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How the DREAM Act can actually lower the deficit

How the DREAM Act can actually lower the deficit

With a budget bill passed, Congress is back to debating the fate of nearly 3 million Dreamers, or unauthorized immigrants who arrived in the country as children. There is widespread public support for Dreamers and a bi-partisan fix is attainable through the DREAM Act, a bill that would offer Dreamers a pathway to citizenship.

Pro-immigration advocates argue that legalizing Dreamers is humane and just. After all, these youth were raised as Americans, speak fluent English, graduated from American schools, and call no other country home. But lawmakers’ will also consider the economic impacts of the bill.

Opponents of the DREAM Act argue that the bill will be too costly, citing a memo by the Congressional Budget Office. The CBO estimates that passing the DREAM Act will provide conditional residency to 2 million people, increase government spending by $26.8 billion, and generate $0.9 billion in revenue over the next decade. All in all, the CBO concludes that passing the DREAM Act would increase the federal deficit by $25.9 billion over the next 10 years, or an average of $2.6 billion annually.

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Our research shows that the CBO estimates are too pessimistic. Our own calculations suggest that, at most, the federal deficit would increase by a much smaller $0.6 billion per year, and may, in fact, reduce the deficit by $0.7 billion or more per year.

 

The reason our estimate shows larger gains from passing the DREAM Act is that our analysis takes into account something the CBO doesn’t: Obtaining legal status leads to an increased wages and productivity. It is well established that lack of legal status hurts job prospects and leads to lower wages for undocumented workers.

Many undocumented workers end up employed in jobs where their skills are severely underutilized. Undocumented immigrants are stigmatized, living and working under the threat of deportation. These conditions create anxiety, depression and negatively affect the mental health of undocumented individuals and their families, further reducing worker productivity. For these reasons, people who get legal status are likely to have substantially upgraded jobs and see increases in productivity, leading to an increase in GDP and tax revenue

The CBO does recognize that how much Dreamers’ income will change depends on how they respond to the educational incentives in the DREAM Act. The law would incentivize schooling because only high school graduates are eligible for conditional status, and attending college is one of the routes to get permanent residence. 

Ultimately, the economic effects of the DREAM Act will depend on how many more Dreamers finish high school and go to college. According to our analysis, the annual GDP increase will range between $10.9 billion if no high school graduates respond to the increased college incentive, and $18.4 billion if we assume that 1 in 2 of them do. 

By boosting GDP, the DREAM Act will increase tax revenue. CBO forecasts suggest that each dollar increase in GDP translates into 18 cents of federal tax revenue. If that is true, our estimated GDP gains translate into an increase in federal tax revenue of $2 billion to $3.3 billion per year.

Using the CBO’s prediction of a $2.6 billion annual increase in public spending, we forecast changes to the fiscal deficit would range from a $0.6 billion increase to a $0.7 billion decrease. That’s a far cry from the $2.6 billion increase the CBO estimated.

Anti-immigration activists routinely point to the CBO memo to inaccurately depict the DREAM Act as fiscally imprudent. However, these estimates ignore that legal status will allow Dreamers to access better jobs that are more aligned to their skills and encourage educational investments.

This will result in substantial increases in income that will not raise the deficit in any significant amount, and may even help lower it. There is no economic reason to keep stalling a bipartisan deal in Congress. It is time to help American youth achieve their full potential and put their skills to work, regardless of when or how they first stepped onto American land.

Francesc Ortega is and associate professor of economics and Amy Hsin is associate professor of sociology, both at Queens College of the City University of New York.