shutterstock_95156242Yesterday, the Congressional Budget Office (CBO) released its much-anticipated “scoring,” or cost estimate, of the Senate immigration bill. Overall, the numbers are good. Very good. The CBO projects 20 years ahead and predicts fiscal savings in the amount of roughly $1 trillion. In addition, the CBO explained in a separate report that the bill would have a host of economic benefits that are not captured in a strictly fiscal analysis, such as GDP growth, increased productivity, and long-term wage increases.

Although there are still points of contention within the CBO analysis that must be worked out, the top-line numbers are excellent:

  • During the first 10 years after enactment (2014-2023), the bill would reduce the federal deficit by $175 billion, even after accounting for added border-security and immigration-enforcement spending of $22 billion.
  • During the second 10-year period after enactment (2024-2033), the bill would reduce the federal deficit by roughly $665 billion, after accounting for border-security and immigration-enforcement spending of somewhere between $20 billion and $25 billion.
  • The net result would be net deficit reduction of at least $840 billion over the two decades following enactment of the law.

In addition, the CBO’s economic impact analysis projects:

  • Further deficit reduction, beyond that reported in the cost estimate, of approximately $300 billion during the second 10-year period after enactment (2024-2033).
  • An increase in real Gross Domestic Product (GDP) of 3.3 percent by 2023 and 5.4 percent by 2033.
  • An increase in average wages by 2025.
  • Increased productivity of both labor and capital.

Nevertheless, the CBO does not predict a smooth ride to better economic times. For instance, the CBO anticipates “that average wages for the entire labor force would be 0.1 percent lower in 2023 and 0.5 percent higher in 2033 under the legislation”—although it should be emphasized that the initial drop is fueled mostly by new immigrants who make less than the average wage. Similarly, the bill “would raise the unemployment rate over the next five years by up to roughly 0.1 percentage point,” although it would go down after 2020. While the negative numbers in these projections are transitory and very small, opponents of the bill are already seizing upon them to argue, implausibly, that the bill will throw legions of Americans out of work and drive down wages for the rest.

More problematic is the CBO’s assumption that the immigration bill would reduce unauthorized immigration by only 25 percent. After all, the bill is supposed to establish avenues for legal immigration that are flexible enough to accommodate demand, thereby making unauthorized migration a relatively rare occurrence. However, the methodology behind the CBO’s “25 percent” figure cannot yet be evaluated because it remains unknown. Coincidentally or not, this is the same figure the CBO used in their cost estimate of the 2007 Senate immigration bill. It would seem that the CBO is attempting to gauge the effectiveness of border enforcement in stopping unauthorized entries, without considering the declining incentives for unauthorized entry and visa overstay that are built into the expanded channels for legal immigration that the Senate bill would create. But it is difficult to say for certain until the CBO provides more information.

The “25 percent” controversy notwithstanding, the CBO’s analysis of the Senate immigration bill has put the bill’s opponents very much on the defensive. Many had complained when it looked as though the CBO might release only a 10-year cost estimate of the bill. And then the CBO releases a 20-year estimate in which the greatest fiscal and economic benefits materialize in the second decade. So now they are left trying to discredit the 20-year estimate which shows budget deficits plunging by somewhere in the neighborhood of $1 trillion—not to mention GDP growth and, in the long run, wage increases.