Introduction

As illegal immigration has increased dramatically over the last two decades, so has concern about its impact on American taxpayers. While other consequences are clearly important, the fiscal impact of illegal immigration is at the center of the ongoing debate. Surprisingly, few studies have attempted to measure the total fiscal effect of illegal immigration on the United States. Several studies have focused on all immigrants, making no distinction by legal status, and other researchers have examined either the costs imposed by illegals or the tax payments they make, but not both together. Most of this work has focused on the state and local level, giving little or no attention to the federal government. Focusing on the federal government, this study attempts to answer two related questions: First, what effect do illegal aliens have on the fiscal balance (all taxes paid minus all services used)? Second, what would happen to the fiscal balance if illegal aliens were legalized?

Why Study the Fiscal Impact of Illegals?
Concern over illegal immigration ranges from national security and the rule of law to the risk would-be illegals take to enter the country and their well-being once here. But the fiscal effects are a key part of the issue. In fact, much of the public's anger over illegal immigration stems from the belief that illegals are a drain on taxpayers. Past policy responses to illegal aliens, such as barring them from welfare programs, were also driven by the desire to minimize fiscal costs. Thus, determining the actual fiscal impact of illegal immigration is critically important to formulating a policy response to illegal immigration.

The Fiscal Equation. Simply by living in the United States, illegals unavoidably impose some costs on government. Like all people, illegal aliens enroll their children in public schools, drive on the roads, and engage in a host of other activities that necessarily cost government money. They also unavoidably pay taxes. Even when they are paid "off the books," they still pay excise and other types of taxes to the government. So the fact that illegal aliens cost public coffers money does not necessarily mean they are a net drain. Conversely, the fact that illegals pay taxes does not necessarily mean that they are a fiscal benefit. At least with regard to fiscal considerations, the key question is the balance between the taxes they pay and the services they use. This study attempts to estimate both their tax payments and costs in order to determine their net fiscal impact at the federal level.

Importance of Current Fiscal Impact. Almost all observers agree that illegal immigration is a problem. The fiscal impact of illegal immigration has enormous bearings on the question of what to do about illegal immigration. While employers may want access to immigrant labor, the fiscal costs to taxpayers must be considered. Understandably, employers can be counted on to ignore these costs because they are diffuse, borne by all taxpayers, while the benefit to businesses is obvious. Policy makers, however, must be sensitive to fiscal considerations. If there are net costs, then this could have a significant impact on the availability of public services or the tax burden on Americans. If the costs are very large, then the problem is certainly more urgent. And devoting significant resources to reducing illegal immigration may be justified because doing so would leave taxpayers with a significant net savings. On the other hand, if illegals impose little or no costs on taxpayers, this too should play some role in shaping policy.

Legalizing Illegals. Many politicians have indicated their strong desire to give illegal aliens legal status, but the fiscal implications of amnesty are almost never addressed. Since legalization should significantly change both the amount of taxes illegals pay and the level of services they use, it is absolutely essential to determine how amnesty might change the fiscal balance. If an amnesty would increase the net fiscal costs, then policymakers may want to consider other solutions. If amnesty creates a net fiscal benefit, then legalization might make sense. While factors other than the impact on federal coffers have to be taken into account, by estimating both the current fiscal impact of illegal immigration and the impact of amnesty, this report should provide at least part of an answer to the questions surrounding illegal immigration. Of course, it must be noted that this report does not address the fiscal impact at the state and local level and any complete accounting should examine those areas as well.

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