget deficit. The report from the CBO, the agency that analyzes how much a bill will cost, had long been anticipated by Senators on both sides of the aisle. And when the CBO first released its analysis Tuesday, pro-amnesty Senators thought it was good news. However, a closer examination shows that the CBO’s analysis actually contains dire predictions for Americans.

First, the CBO estimates that in the first decade after enactment, S.744 would add at least 20 million workers to the U.S. labor force. This includes 10.4 million green card holders, 1.6 million in guest workers and 8 million aliens who receive amnesty. (CBO report, p.1) This estimate reflects a net increase from current levels of immigration, which the bill does not alter and consists of approximately 1.1 million green card holders and 800,000 guest workers each year. Thus, when one looks at the total amount of immigration authorized in the bill, CBO’s analysis actually shows that S.744 will add at least 39 million workers to the U.S. labor force in the decade after enactment.

Having estimated the inflow of people, the CBO turns to a cost/benefit analysis. The CBO’s first projection is that S.744 will reduce the deficit by $197 billion over ten years. (p.2) It estimates that the bill will increase federal spending by $262 billion over the next decade (before illegal aliens begin to qualify for federal means-tested benefits) and that revenue will increase by $459 billion. However, the portion of the additional $459 billion in revenue the CBO estimates will result from taxes paid by illegal aliens actually comes in the form of FICA taxes—i.e. taxes that go to pay for Social Security and Medicare. (p.46) When the tax revenue intended to pay for these programs is taken out, the CBO reports that S.744 will actually INCREASE the deficit by $14.2 billion over the next decade. (p.2)

In the second decade after enactment (2023-2033), the CBO estimates that S.744 will reduce the deficit by about $700 billion. It states that during that decade, spending (almost entirely on benefits for legalized aliens) will increase by $800 billion and that revenue will increase by $1.5 trillion. But here again, once the FICA tax revenue dedicated to funding Social Security and Medicare is taken out, the CBO reports that S.744 will INCREASE the budget deficit by $5 billion during the second decade. (p.54-56) The CBO also fails to account for increased Social Security and Medicare spending in outlying years, despite that fact that some amnestied aliens will begin collecting these benefits ten years after passage of S.744.

Moreover, the CBO’s estimate of revenue is based on an assumption that legalized aliens will receive a 12 percent increase in wages. (CBO Supplemental Report, p.7) The CBO offers no support for this assumption and there is evidence to suggest that it is exceptionally high. First, the bill brings in millions of low-wage workers who will surely drive down wages. Second, the CBO estimates that S.744 will only reduce illegal immigration by 25 percent, allowing the continued flow of illegal workers to put additional downward pressure on wages. Finally, a report issued after the 1986 amnesty determined that legalized aliens only saw a 6 percent increase in wages. (Journal of Labor Economics, 1999, p.1)

But even with the assumption that legalized aliens will experience a 12 percent increase in wages if S.744 is passed, the CBO still estimates that passage of the bill would increase unemployment for at least seven years and cause wages to drop for at least a dozen years. (CBO Supplemental Report, p.4-5)

The news gets worse. While CBO estimates that the gross national product (GNP) will increase by 2.4 percent in the first decade and 4.5 percent in the second decade after enactment, it acknowledges that the per capita GNP will actually decrease by 0.7 percent over the first decade and grow by only 0.2 percent over the second decade. And regarding the estimate for the second decade, even there CBO notes that the per capita GNP may still not recover to the level prior to the bill’s passage, depending on how well the economy performs after 2023. (CBO Supplemental Report, p.14) In short, the bill will add so many workers, that businesses will make more profits, but average Americans will see their personal wealth decline.

Finally, the CBO also acknowledges that the bill does not take into account any spending at the state and local level, which will be substantial. It also acknowledges that S.744 will only decrease illegal immigration by 25 percent over the next ten years.

Thus, in the end, CBO’s analysis is bad news for pro-amnesty Senators. It shows that in return for increased spending, increased deficits, higher unemployment, increased competition for jobs and lower wages, S.744 still does not solve the problem of illegal immigration.