IMMIGRATION -- PAINLESS MEDICINE FOR FEDERAL BUDGET SICKNESS Economists and politicians have analysed the federal government deficit every which way. But the most important underlying social change responsible for the deficit -- demography -- seems never to be mentioned. Recognizing that factor would point directly to a painless way to reduce the budget. If people were still dying at the 1900 mortality rate, there would now be no budget deficit, because benefits to the aged would be enormously lower. Or, if couples had continued having children at the fertility rate of the baby boom, the deficit would not exist, or at least would be much lower than it is, and prospects for future deficits would be more rosy. Demography is more than the problem, however. It also can be an immediate and painfree solution. Increasing the rate of immigration would augment the pool of young skilled working persons who pay high taxes and use little governmental services, and hence swell the public coffers. Indeed, immigration offers the only painless solution. All the other options are grim. Raising taxes hurts the taxed individuals and slows the growth of the economy. Privatising social security may reduce the squeeze in the long run, but certainly not in the short run. Cutting other federal programs is political dynamite, even where cutting is thoroughly warranted. And even an excellent waste-reduction campaign would not be nearly enough. Consider the influence of mortality on the deficit. If the proportion of the population that qualifies by age for present-day Social Security, Medicare and other aid to the aged were what it was in 1900, there would be no deficit. For each thousand working persons aged 25-54 in 1900, there were 111 persons 65 and over. In 1988, the corresponding number is 295 persons 65 and over. If there had been only the 1900 number, the $340 billion in aid to the elderly (1985 figure) would only be $128 billion. That is, the payments under these programs would be $212 million less than now, a difference that would wipe out the deficit of $240 billion. On the birth side now: If the baby-boom fertility level of 1957 had prevailed from the 1930's through the 1950's, there would have been perhaps 15 percent more workers aged 25-54 in the late 1980s. This would have meant enough additional taxes being paid to cut the deficit at least by half. At the low level at which the birth rate has now settled, there is no hope that a larger number of working-age persons will eventually come into the labor force to distribute more widely the uncuttable burden of the elderly. And of course the historic reduction in mortality is a great boon to humanity which all people of good will desire to maintain and improve. Admitting people from abroad is the only possible palliative. If immigration had been at the late 1980s level throughout the 1940s through 1970s, the gain to the labor force would have much about the same as if births had been at the baby-boom level. And if immigration had been even half the rate relative to total population that it was before World War I, or had been at twice the 1980s level, there would have been no deficit at all. Immigration's budget benefit to natives stems from the difference in age composition between the native population and that of each immigrant cohort. Immigrants tend to move when they are young and near the start of their work lives. For example, perhaps 4% of immigrants are aged 60 or over, whereas about 15% of the U.S. population is 60 or over. And whereas perhaps 26% of the U.S. population are in the early prime labor force ages 20-39, perhaps 46% of immigrants are in that age bracket. Moreover, even the small number of immigrants who are elderly are not eligible for Social Security. Therefore, each cohort of new immigrants contributes substantially to reduce the Social Security burden of natives, in proportion to its numbers. Must U.S. natives must pay the piper for this benefit from immigrants when the young immigrants get older and themselves receive Social Security? Clearly not, for two reasons. First, the impact of this year's immigrants on Social Security perhaps thirty years from now properly has little weight in the overall economic assessment, because a dollar to be received or paid out in thirty years is worth little now when discounted at even a modest rate. Second and more important: By the time new immigrants retire, they typically have raised children who are then contributing to Social Security and thereby balancing out the parents' receipts, just as with native families. Hence there is a one-time benefit to natives because the immigrants arrive without a generation of elderly parents who receive Social Security. Would a doubling, say, of immigration swamp us? No way. Contrary to the impression given by the anti-immigration lobby groups, in recent decades the country has admitted far fewer immigrants as a proportion of the population than around the turn of the century. As a result, only about 6 percent of the present U.S. population -- a bit more than one person in twenty -- is foreign born, and that includes the aged immigrants who came many years ago, as well as people who came as young children and grew up as American as apple pie. Not exactly a nation of raw immigrants. Some may say that the deficit will be less of a problem in the future because defense budgets will be lower. Fine. The taxes paid by immigrants could then be devoted to lowering the tax burden on natives, and thereby boosting the economy. Whichever, the nation would increase its flexibility to achieve national goals. But what about disadvantages of immigration that concern Americans? A recent body of solid research has disproven crucial myths: Welfare payments. Solid evidence shows that the average immigrant family gets no more welfare support than does the average native family, even aside from Social Security. Job displacement. There is no evidence that immigrants even temporarily displace natives from employment to a measurable extent. Public facilities. Much of the construction of new schools and other public facilities construction is paid for by way of bonds and taxes, and therefore immigrants pay enough "rent" on such facilities that were built in the past, as well as for new ones, to largely cover their cost. So let's use immigration to lighten the Social Security burden in particular, and our tax burden in general, and get rid of the deficit. Meanwhile, we improve the lives of the immigrants by offering them the advantages of living a free and fruitful life in the United States. We can do well while doing good. page 1/article9 immbudgt/September 10, 1992