Immigration, Social Security, and Broader Fiscal Impacts

Abstract

Population aging and rising health costs will cause dramatic increases in federal expenditures some decades from now (Lee et al., 1999). Rising immigration to the United States may help avert this future crisis by slowing population aging and helping to pay for Social Security and public health care. But many immigrants have low education and high fertility, so their net fiscal impact may be costly rather than beneficial. This paper revisits our earlier analysis of the fiscal impact of immigration (Lee and Miller, 1997), henceforth LM97, in light of higher projected rates of productivity growth, an unexpected increase in the effective federal income tax rate in recent years, and some revisions of the demographic projections. We will emphasize implications for Social Security, and address points raised by the recent literature (Holger Bonin et al., 1998; George Borjas, 1999; Alan Auerbach and Philip Oreopolis, 2000; Kjetil Storesletten, 2000).