The cost of illegals to this nation is 100 BILLION.
April 4, 2007
Executive Summary: The Fiscal Cost of Low-Skill Households to the U.S. Taxpayer
by Robert E. Rector, Christine Kim and Shanea Watkins, Ph.D.
Executive Summary #12
Each year, families and individuals pay taxes to the government and receive back a wide variety of services and benefits. When the benefits and services received by one group exceed the taxes paid, a distributional deficit occurs, and other groups must pay for the services and benefits of the group in deficit. Each year, government is involved in a large-scale transfer of resources between different social groups.
This paper provides a fiscal distribution analysis of households headed by persons without a high school diploma. The report refers to these households as “low-skill households.” The analysis measures the total benefits and services received by these households compared to total taxes paid. The difference between benefits received and taxes paid rep_resents the total resources transferred by government on behalf of this group from the rest of society.
The size and cost of government are far larger than many people imagine. In fiscal year (FY) 2004, federal, state, and local expenditures combined amounted to $3.75 trillion. One way to grasp the size of government more readily is to calculate average expenditures per household. In 2004, there were some 115 million households (multi-person families and single persons living alone) in the U.S. Government spending thus averaged $32,706 per household across the U.S. population.
Government expenditures can be divided into six categories. The first four, which can be termed “immediate benefits and services,” are:
Direct benefits, which include Social Security, Medicare, and a few smaller transfer programs;
Means-tested benefits, including cash, food, housing, social services, and medical care for poor and near poor individuals;
Public educational services, which include the governmental cost of primary, secondary, vocational, and post-secondary education;
Population-based services, which are government services made available to a general community including police and fire protection, highways, sewers, food safety inspection, and parks.
Two additional spending categories are:
Interest and other financial obligations resulting from prior government activity, including interest payments on government debt and other expenditures relating to the cost of government services pro_vided in earlier years; and
Pure public goods, which include national defense, international affairs and scientific research, and some environmental expenditures.
On average, low-skill households receive more government benefits and services than do other households. In FY 2004, low-skill households received $32,138 per household in immediate benefits and services (direct benefits, means-tested benefits, education, and population-based services). If public goods and the cost of interest and other financial obligations are added, total benefits rose to $43,084 per low-skill household. In general, low-skill house_holds received about $10,000 more in government benefits than did the average U.S. household, largely because of the higher level of means-tested welfare benefits received by low-skill households.
In contrast, low-skill households pay less in taxes than do other households. On average, low-skill households paid only $9,689 in taxes in FY 2004. Thus, low-skill households received at least three dollars in immediate benefits and services for each dollar in taxes paid. If the costs of public goods and past financial obligations are added, the ratio rises to four to one.
Strikingly, low-skill households in FY 2004 had average earnings of $20,564 per household. Thus, the $32,138 per household in government immediate benefits and services received by these households not only exceeded their taxes paid, but also substantially exceeded their average household earned income.
A household’s net fiscal deficit equals the cost of benefits and services received minus taxes paid. If the costs of direct and means-tested benefits, education, and population-based services alone are counted, the average low-skill household had a fiscal deficit of $22,449 (expenditures of $32,138 minus $9,689 in taxes). The average net fiscal deficit of a low-skill household actually exceeded the household’s earnings.
If interest and other financial obligations relating to past government activities are added, the average deficit per household rose to $27,301. In addition, the average low-skill household was a free rider with respect to government public goods, receiving public goods costing some $6,095 per household for which it paid nothing.
Receiving, on average, at least $22,449 more in benefits than they pay in taxes each year, low-skill households impose substantial long-term costs on the U.S. taxpayer. Assuming an average adult life span of 50 years for each head of household, the average lifetime costs to the taxpayer will be $1.1 million for each low-skill household for immediate benefits received minus all taxes paid. If the cost of interest and other financial obligations is added, the average lifetime cost rises to $1.3 million per low-skill household.
In 2004, there were 17.7 million low-skill households. With an average net fiscal deficit of $22,449 per house_hold, the total annual fiscal deficit (total benefits received minus total taxes paid) for all of these households equaled $397 billion (the deficit of $22,449 per household times 17.7 million households). This sum includes direct and means-tested benefits, education, and population-based services. If the low-skill households’ share of interest and other financial obligations for past activities is added, their total annual fiscal deficit rises to $483 billion. Over the next ten years the total cost of low-skill households to the taxpayer (immediate benefits minus taxes paid) is likely to be at least 3.9 trillion dollars. This number would go up significantly if changes in immigration policy lead to sub_stantial increases in the number of low-skill immigrants entering the country and receiving services.
Politically feasible changes in government policy will have little effect for decades on the level of fiscal deficit generated by most low-skill households. For example, to make the average low-skill household fiscally neutral (taxes paid equaling immediate benefits received and the appropriate share of interest on government debt), it would be necessary to eliminate Social Security, Medicare, all 60 means-tested aid programs and cut the cost of public edu_cation in half. It seems certain that, on average, low-skill households will generate deep fiscal deficits for the fore_seeable future. Policies that reduce the future number of high school dropouts and other policies affecting future generations could reduce long-term costs.
Policies that would expand Medicaid and other entitlements will increase the size of future deficits of low-skill households at the margin. On the other hand, policy changes that curtailed medical inflation could reduce costs at the margin in future years. Policies which would halt the growth of out-of-wedlock childbearing or increase real edu_cational attainments of future generations could also limit the growth of future deficits somewhat. However, these policy changes would be dwarfed by any alteration in immigration policy that would substantially increase the future inflow of low-skill immigrants; such a policy would dramatically increase the future fiscal burden to taxpayers.
Robert Rector is Senior Research Fellow in Domestic Policy Studies and Christine Kim is a Policy Analyst in Domestic Policy Studies at The Heritage Foundation. Shanea Watkins, Ph.D., is Policy Analyst in Empirical Studies in the Center for Data Analysis at The Heritage Foundation.
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