CBO Estimates the Senate Immigration Bill

Yesterday, the Congressional Budget Office released two analyses, a cost estimate and an economic analysis, of the Senate's immigration bill -- S.744, the Border Security, Economic Opportunity, and Immigration Modernization Act. The score is good news for immigration proponents, as CBO expects the bill would decrease deficits and boost economic growth. 

CBO's cost estimate for the immigration bill is more complex than its usual cost estimates, in that it is partially macrodynamic. As the CBO explained a little over a month ago, it breaks its normal scoring convention to incorporate the effects of a sizable increase in the labor supply into its estimates.  While employing dynamic effects is rarely practiced, in this case it is necessary because the changes in the labor supply and overall economy would be significant enough that excluding those factors would produce very different results for cost estimates. The Senate bill, CBO determines, would increases the labor supply by approximately 10.4 million people, not including the nearly 8 million illegal residents who would gain citizenship if the bill was passed. However, CBO's estimate does not incorporate changes in productivity, savings rates, and many other economic effects. CBO's methodology broadly mirrors the approach it took to score the 2006 immigration reform proposal.

CBO estimates the legislation would decrease deficits by $197 billion over 2014-2023. Under the same time frame, spending would increase by $262 billion, mostly from increases in refundable tax credits and health care outlays. However, the rise in employment and wages would increase revenue by $469 billion over ten years as a result of greater output and total wages. Not included in the deficit estimates is an expected increase of $22 billion in immigration related discretionary spending, which would require cuts in other areas under the current BCA caps. A greater breakdown of the legislation's impact on specific programs is available in the report.

CBO and JCT produce estimates for the second decade as well, determining that the legislation would decrease deficits by $700 billion over 2024-2033 period. By 2033, the net increase in the labor force would total 16 million.

CBO's economic analysis of the immigration reform bill examines other possible economic changes not incorporated in the cost estimate, such as changes in productivity or relative wages. They expect that the net effect of these other economic effects not included in the cost estimates would not change budget deficits estimates in the first ten years, but are nevertheless interesting to policymakers concerned about how the legislation would affect the wider economy beyond the budgetary effects. Incorporating these other assumptions in a longer-term outlook would further reduce projected deficits, according to CBO.

In summary, CBO expects enacting S.744 would:

• Increase economic growth by 3.3 percent by 2023, and by 5.4 percent in 2033
• Increase the size of the labor force
• Increase average wages in 2025 and beyond (but decrease them before 2025)
• Raise the unemployment rate modestly through 2020
• Increase capital investment
• Increase productivity of capital and labor
• Increase interest rates

As noted above, average wages are projected to be lower for the first ten years if the legislation is passed, but are projected to be higher for the second decade and beyond. Lower short-term average wages are due to the inclusion of many low-wage workers in the population; CBO does not expect the wages of existing workers to fall significantly.

CBO's cost estimate may be a positive development for those seeking immigration reform, but there are many different factors to consider besides the budgetary impact. We will examine the two studies from CBO in more depth very soon -- so keep checking back!