Immigration Debate Demands Welfare Reform

​After yesterday's post about the immigration debate, I believe there is another key takeaway from this battle of ideas: welfare reform.

Here is an excerpt from the Executive Summary by Robert Rector, the author of the Heritage Foundation's report:
The governmental system is highly redistributive. Well-educated households tend to be net tax contributors:The taxes they pay exceed the direct and means-tested benefits, education, and population-based services they receive. For example, in 2010, in the whole U.S. population, households with college-educated heads, on average, received $24,839 in government benefits while paying $54,089 in taxes. The average college-educated household thus generated a fiscal surplus of $29,250 that government used to finance benefits for other households. 
Other households are net tax consumers: The benefits they receive exceed the taxes they pay. These households generate a “fiscal deficit” that must be financed by taxes from other households or by government borrowing. For example, in 2010, in the U.S. population as a whole, households headed by persons without a high school degree, on average, received $46,582 in government benefits while paying only $11,469 in taxes. This generated an average fiscal deficit (benefits received minus taxes paid) of $35,113. 
The high deficits of poorly educated households are important in the amnesty debate because the typical unlawful immigrant has only a 10th-grade education. Half of unlawful immigrant households are headed by an individual with less than a high school degree, and another 25 percent of household heads have only a high school degree... 
...Over a lifetime, the former unlawful immigrants together would receive $9.4 trillion in government benefits and services and pay $3.1 trillion in taxes. They would generate a lifetime fiscal deficit (total benefits minus total taxes) of $6.3 trillion. (All figures are in constant 2010 dollars.) This should be considered a minimum estimate. It probably understates real future costs because it undercounts the number of unlawful immigrants and dependents who will actually receive amnesty and underestimates significantly the future growth in welfare and medical benefits.
Although my previous post and much of the debate has been over the report's scoring (static vs. dynamic) of the future costs and benefits of amnesty (or something similar). Welfare reform is another debate that this study should bring to the forefront. Not only are Americans becoming more dependent on the federal government, but future generation of Americans, whether they are natural born or immigrants, appear likely to continue this fiscal burden. The following figure shows the increasing government burden from the rise in the number of individuals on welfare programs:


Source: WSJ
As I noted in a previous PolicyMic article, both parties should start welfare reform now before these liabilities (continue to) explode our federal budget, crowd out public programs many agree upon, and reduce the private funds available for investments that lead to rising productivity and standards of living (these funds will be needed to finance the government's deficits).

In other words, it appears that the debate over the Heritage Foundation's report is primarily on underestimating the economic benefits of immigration reform from not using a dynamic analysis, whereby more immigrants might lead to a faster growing economy and changes throughout our dynamic economy; however, the analysis may also underestimate the fiscal costs if welfare is not reformed.

Another concern about immigration reform, which is related to welfare reform, is that firms may favor foreign workers because of the lower wages and benefits they can pay those workers. To understand the added incentives in place for firms to hire these workers, a good place to start may be to investigate government policies (e.g. subsidizing firms who hire foreign workers, federal minimum wage law, tax breaks for hiring certain workers, etc.) and market distortions from other areas (e.g. union wages). These market disturbances generally keep American workers' wages higher than what would exist in a free market and generate more demand for non-American workers. A free market would allow the signals to provide the best job candidate, no matter if they are domestic or foreign workers, to be offered the job based on their productivity, skill set, experience, etc. As is too often experienced, this is not always the case.

Of course, blame might be shared with employers. However, if the labor market signals (i.e. wages and profits) are distorted by government policies, how can the market function correctly for workers or employers? Firms, whether big or small, are in business to maximize profits. Some may argue that they should also worry about society's well-being. As noted by Adam Smith, each individual acting in their own best interest provides for the interest of society. Firms that are more profitable will remain in the market as others exit. Why are these firms more profitable? It could be because their product is more in demand and/or they are able to budget their costs more efficiently.

With high wages by American workers compared with foreign workers, there are incentives (welfare) in place for American firms to hire foreign or undocumented workers to hold down their production costs. How should we solve this problem? It appears that the answer may be found by allowing markets to send the correct signals without interference. This would mean fewer welfare programs for individuals, fewer subsidies and tax breaks for firms, and fewer government policies in general. Unfortunately, some seem to believe that there should be more government intervention to solve these problems, when many of the problems come from their current policies. 

The current immigration debate is an excellent opportunity to discuss the economic, fiscal, and social costs and benefits of immigration, which should include a discussion about welfare reform. In my opinion, we should try the free market (for once) and stop stifling individual liberty and economic prosperity from too many rules and regulations by government officials who think they know better than you.