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Each year, families and individuals pay taxes to the government and receive back a wide variety of services and benefits. When the benefits and services received by one group exceed the taxes paid, a distributional deficit occurs, and other groups must pay for the services and benefits of the group in deficit. Each year, government is involved in a large-scale transfer of resources between different social groups.

This paper provides a fiscal distribution analysis of households headed by immigrants without a high school diploma. The report refers to these households as “low-skill immigrant households.” In fiscal year (FY)  2004 there were around 4.5 million low-skill immigrant households in the United States, containing 15.9 million persons, roughly 5 percent of the U.S. population. About 60 percent of these low-skill immigrant households were headed by legal immigrants and 40 percent by illegal immigrants

The analysis measures the total benefits and services received by these “low-skill immigrant households” com­pared to the total taxes paid. The difference between benefits received and taxes paid represents the total resources transferred by government on behalf of this group from the rest of society.

In FY 2004, federal, state, and local expenditures combined amounted to $3.75 trillion. Government expendi­tures can be divided into six categories:

Direct benefits, which include Social Security, Medicare, and a few smaller transfer programs;

Means-tested benefits, including cash, food, housing, social services, and medical care for poor and near-poor individuals;

Public educational services, which include the governmental cost of primary, secondary, vocational, and post-secondary education;

Population-based services, which are government services made available to a general community, including police and fire protection, highways, sewers, food safety inspection, and parks.

These first four categories can be termed “immediate benefits and services.” Entry of legal or illegal immigrants into the U.S. will generally cause expenditures in these categories to rise. Two additional spending categories are:

Interest and other financial obligations resulting from prior government activity, including interest payments on government debt and other expenditures relating to the cost of government services pro­vided in earlier years; and

Pure public goods, which include national defense, international affairs and scientific research, and some environmental expenditures.

Entry of immigrants into the U.S. will generally not cause expenditures in these last two categories to increase, at least in the short term. Therefore, these categories are not included in the calculations on the fiscal burden imposed by low-skill immigrant households presented in this paper.

In FY 2004, low-skill immigrant households received $30,160 per household in immediate benefits and services (direct benefits, means-tested benefits, education, and population-based services). In general, low-skill immigrant households received about $10,000 more in government benefits than did the average U.S. household, largely because of the higher level of means-tested welfare benefits received by low-skill immigrant households.

In contrast, low-skill immigrant households pay less in taxes than do other households. On average, low-skill immigrant households paid only $10,573 in taxes in FY 2004. Thus, low-skill immigrant households received nearly three dollars in immediate benefits and services for each dollar in taxes paid.

A household’s net fiscal deficit equals the cost of benefits and services received minus taxes paid. When the costs of direct and means-tested benefits, education, and population-based services are counted, the average low-skill household had a fiscal deficit of $19,588 (expenditures of $30,160 minus $10,573 in taxes).

At $19,588, the average annual fiscal deficit for low-skill immigrant households was nearly twice the amount of taxes paid. In order for the average low-skill household to be fiscally solvent (taxes paid equaling immediate benefits received), it would be necessary to eliminate Social Security and Medicare, all means-tested welfare, and to cut expenditures on public education roughly in half.

American families often are net tax payers during working age and net tax takers (benefits exceeding taxes) dur­ing retirement. This is not the case for low-skill immigrant households; in these households benefits substantially exceed taxes at every age level. Consequently, low-skill immigrant households impose substantial long-term costs on the U.S. taxpayer. Assuming an average adult life span of 60 years for each head of household, the average lifetime costs to the taxpayer will be nearly $1.2 million for each low-skill household for immediate benefits received minus all taxes paid.

As noted, in 2004, there were 4.5 million low-skill immigrant households. With an average net fiscal deficit of $19,588 per household, the total annual fiscal deficit for all of these households together equaled $89.1 billion (the deficit of $19,588 per household times 4.54 million low-skill immigrant households). Over the next ten years, the net cost (benefits minus taxes) to the taxpayer of low-skill immigrant households will approach $1 trillion.

Current immigrants (both legal and illegal) have very low education levels relative to the non-immigrant U.S. population. At least 50 percent and perhaps 60 percent of illegal immigrant adults lack a high school degree.[1] Among legal immigrants the situation is better, but a quarter still lack a high school diploma. Overall, a third of immigrant households are headed by individuals without a high school degree. By contrast, only 9 percent of non-immigrant adults lack a high school degree. The current immigrant population thus contains a disproportionate share of poorly educated individuals. These individuals will tend to have low wages, pay little in taxes, and receive above average levels of government benefits and services.

Recent waves of immigrants are disproportionately low skilled because of two factors. For years, the U.S. has had a permissive policy concerning illegal immigration: the 2,000-mile border with Mexico has remained porous and the law prohibiting the hiring of illegal immigrants has not been enforced. This encourages a disproportionate inflow of low-skill immigrants because few college-educated workers are likely to be willing to undertake the risks and hard­ships associated with crossing the southwest U.S. deserts illegally. Second, the legal immigration system gives pri­ority to “family reunification” and kinship ties rather than skills; this focus also significantly contributes to the inflow of low-skill immigrants into the U.S.

Understanding of the fiscal consequences of low-skill immigration is impeded by a lack of understanding of the scope of government financial redistribution within U.S. society. It is a common misperception that the only indi­viduals who are fiscally dependent (receiving more in benefits than they pay in taxes) are welfare recipients who per­form little or no work, and that as long as an individual works regularly he must be a net tax producer (paying more in taxes than his family receives in benefits).

In reality, the present welfare system is designed primarily to provide financial support to low-income working families. Moreover, welfare is only a modest part of the overall system of financial redistribution operated by the gov­ernment. Current government policies provide extensive free or heavily subsidized aid to low-skill families (both immigrant and non-immigrant) through welfare, Social Security, Medicare, public education, and many other ser­vices. At the same time, government requires these families to pay little in taxes. This very expensive assistance to the least advantaged American families has become accepted as our mutual responsibility for one another, but it is fis­cally unsustainable to apply this system of lavish income redistribution to an inflow of millions of poorly educated immigrants.

Finally, it is sometimes argued that since higher-skill immigrants are a net fiscal plus for the U.S. taxpayers, while low-skill immigrants are a net loss, the two cancel each other out and therefore no problem exists. This is like a stockbroker advising a client to buy two stocks, one that will make money and another that will lose money. Obvi­ously, it would be better to purchase only the stock that will be profitable and avoid the money-losing stock entirely. Similarly, low-skill immigrants increase poverty in the U.S. and impose a burden on taxpayers that should be avoided.

U.S.immigration policy should encourage high-skill immigration and strictly limit low-skill immigration. In general, government policy should limit immigration to those who will be net fiscal contributors, avoiding those who will increase poverty and impose new costs on overburdened U.S. taxpayers.

Recent proposed legislation in the Senate will do exactly the opposite.[2] By granting amnesty to illegal immi­grants (who are overwhelmingly low skilled) and creating massive new “guest worker” programs that would bring millions of additional low-skill families into the nation, such legislation, if enacted, would impose massive costs on the U.S. taxpayer.

Robert Rector is Senior Research Fellow in Domestic Policy Studies at The Heritage Foundation.

[1] Jeffrey S. Passel, The Size and Characteristics of the Unauthorized Migrant Population in the U.S.: Estimates Based on the March 2005 Current Population Survey, Pew Hispanic Center, March 7, 2006. See also Jeffrey S. Passel, Unauthorized Migrants: Numbers and Characteristics, Pew Hispanic Center, June 14, 2005. Steven S. Camarota, The High Cost of Cheap Labor: The Impact of Illegal Immigration on the Federal Budget, Center for Immigration Studies, August 2004.

[2] The Comprehensive Immigration Reform Act (S.2611), introduced May 2006.