Last time I talked about immigration trends and the economic effects of foreign-borns coming into the U.S. I proposed that the intense controversy the topic generates is primarily due the size and scope of government benefits, and in particular, those received by new immigrants. A basic tenet of economics is that people respond to incentives. Generally, if you tax something you get less of it, and if you subsidize it, you get more of it. If immigrants can pay little in the way of taxes while getting extra benefits, they may go to great lengths to enter such an environment. It should be recognized too, that historically, economic incentives were based primarily on economic opportunities. That is, prospective taxes and subsidies were much less important for immigrants than the possibilities of earning (and keeping) a much higher income, and enjoying a better standard of living than would have been the case in their home countries. In recent years however, taxes and benefits have become an increasingly important factor in deciding where people call home.
David A. Pace, CFA
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