The Federation for American Immigration Reform (FAIR) is an anti-Immigrant Think Tank

I think that title puts it mildly. I also don’t think it will surprise many people. Often I go up to people I know and tell them something interesting (to me) I learned / learned more about, almost always economics related. Sometimes I get people going “yeah, I know”. I think because they had already formed an opinion on the matter that my understanding of the subject confirms. 

But who doesn’t want to be told by an expert that their opinions are generally correct. I would want to know that. Similarly, a think tank that is against more immigration is probably xenophobic given the broad consensus of the literature (and theory) that immigration is good for the economy and at least doesn’t make the federal deficit worse. I’m sure it isn’t surprising and is casually assumed by many.

But I can prove it!

I found my way to a blog type post of theirs titled "Why Immigration Can't Solve the Social Security Deficit". Now it’s true immigration can’t solve the Social Security deficit in the sense that it can’t reduce it to zero on its own, but that’s not what reveals their bias. The post begins by saying the argument that more immigration is good for the SS deficit is “based on hype rather than reality. A realistic assessment of that idea appears in a report of the Social Security Advisory Board.” Which states, “[w]hile recognizing the importance of immigration to our future patterns of economic and population growth, the Social Security Advisory Board does not view immigration as a panacea or free lunch for saving Social Security.” 

Duh it’s not a free lunch, thanks for the expert analysis. The very next sentence in that report is “The Social Security Administration’s (SSA) Office of the Chief Actuary estimates that an increase in legal immigration of about a quarter of a million would reduce the 75-year actuarial deficit of the Social Security program by about 5 percent.” FAIR is clearly cherry-picking their quotes.

The FAIR post continues, “[w]hile increased immigration might help…in the short-run…it is no solution in the long run.” What short run? The SSA found that it would reduce the actuarial deficit over a 75 year period. The actuarial deficit is the gap between costs and revenue over 75 years in this case. How is that not the long run? While forecasting that far out is a huge stretch, the least that can be said is that more immigration is projected to on net reduce the SS deficit in the long run, or over an immigrant’s lifetime.

Their reasoning is that “immigrant workers age too. They then become eligible for benefits…In that sense it is a Ponzi scheme.” That’s not a finding; that’s anti-immigrant rhetoric. The SSA looked over a 75 year period, which accounts for aging immigrants becoming eligible for benefits.

Their second string argument is that “[a] majority of immigrant workers take low-wage jobs. Because the Social Security System is redistributive it pays out more to low-wage workers compared to their contributions than it does for high-wage workers. That means that the more low-wage immigrants who are admitted to work in our country and become eligible for future payments, the greater the burden will be on the future workers to support those retirees.”

The first sentence is misleading, the second is a damn lie and a non-sequitur. Payroll taxes are regressive in terms of % of income taxed. This means the poor are paying in more of their income than the rich. So the fact that the flat benefit is a greater percentage of a poor person's income than for rich people isn’t exactly ~unfair. More importantly, it doesn’t matter. Either immigrants are a net benefit, zero net cost, or net cost; that they are a smaller individual net benefit than if they were richer doesn't change the fact that more immigration reduces the SS deficit. This means there is no added burden on other taxpayers over the average immigrant’s lifetime. 

Furthermore, immigrants tend to be clustered in low and high skilled jobs compared to the native born. So there’s plenty of immigrants paying in a lot more than they’ll ever take out. And around 30% of immigrants eventually return to their home country, paying into the Social Security system, and then leaving without taking their full entitled benefit if any of it.

So FAIR's analysis is not just a different way of looking at the data; it’s not reasonable people disagreeing. They are deliberately misleading, cherry picking, and lying. It is not the truth they are after, but to provide a veneer of credibility to xenophobic rhetoric. Or else their analysts are dumb af.

Tax Wealth Rather Than Income or How to Accomplish (Relatively More) Efficiency and Equality

     The short story is that if you tax something you get less of it and if you subsidize something you get more of it. So taxing income isn’t a good thing economically, it’s more so done out of necessity. Taxing wealth more would enable us to lower the marginal tax rate on income (the amount of tax paid on an additional dollar of income), meaning less distortionary effects on incentives and higher growth.

     But here’s the long story of it:

     In the 1800s Vilfredo Pareto came up with the basis of the First and Second Fundamental Theorems of Welfare Economics. This is back when economists were first formulating mathematical macro models of the economy. Here’s Pareto’s at its simplest: imagine a two person economy where the first person is randomly given some of the economy’s resources and the second gets the rest. The two will make any mutually beneficial trades. They continue to trade until there are no more mutually beneficial trades. This is a market equilibrium. So The First Theorem is that competitive market equilibrium is “Pareto Efficient” (hereafter referred to simply as “efficiency”).

     The Second Fundamental Theorem is that given any initial resource endowment, there is an efficient outcome that can be reached. Basically, the Second is the First in reverse. Sounds simple now but the point is that a market equilibrium must be a point at which no person can be made better off without another being made worse off (that’s the First), and for any initial starting point, or resource endowment, market exchange will result in equilibrium (the Second). Or, equilibrium is the most efficient allocation of resources and free markets tend towards equilibrium. A key fact of this model is that efficiency is not equality, and equality is not something free markets in equilibrium will achieve per se.

     In the mid-1900s Kenneth Arrow, having lived through the Great Depression, tried to come up with a way to accomplish both equality and efficiency. His answer was a one-time lump-sum tax on individuals proportional to their earnings potential (pretend it’s possible to know someone’s earnings potential for the moment). Such a tax results in a 0% marginal income tax rate. There is no disincentive for people to try to make as much as they possibly can, so no distortions of market incentives. The tax basically alters the resource endowments, or starting points, of people in the economy. The Second Fundamental Theorem says that given any initial resource endowment, equilibrium can and will be accomplished. Together this means equality and efficiency can be accomplished by redistributing resources and letting market exchange do the rest.

     Also in the 1900s, Abba Lerner[1] showed that such an equilibrium, with both equality and efficiency, is the only aggregate utility maximizing point, assuming money “buys” utility, which economics does[2]. Going back to Pareto’s two person model, if the first person is richer than the second, and marginal utility per dollar decreases as you get richer (is one dollar “worth” less to Bill Gates than a homeless person? I think so), you can increase the sum of both people’s utility by taking a dollar away from the richer person and giving it to the poorer person. Aggregate utility grows until there is equality. While Lerner’s simple mathematical model ignores incentives and growth over time, Arrow showed that such an equilibrium point is theoretically achievable accounting for individual incentives.

     But this is all in theory. In addition to requiring assumptions that can’t all hold in the real world (see post from 2012), like every econ model, there is no way to know a person’s earnings potential in advance. However, you can know someone’s earnings potential after the fact. You look at how much wealth they accrued over their lives and you subject it to a one-time lump-sum tax, as Arrow said. This is essentially the Estate Tax. Even with the complications of the real world vs models, taxing wealth is is more economically efficient than taxing income because it involves fewer distortions of incentives to produce[3], reduces inequality, and increases aggregate utility, which is the whole point of economics.