CBO: President’s Immigration Proposal Would Reduce Deficit by $173 billion

President Obama’s Fiscal Year (FY) 2016 budget includes an immigration proposal, based largely on the bill passed by the Senate in 2013, projected to reduce the deficit by $173 billion over the next 10 years, according to the Congressional Budget Office (CBO), which released its macroeconomic analysis of the president’s budget last Friday.

CBO’s projections are largely consistent with the Bipartisan Policy Center’s (BPC) analysis of the economic effects of comprehensive immigration reform, which estimated that the 2013 Senate bill would decrease the budget deficit by $180 billion over 10 years—and by $990 billion over 20 years. BPC’s most recent report found positive, but smaller, potential budget improvements from so-called “piece-by-piece” immigration reform, now viewed as a more viable approach, with $100 billion in savings over 10 years from balanced proposals that included E-Verify, legalization, temporary worker programs and high-skilled immigration reforms.

“Our research clearly shows—and CBO’s analysis agrees—that immigration reform combining enforcement, a path to legalization, and updates to the legal immigration system provides a significant boost to the U.S. economy,” said Theresa Brown, BPC’s director of immigration policy. “That basic fact holds whether reform is done through a comprehensive bill or a series of smaller bills.”

According to CBO, the president’s FY 2016 proposal would increase the U.S. population by around 11 million over the next decade, expanding the labor force and boosting employment. This would, in turn, increase gross national product, defined as the amount of goods and services produced within the country’s borders. The proposal could also increase productivity by up to 1.4 percent by 2025, largely due to an increase in high-skilled immigration, which can spur technological advancement.

The president’s immigration plan largely echoes the bipartisan Border Security, Economic Opportunity, and Immigration Modernization Act, the comprehensive immigration reform bill that passed the Senate in 2013 but was not taken up by the House of Representatives. The bill contained a plethora of immigration reforms, including a pathway to citizenship for undocumented immigrants, an expansion of the high-skill visa program, and ramped-up border enforcement.

In 2013, CBO estimated that the Senate bill would reduce the deficit by $158 billion over 10 years. This new, larger projection of $173 billion may in part be the result of changes that CBO made to its baseline estimates. These changes include the effects of the Obama administration’s 2014 executive action on immigration, which deferred deportation proceedings for childhood arrivals and undocumented parents of U.S. citizens. Those programs are currently on hold due to a court challenge filed by 26 states in federal court in Texas.

It must be noted that CBO’s projections are not entirely rosy, as the report states that the president’s proposal would increase the cost to the federal government of financing its debt. The boost in labor supply would lead to an increased rate of return on capital investment, meaning that the federal government would be forced to pay higher interest rates on its debt securities, as it competes for investment with the private sector.¹

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¹ Economic theory states that economies are composed of labor and capital. Growth in labor supply means that the existing capital stock becomes increasingly scarce. This increases the productivity of each unit of capital and leads to higher returns.