Without immigrants, US public debt would exceed 200% of GDP: Study

A new Cato Institute paper says immigrants strengthened US public finances over three decades, contradicting Donald Trump's repeated claims on immigration

US President Donald Trump has repeatedly taken a hard line on immigration, casting migrants as a central cause of social and economic strain, despite the United States’ long-held image as an open economy shaped by globalisation. However, a new study, which shows that immigrants have contributed more in taxes than they have received in benefits, challenges several claims that have featured prominently in Trump’s rhetoric.

 

From campaign rallies to policy speeches, the president has described “illegal immigrants” as criminals and framed immigration as a threat to American jobs and wages, placing the issue at the heart of his “Make America Great Again” agenda.

 

A white paper published on Tuesday, January 3, by the Cato Institute, a US-based libertarian think tank, found that immigrants paid more in taxes than they received in local, state and federal benefits over a 30-year period from 1994 to 2023. The paper estimates a cumulative fiscal surplus of $14.5 trillion during that time.

 

According to the report, the US government’s fiscal position would look markedly worse without immigration. Public debt, it says, would already exceed 200% of gross domestic product, more than double the size of the US economy, which currently stands at about $30 trillion.

 

The institute’s blog added that “illegal immigrants likely reduced the deficit by at least $1.7 trillion” over the same period. Overall, the study calculates that while the federal government would have run a $48 trillion deficit without immigration, immigrants narrowed that gap substantially, cutting federal deficits by nearly one-third in real terms.

 

Why immigration improves public finances

 

The paper addresses a question often raised in political debates: how immigrants can be fiscally beneficial when the US continues to run large deficits.

 

“The answer is that a big part of the US budget is pure public goods—primarily the military and interest payments on past debt accrued before the immigrants came—which don’t scale with population growth,” wrote David Bier, director of immigration studies at the Cato Institute. “These are essentially fixed costs or sunk obligations that the United States will have to cover whether immigrants come or not.”

 

In effect, immigrants add taxpayers without proportionately increasing some of the government’s largest expenses. 

 

How immigrants pay more tax despite lower wages

 

The report also examines the link between wages and tax payments. While immigrants tend to earn lower hourly wages than US-born workers, they work at much higher rates.

 

That higher labour force participation lifts their per capita incomes, leading them to contribute more in taxes than their share of the population would suggest. The paper notes that immigrants have generated more government revenue than the average resident, even with lower hourly pay. 

 

 

Lower costs as retirees

 

Immigrants also place a smaller burden on retirement systems. The savings, the paper says, are not because immigrants are far less likely to reach retirement age, but because they are much less likely to receive government pensions.

 

Many immigrants did not hold government jobs and therefore do not qualify for public-sector pensions. Others arrived too late in life to build the qualifying work history for Social Security and Medicare, or are in the country illegally or on temporary visas that make them ineligible. 

US immigrants

 

Education spending and welfare use

 

On education, the study finds that immigrants reduce long-term costs. The average immigrant arrives in the US at around age 25, meaning the country gains working-age adults without paying for their schooling.

 

Although immigrant children can be more expensive while in school due to bilingual education needs, immigrants as a group are far less likely to be in education at any given time. As a result, the paper says, immigrants cost the US education system about half as much as the US-born population.

 

The report also looks at welfare use. Immigrants are more likely to be in poverty but use roughly the same amount of needs-based assistance as US-born residents. This includes welfare payments, food assistance, Medicaid, refundable tax credits and unemployment insurance.

 

The paper links this gap to eligibility rules. Many immigrants are in the country illegally and cannot apply for welfare in most states. It notes that this finding matches the Trump administration’s own conclusion in 2018 that immigrants use welfare at similar rates to the US-born population. 

 

Key findings from the report

 

1. Without immigration, public debt at all levels would already be above 200% of US GDP, nearly twice the 2023 level.

2. Even low-skilled immigrants, including those without bachelor’s degrees, reduced public debt by $2.8 trillion.

3. Immigrants across all education levels, including high school dropouts, lowered the deficit-to-GDP ratio over the 30-year period.

4. Illegal immigrants likely reduced the deficit by at least $1.7 trillion.

5. Including the second generation, who are mostly still children, immigration reduced public debt by $7.9 trillion and had a positive fiscal effect every year.

 

The paper was co-written by David J Bier, Michael Howard and Julián Salazar.