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3 Ways Immigration Reform Will Lead to a Stronger American Economy

Immigration, immigration, immigration: it seems that reform has become the hot topic of the day now that the debt ceiling debate is temporarily over. PolicyMic has published at least 16 articles over the last week that dealt with the topic. We have had a bipartisan panel and President Obama release ideas for immigration reform, and you can expect it to play a significant role in his upcoming State of the Union address. With the economy still the biggest driver of dissatisfaction in this country, how will passing immigration reform impact the economic recovery? Passing a comprehensive package will positively impact the economy in three key areas: consumption, tax revenue and job creation.

1. Consumption:

Photo Credit: Jay Black

Consumption is driven by wages, and so to understand how consumption will improve, we have to look at wage increases. Immigration reform does not just impact the immigrant community, but U.S.-born workers as well. Our first glimpses are the effects of President Reagan's Immigration Reform and Control Act of 1986. While immigrants still made less than their U.S. born-comrades, they still saw their incomes increase by 15% years following their legalization. While anti-immigration reform groups will dispute the effectiveness of the reforms of 1986, they can’t refute the increase in wages.

These wage increases also extended to U.S.-born workers. The Economic Policy Institute looked at the impact immigration had on wages of the non-immigrant community. What they found was that between 1994 and 2007, wages increased by 0.4% over foreign-born workers. This also extended to those with less than a high school education, who still saw a 0.3% increase during that same time as a result of immigration. These aren't huge gains, but the size of the gains wasn't as important as what they indicated: more workers mean a bigger economy. The influx of immigrant workers meant more people were earning wages, and therefore spending more and growing the economy, which in turn meant higher wages and more opportunities for everyone.

2. Tax Revenue:

Photo Credit: Matthew Bisanz

The increase in wage earners, wages, and spending leads to higher tax revenues. A 2010 study by the University of Southern California estimated that undocumented Latino workers missed out on $2.2 billion in income. As a result, the state of California missed out on $310 million in income taxes. They also determined that the federal government lost out on $1.4 billion in taxes.

Furthermore, the Congressional Budget Office and the Joint Committee on Taxation estimated that the Comprehensive Immigration Reform Act of 2006 would have generated $66 billion in new revenue between 2007 and 2016. This increase in revenue would have more than offset the estimated increase in entitlement spending of $54 billion.

3. Job Creation:

Photo Credit: Moog Factory

The final area for consideration is job creation. Ezra Klein of The Washington Post examined this in a recent post. Small businesses are drivers of the economy, and as Klein points out, immigrants start business and file patents at a much higher rate than the non-immigrant community.

patent and business start up chart

Our economy is struggling to create jobs and encourage consumer spending, and all levels of government are struggling to generate the necessary revenues and right spending cuts to tackle growing debt.

These factors make immigration reform a nobrainer. A comprehensive immigration plan addresses all three of these key areas to fixing our economy. In fact, immigration reform should be looked at as more than just immigration policy – it's economic policy. The economy and our country will be better because of it.

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