state, whereas they share the federal fiscal benefits of immigration with taxpayers throughout the nation. This substantial discrepancy arises in large part because states and localities fund education and other youth services, whereas the federal government funds Social Security, Medicare, and other services for the elderly. (See Goldstein, 1995, for a discussion of interstate transfers arising from differences in age distribution and the funding of education and social security.)

It is sometimes suggested that the federal government should address these interstate discrepancies through a national policy of compensation to state and local governments. According to these calculations, the federal government realized a net fiscal gain of about $51 billion in 1994 from the presence of immigrants and their concurrent descendants. At the same time, there were net fiscal costs of $27 billion per year incurred in total by a subset of state and local governments. The federal government could compensate states and localities for the $27 billion net cost, leaving the remaining $24 billion of federal net gain as a benefit to be shared equally among all U.S. taxpayers. 9 There are many complicated issues regarding such a policy of federal compensation. The presence of immigrants and their descendants may confer nonfiscal economic net gains to the residents of states and local areas, for example through cleaper goods and services or through higher wages of skilled workers and higher returns to nonlabor factors. The federal government does not generally compensate states for other discrepancies; what is special about the case of immigration? We do not consider these and other issues here.

Comparison of Results for Immigrants Only, Immigrant Households, and Concurrent Descendants

Table 5-5 shows comparable measures of fiscal impact for the different demographic formulations of the cross-sectional conceptual experiment. In the most restrictive definition, only immigrants themselves are counted. Here we find that immigrants pay about $32 billion more in taxes overall than they generate in costs. This positive balance reflects the age distribution of the immigrant population: There are relatively many working-age people and relatively few children and elderly.


Two other levels of compensation are possible, but neither is immigrant neutral. In one alternative, taxpayers in high-immigration states could be compensated so that they are not bearing any net increased fiscal burden of immigration. That is, state and local costs would just offset their reduction in national taxes ($4 billion annually to high-immigration states). In this scenario, states would compete to discourage immigration. Under another alternative, taxpayers would receive a share of the national benefits of immigration ($51 billion) in direct proportion to the number of immigrants in their state. Under this scenario, states would compete for immigrants. States are indifferent to immigrants only in the basic compensation scenario in which states are compensated for the full state and local costs of immigrants, and the remaining national benefits are shared equally among all states.

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