CBO

TESTIMONY

Statement of

Paul R. Cullinan

Chief, Human Resources Cost Estimates Unit

The Budgetary Impact of Current and

Proposed Border Security and

Immigration Policies

before the

Committee on the Budget

United States Senate

August 30, 2006

CONGRESSIONAL BUDGET OFFICE

SECOND AND D STREETS, S.W.

WASHINGTON, D.C. 20515

This document is embargoed until it is delivered

at 2:30 p.m. (MDT) on Wednesday, August 30,

2006. The contents may not be published, transmitted, or otherwise communicated by any print,

broadcast, or electronic media before that time.

Mr. Chairman and Members of the Committee, thank you for the opportunity to

appear before you to discuss the budgetary and economic effects of immigration

and border security policies.

Following are the major points I would like to make today:

B Immigration reform and border enforcement could have significant effects on

federal spending and revenues. For example, the Congressional Budget Office

(CBO) and the Joint Committee on Taxation (JCT) estimate that if S. 2611, the

Comprehensive Immigration Reform Act of 2006, was enacted with certain

technical changes, federal spending for mandatory programs would rise by

$48 billion over the next 10 years and revenues would climb by $44 billion.1

In addition, CBO estimates, implementation of S. 2611 would require roughly

$81 billion in additional appropriations over the 10-year period, resulting in

$78 billion in added outlays.

B Changes in immigration policy could have measurable effects on labor markets

and the economy. In CBO’s estimation, S. 2611 would increase economic

growth but only by a small degree.

B A rise in immigration could improve the financial outlook for the Social Security system, but if the magnitude of such an increase was similar to that foreseen

in recent legislation, its effects would not avert the projected funding shortfall

in the program’s long-term outlook.

B Tightening border security and enforcing employment eligibility verification

more stringently would require future Congresses to allocate significantly

greater resources to those activities than have been provided in recent years.

Overview of S. 2611 and H.R. 4437

Before addressing the major points outlined above, it may be useful to compare the

two immigration bills that have been passed by the House and the Senate (see

Table 1). The House bill, H.R. 4437, focuses on border security and employment

eligibility verification. The Senate bill also addresses those issues but in addition

would make major changes in the avenues for legal immigration and would authorize additional funding for immigration and customs personnel, detention facilities, and workplace compliance staff. Further, S. 2611 would establish a process

for many of those who currently work illegally in the United States to adjust their

status to remain in the country legally.

1. The technical changes would affect subsection 601(b) of the act, which provides an exemption

from criminal and civil tax liabilities for employers that hire workers who have applied to have

their legal status changed. JCT estimates that the act as written would reduce payroll and

income tax revenues by $80.3 billion over the next 10 years. The act as intended, according to

the description by Judiciary Committee staff, would increase such revenues by $41.9 billion, in

JCT’s estimation. CBO’s estimate of the revenues from fines, penalties, and fees ($1.7 billion)

is unaffected by that drafting issue.
2

Table 1.

Comparing Major Elements of the House and Senate

Immigration Bills

Continued

Provisions 

Affecting: H.R. 4437 S. 2611

Border Enforcement Additional personnel and other 

resources at ports of entry; 730 

miles of fencing

Additional personnel and 

resources at ports of entry; 

additional border patrol agents; 

420 miles of fencing and 700 miles 

of vehicle barriers 

Alien Detention Reimbursements to state and 

local governments for costs of 

detaining aliens

Reimbursements to state and local 

governments for costs of 

detaining aliens; acquisition of 

additional space for detention of 

not less than 20,000 aliens

Other Immigration 

Enforcement

Broadened coverage of the 

definition of alien smuggling; 

upgraded penalty for illegal 

presence; stiffened penalties 

for repeat offenders 

Broadened coverage of the 

definition of alien smuggling; 

upgraded penalty for illegal 

presence; stiffened penalties for 

repeat offenders 

Employment Eligibility 

Verification and 

Compliance

Mandatory employment 

eligibility verification of new 

employees by all employers, to 

take effect two years after 

enactment; eligibility 

verification of all other 

employees within six years 

after enactment

Mandatory employment eligibility 

verification by all employers, to 

take effect 18 months after the 

appropriation of at least $400 

million; eligibility verification of 

critical employees to take effect 

immediately

Guest-Worker Program None Admission of a maximum of 

200,000 guest workers (plus their 

dependents) annually

Employer-Sponsored 

and Family-Based Visas

No change Increase in employment-based 

visas from 140,000 to 450,000 

annually plus carryover for 2007 

to 2016 and an increase to 

290,000 plus carryover thereafter; 

imposition of a cap of 650,000 on 

new employment-based visas; 

increase in family-based visas 

from 226,000 to 480,000 annually 

plus carryover; exemption of 

certain highly educated workers 

and others from annual numerical 

limits
3

Table 1.

Continued

Sources: Congressional Budget Office; Congressional Research Service.

Federal Budgetary Effects of Immigration Policies

The effects of immigration policies on the federal budget are complicated and uncertain. The complexity stems from the myriad aspects of immigration—legal immigration, illegal immigration, and emigration—which interact in multiple ways.

(Other entrants to the United States, such as asylees and refugees, involve a largely

different set of considerations.) Moreover, an understanding of the issues relating

to illegal immigration is limited by the obvious difficulty of obtaining reliable

information from a portion of the population that has an incentive to remain

uncounted.

The uncertainty surrounding assessments of the budgetary impact of proposed immigration policies relates to several factors. First, the lack of reliable information

means that estimates of even near-term budgetary effects are highly uncertain.

Second, the hard-to-predict behavior (of both immigrants and potential employers)

makes it extremely difficult to project economic and budgetary effects over the

long term with much confidence. Third, the way changes in the administrative and

enforcement procedures associated with some of the proposed policies are implemented can strongly influence the policies’ effects on the economy and the budget.

Provisions 

Affecting: H.R. 4437 S. 2611

H-1B Visas No change Increase from 65,000 to 115,000 

annually; formula to allow cap to 

fluctuate in future years

Legalization for 

Undocumented 

Workers

None Authorization to allow certain 

undocumented workers (and their 

dependents) who have been in the 

United States for more than five 

years to adjust their status; 

authorization to allow those who 

have been here from two to five 

years to qualify for deferred 

mandatory departure status and 

to apply for the guest-worker 

program

Legalization for 

Undocumented 

Agricultural Workers

None Creation of a “blue card” program 

for up to a total of 1.5 million 

agricultural workers (plus their 

dependents)
4

Immigrants are drawn to the United States for a variety of reasons, including opportunities for employment, the reunification of families, and, perhaps, access to

certain services. The rewards for many potential immigrants are sufficient to encourage a substantial number of them to enter this country illegally (or to exceed

the stays granted in temporary visas) when legal avenues to entry and employment

are limited.

CBO’s review of the research on immigration found that over the long term, immigration tends to affect federal finances positively and state and local finances negatively. Evaluating immigration’s net effect on the federal budget is complicated

by the fact that immigrants generally differ from native-born people in a variety of

ways. For example, immigrants tend to have lower earnings than native-born

workers do, so they may generate less tax revenue and receive more benefits from

needs-based programs such as Medicaid and Food Stamps. Immigrants also tend

to have more children than their native-born counterparts do—meaning that in the

short run, they may create more demand for public education and other programs

aimed at children but in the long run leave more descendants—who in turn pay

taxes and receive government services. Another factor that affects budgetary impact is the skill level of new workers. Policies that provided more access for lowerskilled workers would yield less favorable results for the federal budget than those

focusing on higher-skilled workers.

Emigration also helps determine how immigration policies affect the federal budget. Workers who leave the United States before earning the quarters of coverage

required to qualify for Social Security and Medicare receive no benefits from

those programs unless their home country has a so-called totalization agreement or

treaty with the United States. Thus, many workers who return to countries that

have no such arrangements pay U.S. federal taxes but receive no benefits.

CBO and JCT recently estimated the effects on the federal budget of enacting

S. 2611. Over the next 10 years, mandatory (direct) spending would increase by

$48 billion, according to the two agencies, with more than half of those costs attributable to refundable tax credits (see Tables 2 and 3). If the act was implemented as it was intended to be, it would also raise revenues—mostly payroll and

income taxes—by about $44 billion over the same period. In addition, CBO estimates, implementation of S. 2611 would require roughly $81 billion in additional

appropriations over the 10-year period, resulting in $78 billion in added outlays.
5

Table 2.

Summary of Estimated Budgetary Effects of S. 2611 as

Passed by the Senate

(Billions of dollars, by fiscal year)

Sources: Congressional Budget Office; Joint Committee on Taxation.

Notes: Numbers may not add up to totals because of rounding.

For changes in direct spending, estimated budget authority would be equal to estimated 

outlays.

* = less than $50 million.

Cost estimates provided by CBO and JCT cover only the next 10 years. However,

the budgetary effects of legislation that changed the level and composition of net

immigration in this country would last for decades. The legislation’s impact on

mandatory spending in the first 10 years after enactment would be constrained by

the restricted access to federal benefit programs that now applies to people who

have fewer than five years of legal permanent resident status. For example, under

S. 2611, most of the additional Medicaid spending over the next 10 years would

result from emergency medical assistance and full Medicaid benefits for children

of the new immigrants who had been born in the United States. Eventually, immiTotal,

2007–

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016

-1.8 -1.4 5.9 5.9 5.8 4.6 4.9 5.6 6.2 7.4 43.3

 * 0.1 0.3 0.4 0.5 0.5 0.7 0.8 0.9 1.1 5.2

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

Total -1.8 -1.2 6.2 6.3 6.3 5.2 5.6 6.4 7.1 8.5 48.4

-1.4 1.7 -5.4 -8.4 -8.1 -3.8 -2.9 -2.3 0.1 1.6 -28.9

-4.3 -8.3 -9.9 -9.5 -8.0 -6.2 -5.0 -3.9 -0.1 5.6 -49.6

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____

Total -5.7 -6.7 -15.3 -17.9 -16.0 -10.0 -8.0 -6.2 * 7.2 -78.5

10.3 5.6 5.8 7.2 8.3 9.3 7.6 8.2 8.9 9.5 80.8

3.7 6.3 7.6 7.3 8.3 9.1 9.2 8.9 8.7 9.3 78.3

-0.8 3.3 -3.2 -6.2 -6.0 -1.9 -1.2 -0.7 1.3 2.0 -13.6

-0.9 1.8 4.5 5.7 6.4 7.0 7.5 7.7 8.4 9.1 57.2

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

Total -1.8 5.1 1.3 -0.5 0.3 5.0 6.3 7.1 9.6 11.1 43.6

Off-budget

Estimated Outlays

Memorandum:

On-budget

Estimated Revenues

On-budget

Off-budget

Estimated Level of

Authorizations

Changes in Spending Subject to Appropriation

Changes in Revenues Based on the Act's Intent as Conveyed by Staff

Estimated Revenues

Off-budget

On-budget

Changes in Direct Spending

Changes in Revenues

Estimated Outlays
6

Table 3.

Estimated Effects of S. 2611, as Passed by the

Senate, on Direct Spending by Program

(Outlays in billions of dollars, by fiscal year)

Sources: Congressional Budget Office; Joint Committee on Taxation.

Notes: Numbers may not add up to totals because of rounding.

* = costs or savings of less than $50 million.

a. Refundable tax credits include the outlay portion of the earned income and child tax credits.

grant families with limited income and resources would become eligible for full

Medicaid coverage in most states, boosting spending for the program. However,

the revenue gains under the legislation would probably also be greater beyond the

10-year period, as the new workers became more experienced (and earned higher

wages) and their offspring entered the labor market.

Long-Range Effects on Social Security Financing

Although immigration policy could have significant implications for the finances

of the Social Security program, the effects of the changes embodied in S. 2611 or

similar bills would not eliminate the funding pressures on the program in coming

decades. Under S. 2611, additional workers would be allowed to work legally in

the United States, boosting both payroll taxes and benefit payments of the Social

Security system. The net impact of those workers would depend on their characterTotal,

2007-

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016

* 1.3 3.1 3.7 3.7 2.7 2.6 2.6 2.3 2.5 24.5

0.1 0.2 0.5 0.6 0.8 1.0 1.4 1.8 2.3 2.9 11.7

* 0.1 0.3 0.4 0.5 0.5 0.6 0.8 0.9 1.0 5.2

0 0 * 0.1 0.3 0.4 0.5 0.6 0.8 0.9 3.7

* * * 0.1 0.1 0.2 0.3 0.4 0.6 0.7 2.4

* 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 1.3

* 0.1 0.1 * * * * * * * 0.4

* * * * * * * 0.1 0.1 0.1 0.3

0 0 0 * * * * * 0.1 0.1 0.2

* * * * * * * * * * 0.1

-1.9 -3.0 2.1 1.3 0.8 0.1 -0.1 -0.1 -0.1 -0.1 -1.2 ____ ____ ___ ___ ___ ___ ___ ___ ___ ___ ____

Total -1.8 -1.2 6.2 6.3 6.3 5.2 5.6 6.4 7.1 8.5 48.4

On-budget -1.8 -1.4 5.9 5.9 5.8 4.6 4.9 5.6 6.2 7.4 43.3

Off-budget * 0.1 0.3 0.4 0.5 0.5 0.6 0.8 0.9 1.0 5.2

Food Stamps

Child Nutrition

Refundable Tax 

Medicaid

Social Security

Creditsa

Insurance

Compensation for

Error

Supplemental Security

Income

(Off-budget)

Medicare

Unemployment 

Student Loans

Visa Fees
7

istics (such as age, educational attainment, health status, and earnings capacity)

and those of their families.

The Social Security Administration and CBO have both constructed computer

models of Social Security’s finances, and when increases in immigration are simulated in the models, the program’s finances generally show improvement because

additional revenues are collected before new benefit payments are made. The 2006

report of the Social Security trustees indicated that an increase of 400,000 people

in annual net immigration would improve the actuarial balance of the program by

0.26 percent of taxable payroll, or about one-eighth of the program’s estimated

75-year shortfall.2 CBO’s simulations yielded similar results. The Social Security

Administration’s Office of the Chief Actuary estimated that under S. 2611, the

75-year shortfall would be reduced by 0.13 percent of taxable payroll.3

The estimated effects that changes in immigration policy would have on Social Security’s finances are sensitive to the nature of those changes. The initial revenue

gains would be smaller, for example, if the new immigrants earned less than previous cohorts of immigrants covered under Social Security. The additional benefits

paid would also be less—but not quite proportionately, because of the program’s

progressive benefit formula. In addition, if the policy changes affected undocumented workers (and their employers) who had already paid Social Security taxes,

a change in their status would put them on track to eventually receive benefits

but with no commensurate gain in revenues—thereby worsening the system’s

finances. S. 2611 would increase both the number of less-skilled workers legally

employed in the United States (through the guest-worker program and a larger

share of green cards for that category of workers) and the number of higher-skilled

workers (through the expansion of employment-based visas and the exclusion of

highly educated immigrants from numerical limits).

Potential Macroeconomic Effects

Immigration reform and border security enhancements could affect the economy

in a variety of ways. Some of those effects might be felt broadly, throughout the

country, whereas others might be concentrated in certain economic sectors or geographic locales. For example, CBO estimates that S. 2611 would add about

2.5 million employees to the U.S. workforce by 2016, mostly through its guestworker program and higher caps on the number of legal immigrants. The work

performed by those additional employees would increase the production of goods

2. See Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance

Trust Funds, 2006 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (May 1, 2006), available at www.ssa.gov/

OACT/TR/TR06/index.html.

3. Letter to Senator Charles E. Grassley from Steve Goss, Chief Actuary, Social Security Administration, July 24, 2006.
8

and services and raise the level of gross domestic product (GDP), all other things

being equal. Alternatively, tightening border security and enforcing employers’

compliance with immigration laws could slow net inflows of unauthorized workers, which in turn could dampen the growth of the labor force.

Beyond the direct effects on the size of the workforce, legislation such as S. 2611

might affect the economy in other ways. CBO analyzed the economic effects of an

earlier version of S. 2611 (the bill as introduced) under two different assumptions

about how investment might respond to the legislation’s enactment. In CBO’s

estimation, the level of GDP would rise by 0.3 percent to 0.4 percent during the

2007–2011 period and by 0.8 percent to 1.3 percent over the following five years.

Under the Senate-passed version of S. 2611, GDP would increase by a smaller

amount—because the estimated effects of that bill on the number of additional

workers would be about two-thirds as great as the effects estimated for the bill as

introduced.

Those economic effects in turn could affect the budgetary impact of S. 2611. In its

estimate of the bill’s implications for revenues, JCT included the effect of taxes on

wages earned by additional immigrants as well as the effect of reductions in average wage rates stemming from additional workers. CBO had earlier calculated the

additional budgetary impact (for the bill as introduced) of the potential changes in

economic activity and estimated that they could improve the bill’s budgetary impact by about $20 billion to $30 billion over the 2007–2011 period and by about

$60 billion to $130 billion over the 2012–2016 period. Again, the effects for the

act as passed by the Senate would be smaller because of that bill’s more modest

impact on the labor force.

Border Security and Workplace Compliance with

Immigration Laws

Slowing the flow of illegal immigration and ending the employment of undocumented workers would require substantial increases for many years in spending

for border security and workplace compliance activities. However, unless those

activities were well designed and coordinated, the allocation of additional funds to

such efforts would not achieve policymakers’ objectives.

In recent years, funding for border security has risen sharply, but it has not kept

sizable numbers of illegal migrants from entering the country or many legal migrants from overstaying their visas. Although the United States has nearly doubled

the number of its border patrol agents over the past decade, a large flow of immigrants continues to enter the United States illegally. Moreover, a recent study by

the Pew Hispanic Center estimated that roughly 40 percent to 50 percent of people

who are now here illegally entered the country by legal means. The center’s most

recent estimate of the number of people residing in the United States without legal
9

authorization was 11.1 million for March 2005, an increase of 800,000 above its

estimate for the previous March and a rise of 2.7 million since April 2000.

S. 2611 and H.R. 4437 would each authorize increased funding for additional border enforcement (including fencing and other physical barriers), detention facilities, and port security. The Senate bill would also significantly boost the number of

border patrol officers as well as add immigration and customs officials away from

the borders. Although those additional resources could be expected to impede the

flow of illegal entrants to this country as well as increase the apprehension of those

residing here illegally, people who wished to obtain work in the United States

could still find many other ways to gain access. Moreover, enhanced border security could have certain unintended results. For example, the emigration of illegal

workers could become more infrequent. Those workers might be less likely to

leave if they knew that it had become more difficult for them to reenter the

country.

Enforcement of employment eligibility verification is the other major avenue for

addressing both immigration and border security concerns. To most observers, it is

clear that higher wages are a powerful incentive that encourages workers to cross

U.S. borders illegally. If employment eligibility verification, employer sanctions,

and workplace compliance were all toughened, the economic returns from illegal

immigration could be substantially reduced. In other words, if employers in this

country became less willing to risk fines and other penalties associated with hiring

illegal workers (or workers with questionable identification), the reduction in employment opportunities for illegal immigrants would lessen the economic rewards

for entering or staying illegally.

Congressional Budget Office Publications on

Immigration

The following CBO publications are available in a special collection on CBO’s

Web site at www.cbo.gov/publications.

S. 2611, Comprehensive Immigration Reform Act of 2006, Cost estimate of the bill

as passed by the Senate on May 25, 2006 (August 18, 2006).

Projections of Net Migration to the United States (June 2006).

S. 2611, Comprehensive Immigration Reform Act of 2006, Letter to the Honorable

Jeff Sessions providing additional detail on the cost estimate for S. 2611 as introduced on April 7, 2006 (May 24, 2006).

S. 2611, Comprehensive Immigration Reform Act of 2006, Cost estimate of the bill

as introduced on April 7, 2006 (May 16, 2006).

Immigration Policy in the United States (February 2006).
10

Global Population Aging in the 21st Century and Its Economic Implications

(December 2005).

“The Impact of Immigration on the Long-Term Budget Outlook,” Box 1-2 in The

Long-Term Budget Outlook (December 2005).

The Role of Immigrants in the U.S. Labor Market (November 2005).

Remittances: International Payments by Migrants (May 2005).

A Description of the Immigrant Population (November 2004).