The website FactCheck.org criticized a recent ad by Californians for Population Stabilization (CAPS) for calling attention to the tax refund implications of the president's administrative amnesty. In its response, FactCheck agreed with CAPS that illegal immigrants may collect $1.7 billion in tax refunds from previous years because of the president's decrees. But FactCheck goes beyond fact checking to argue that 1) the tax refunds should be considered only as part of the overall fiscal impact of amnesty; and 2) this overall impact is positive. Both arguments are problematic.
First, no matter what the overall fiscal impact might be, there is nothing wrong with specifically criticizing the tax refund portion of the amnesty. By allowing illegal immigrants to claim refunds for previous tax years, the Obama administration has included a retroactive element to its amnesty. Not only will certain illegal immigrants enjoy some privileges of legal residency going forward, they will also receive one such benefit retroactively — namely, the right to receive refundable tax credits. There is nothing inevitable about the administration's decision to allow previous-year tax refunds. Even if the amnesty produced an overall net fiscal gain, taxpayers have the right to object to this particular provision and its associated cost, just as CAPS has done in its ad.
To illustrate, on the last page of its report CBO shows that repealing the president's amnesties would have an "on-budget" effect of decreasing deficits by $8.8 billion over the first 10 years. "On-budget" refers to the fiscal impact excluding Social Security. When the "off-budget" impact on the Social Security system is included, then repealing amnesty creates the $7.5 billion "overall" cost cited by FactCheck. The reason is that nearly all of the off-budget impact comes from the Social Security taxes paid by legalized illegal immigrants. But it must be remembered that payment into the entitlement system generates a claim on benefits to be collected down the road. This is very different from, say, income taxes or sale taxes, which do not create a claim on future benefits. Most of the benefits from Social Security that illegal immigrants will now be eligible to receive as a result of the amnesty will be paid beyond the CBO's 10-year time frame because most illegal immigrants are not near retirement.
All of this means that, contrary to FactCheck's claim, there is no evidence that the "overall" fiscal impact of amnesty is positive. The CBO has provided only a 10-year estimate that excludes most of the very large Social Security and Medicare obligations that must be paid in the future. It is worth adding that prior research indicates that illegal immigrants have modest levels of education and, consequently, modest incomes as well. Because low-earning Americans (immigrant or native) generally receive more in Social Security and Medicare benefits than they contribute in payroll taxes over their lifetimes, the net entitlement cost of amnesty could be large.
To summarize, FactCheck is not content with merely affirming CAPS' simple point about illegal immigrants receiving $1.7 billion in retroactive refunds. Instead, FactCheck does exactly what it accuses CAPS of doing — emphasizing only part of the fiscal impact of amnesty.
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