How Would CBO Analyze the Economic Effects of Immigration Legislation?

Posted by Doug Elmendorf on
May 2, 2013

In Congressional deliberations about proposed changes in immigration policies, the impact on the economy may be one significant consideration. CBO has not yet completed an analysis of any immigration legislation that might be considered by the Congress, but in response to a request from Chairman Paul Ryan of the House Budget Committee, CBO wrote a letter describing how the agency would analyze the effects of proposals to make major changes in immigration policy.

In that letter, CBO indicates that previous estimates prepared by the agency illustrate its general methodological approach to such analysis. For example, in 2006, CBO and the staff of the Joint Committee on Taxation (JCT) analyzed the potential budgetary and economic effects of S. 2611, the Comprehensive Immigration Reform Act of 2006, as introduced on April 7 of that year. Following the long-standing convention of not incorporating macroeconomic effects in cost estimates—a practice that has been followed in the Congressional budget process since it was established in 1974—cost estimates produced by CBO and JCT typically reflect the assumption that macroeconomic variables such as gross domestic product (GDP) and employment remain fixed. However, because S. 2611 would have had the direct effect of significantly increasing the size of the U.S. labor force, CBO and JCT relaxed that assumption and incorporated in the cost estimate the direct effect of the bill on the U.S. population, employment, and taxable wages. CBO and JCT estimated that the bill would increase federal revenues by $66 billion and direct spending by $54 billion over the 2007–2016 period; if the amounts of discretionary spending authorized in the bill had been appropriated, it would have boosted outlays by an additional $25 billion between 2007 and 2011.

CBO also prepared a supplemental analysis encompassing a broader set of macroeconomic effects, concluding that enacting the bill would have increased GDP, on average, by between 0.3 percent and 0.4 percent from 2007 through 2011 and by 0.8 percent to 1.3 percent from 2012 through 2016. CBO estimated that those effects would improve the budgetary impact of the bill by a total of $20 billion to $30 billion over the 2007–2011 period and $60 billion to $130 billion over the 2012–2016 period.

Today’s letter notes that CBO and JCT anticipate taking a similar approach for any forthcoming legislation that would make major changes in immigration policy—reflecting any significant changes in the size of the U.S. population and labor force in the cost estimate for the bill, and describing any broader macroeconomic effects in supplemental material. However, any future estimates of the macroeconomic effects and resulting budgetary impact of major changes in immigration policy would differ in some ways from what was estimated in 2006.