This is a complicated question that requires us to define “the economy.” Generally, those who say immigrants are a drain on the economy are referring to the myth that immigrants use more in public services than they pay in taxes. In fact the majority of immigrants, being of prime working age and ineligible for many public services, tend to contribute more to the public sector than they actually use. However, many of the services they do tap into are local services (schools, transportation, libraries), and the new wave of immigration coincides with federal cutbacks to these services, placing a greater burden on local governments. (The native born, it should be said, also tend to use more in local services than they pay in local taxes.)
Several state-level studies have tried to assess the level of state and federal taxes that immigrants, documented and undocumented, pay compared to the level of state and federal services that they receive. Early studies in California and in the Southwest as a whole and more recent studies in the Southeast, which is seeing the highest rates of immigrant population growth now, have come to similar conclusions. Immigrants, documented and undocumented, are more likely to pay taxes than they are to use public services. Undocumented immigrants aren’t eligible for most public services and live in fear of revealing themselves to any government authorities. Documented immigrants are eligible for some services—but even they hesitate to use them, since they fear that being seen as a public charge will make it harder for them to stay, apply for citizenship, or bring family members. Nationally, one study estimates that households headed by undocumented immigrants use less than half the amount of federal services that households headed by documented immigrants or citizens make use of.1
There are some government services that both documented and undocumented immigrants do benefit from: public schools, emergency medical care, and the public safety system (e.g., police, prisons). These are known as “mandated services,” which federal authority requires state government to provide to all people, regardless of immigration status.
The only kind of public service that immigrant households use at higher rates than natives is food assistance programs such as food stamps, WIC, and free or reduced-cost school lunches. However, it’s not the immigrants themselves who use this aid—they’re usually not eligible—but rather their U.S.-born children, who are citizens.2
The Georgia Budget and Policy Institute estimates that undocumented immigrants in the state pay between $1,800 and $2,400 a year in state and local taxes, including sales, property, and income taxes (for those who file W-2 forms with false social security numbers). This brings from $200 to $250 million into state and local budgets.
“Do undocumented immigrants pay enough in taxes to cover the services used?” the report asks.
For undocumented immigrants, the answer is unclear. However, for legal immigrants, studies have shown that first-generation immigrants pay more in federal taxes than they receive in federal benefits. The same does not hold true for state taxes and services, however, as first-generation immigrants often use more in services than they pay in taxes. However, the descendants of the first-generation immigrant correct that pattern and contribute more in taxes at both the federal and state level than they consume in services at both levels. Each generation successively contributes a greater share due to increased wages, language skills, and education.3
Similarly, in Colorado undocumented immigrants were found to pay about $1,850 in state and local taxes if they were working on the books, and $1,350 (in sales and property taxes) if they were working under the table. Thus the estimated 250,000 undocumented immigrants in that state were paying $150 to $200 million in state and local taxes, covering about 70 to 85 percent of the approximately $225 million they used in state and local services.4
If immigrants don’t make heavy use of social services and they do pay taxes, then why don’t their taxes cover all of, or more than, the services they do use? Mostly because they earn such low wages that their tax payments are lower than those of people who earn higher wages. Low wages mean that less is withheld for income taxes, and it means that they have less money to spend, so they pay less in sales and property taxes than people who earn more. In fact, our progressive system of income taxes is designed to take a greater chunk of the income of a high earner than a low earner. So if immigrants are paying less, it’s because they’re earning less.
A Florida study found similar results: new immigrants tend to have lower levels of education and lower earnings—and thus pay less in taxes—than the U.S. population as a whole. Within fifteen years, immigrants’ earnings—and their taxes—have caught up.5
Since the 1990s, economists have started to use a more complex model for evaluating the effects of immigration with respect to taxes and public services. Instead of just looking at the cost of educating the children of immigrants, for example, they also look at the potential future tax revenues of those children. This approach, called “generational accounting,” is based on the notion that when government spending exceeds tax revenues—that is, when the government operates at a deficit, as is currently the case—future generations essentially have to pay back the debt. So the numbers of new immigrants in future generations will affect how the costs of the debt are distributed—more immigrants means less burden on the native born.6
From the perspective of businesses, employing immigrant workers, and workers in other countries, brings some special advantages. Again, a comparison to slavery is enlightening. Slaveholders generally preferred to purchase slaves of prime working age and strength. They discovered that it was cheaper to continually import new slaves and overwork them to death rather than having to pay for the reproduction of their slave labor force. Brazilian slaveholders found that they could recover the cost of purchasing a slave with two years of harsh labor, so that any amount of time that a slave survived after that was pure profit. The average was three more years—and the profit could then be used to buy a new slave worker.
When the slave trade was abolished—at the beginning of the nineteenth century in the United States, much later in the century in Brazil and Cuba—slaveholders had to shift their strategies. In order to maintain a slave population, they had to foster reproduction. This meant that they had to invest more in their existing slaves. They had to provide for children who were too young to work, and for the women or elders who cared for the children. They had to increase the level of subsistence so that slaves would not die within five years.
Immigration and outsourcing (moving production abroad) fulfill the same logic, from the perspective of businesses. The New Deal social compact put the burden on businesses to give back to their workers, and to society, in order to support the reproduction of the labor force. Wages, benefits, and taxes were all ways in which businesses contributed to social reproduction.
If businesses could find a new source of workers that was reproduced outside of the United States and the New Deal social compact, however, they could save money. If a worker is born and raised in Mexico, works for a U.S. enterprise (either in Mexico or in the United States) between the ages of twenty and forty, then returns to the home community, it is the Mexican family, community, and institutions that bear the costs of reproduction. The U.S. company gets just what the slaveholder got: workers in their prime working years, with no investment in the society that raised them or that will care for them as they age.
Of course some immigrants, even if they originally intended to work for a short time and return home, end up staying. Over time, they lose those special immigrant qualities that make them willing to work for low wages in substandard conditions. In other words, they become more like citizens: they need to work for wages, and in conditions, that will sustain their life here. The opportunities for upward mobility that European immigrants enjoyed may no longer exist, but immigrants do shift in the kinds of jobs they will do, the kinds of conditions they will accept—and the amount of taxes that they pay.
As workers leave the secondary sector—whether because they return home, grow older, or set down roots here—employers remain avid for new immigrants to replace them. A significant exception to the model of economic improvement over time is undocumented immigrants. Unlike “legal” immigrants (refugees, legal permanent residents, and those who become naturalized citizens), whose incomes increase significantly in proportion to their time in the United States, undocumented immigrants tend to remain on the margins of the U.S. economy. Even those who had been in the United States for ten years or more in 2003 had a family income of only $29,900—as compared to natives, whose family incomes averaged $45,900, refugees at $45,200, legal permanent residents at $44,600, and naturalized citizens at $56,500.7
It’s not surprising, then, that 39 percent of undocumented immigrant children live below the poverty line, and 53 percent lack health insurance.8 The results of the 1986 Immigration Reform and Control Act, which granted amnesty to a significant portion of the undocumented population then in the United States, are also clear. Once they achieved legal status, migrants were able to improve their levels of education and income.9 By maintaining arbitrary status differences and excluding millions of people from legal rights, and by ensuring that immigrants will continue to arrive, and that some will continue to be classed as “illegal,” U.S. policies guarantee the existence of a permanent underclass.