The redoubtable Tyler Cowen of Marginal Revolution has posted a bullet of policy items he's like to see implemented in Bush's second term (assuming Bush gets reelected). One of Tyler's items concerns immigration and, practical economist that he is, Tyler argues for the benefits of immigrants who pay more in taxes than they receive in benefits.
7. Take in more immigrants, but demand higher levels of skills and education. At the very least, take in any revenue-positive immigrant.
A thought occurs to me: We are so far in the hole with tens of bllions of unfunded liabilities that under current entitlements rules most US citizens are currently scheduled to get more in benefits than they paid in taxes in the course of their working lives. Let us leave aside for the moment the fact that this can not work and that a financial train wreck looms in our future.
What I'm wondering is just how high would a native born person's yearly average or total working life income have to be for that person to be truly revenue-positive after retiring and having Social Security and Medicare paid for them until they die? Has anyone ever tried to calculate the answer to that question? Is the average medical doctor revenue-positive? The average lawyer? (leaving aside the externalities some of them cause) The average truck driver? The average welder? You get the idea.
Granted, all sorts of assumptions have to be made. We could assume, for example, that a person was never jailed and never collected welfare. Of course, if someone was jailed for some years they'd have to make much larger sums after release to pay back the cost of jailing plus the lost taxes on wages not collected while they are in jail.
The same question can be asked about immigrants. For immigrants the picture is more complicated. One who arrives at age 18 wasn't educated at taxpayer expense for grade school and high school for example. But the later they arrive in adulthood the less total they will pay in taxes. So there is obviously an ideal age of entry and skill level and type of education.
I can not offer a model and a set of calculations for how to determine who is "Revenue Positive" and who isn't. But think about some basic numbers. One estimate for the size of the unfunded US Social Security and Medicare liabilities is over $70 trillion. Another estimate puts it at $50 trillion. But that estimate probably doesn't take full account of the new drug benefit. That is a huge unfunded liability that is in need of some solutions that will reduce its size. As Alex Tabarrok has pointed out " demographics are the problem not the solution". But could a radical change in immigration policy at least make future immigration part of the solution?
Well, here's a step in the direction of an analysis of who pays more in taxes than they get in benefits. First off, consider the $70 trillion in unfunded liabilities could be divided across about 280 million people in America. The number may he higher than 280 million. But some of those are illegals and are not yet guaranteed to be eligible for Medicare some day. So lets go with 280 is a rough cut on the permanent US population. Well, $70 trillion divided by 280 million is an astounding $250,000 per person. A cool quarter million dollars is needed additional per person to pay current unfunded liabilities.
Any immigrant needs to pay as much as the average American does in taxes over a work career plus an additional $250,000 in taxes in order to be "Revenue Neutral" - and even more in order to be "Revenue Positive". Does that make sense? How much does the average American earn over their lifetime? How much more than that would an immigrant have to earn in order to be "Revenue Positive"?
An immigrant male who brings a foreign non-working spouse with him would have to earn enough and pay enough taxes to pay for both their liabilities. So the working male would need to pay $500,000 more in lifetime taxes than the average American. If that immigrant was taxed an average of 33% on the additional income then the immigrant would have to earn $1.5 million more of lifetime income to pay his and his wife's liabilities. Over a 40 year working career that immigrant would have to have an income that averaged $37,500 more per year than the average American worker. earns. Well, we have millions of immigrants who do not even make that amount total per year, let alone that amount more per year above the average. However a working immigrant couple would have to average only $18,750 each more per year than the average American
Of course tax rates could be raised. But some people never make much money to be taxed in the first place. Even if they worked for 50 years they still couldn't come up with enough extra income to be taxed to yield an additional $5000 per year average in taxes collected. So others will have to pay even more taxes to fund the $250,000 per person in in unfunded liability.
Currently the United States has a per capita GDP of $37,800. If every person could somehow work 7 more years and turn over all the wealth they generated to the government that would be enough to pay the unfunded liabilities. Of course that isn't possible. Aging people become less productive and less able to work. Also, most people are not going to work purely to pay taxes. So delayed retirement. while it would help, would not entirely solve the problem of unfunded liabilities.
General tax rates could be raised. But some people, if taxed at a higher level, would treat the higher taxes as a disincentive to work and would opt to produce less and spend more in leisure time or by performing activities that personally benefit them without generating taxes. For instance, one could work fewer hours at a job, earn less income, and compensate for the lower income by no longer paying for some services. For instance, a person could stop paying a house cleaner and gardener and then do that work one self. This would reduce the amount of taxes collected on activities that used to be performed as a consequence of taxable market transactions. Higher tax rates will reduce the use of services and increase the frequency with which people pursue do-it-yourselfer options.
So how high would the incomes of immigrants have to be in order for those immigrants to pay more in taxes over their working lives than they receive in beneifts while working and after retirement? That is the question we need to answer if we are going to pursue an immigration policy that is a net economic benefit for the American public.
Aside: It occurs to me that it is more expensive for society to jail a high income person (at least if the person has a productive job earning an honest income in addition to whatever got them thrown in jail) than a low income person because the lost of wages and therefore taxes while the person is jailed. For example, what taxes are never collected as a result of putting Martha Stewart in jail? Will we reach a point due to the old age funding crisis that jail sentences will be changed in ways designed to reduce losses from income lost due to incarceration? Will higher income people be given sentences that require them to get out of jail part of the day to go to work and earn taxable income? In the 2010s and 2020s the United States government (like a number of European governments) is going to become desperate for revenue. I would not rule out jail work release programs for high income criminals as one response to the country's financial plight.
|Share |||By Randall Parker at 2004 August 13 02:27 AM Immigration Economics|