Congressional Budget Office
Director's Blog

Today CBO released an update to its February 2006 paper Immigration Policy in the United States. The publication is a collection of tables and figures with descriptive text (shown below). The update presents data through 2009 and makes comparisons with 2004, the most recent year for which most data were reported in the earlier paper. The first and largest group of exhibits—exhibits 1 through 13—provides statistics on admissions of foreign nationals as legal permanent residents of the United States. The second group—exhibits 14 through 18—presents data on temporary residents and visitors. The third set—exhibits 19 and 20—provides information on naturalization of residents, and the final set—exhibits 21 and 22—shows data on enforcement of immigration laws.

A national of a foreign country granted permanent admission to the United States is formally classified as a legal permanent resident (LPR) and receives a document, commonly known as a green card. (Generally, such foreign nationals must initially obtain a visa to enter the country.) In 2009, the United States granted legal permanent resident status to more than 1.1 million people. About two-thirds of those people were admitted to the United States on the basis of family connections to current U.S. citizens or residents. LPRs are eligible to live and work in the United States, and eventually, they may apply to become naturalized citizens. Today’s report notes that:

• Of the 1.1 million people granted LPR status in 2009, about 463,000 (or 41 percent) were first-time entrants to the United States, and about 668,000 (or 59 percent) were already inside the United States when they were granted LPR status. 
• The total number of permanent admissions was about the average for the previous four years but 18 percent more than were granted such status in 2004.
• In 2009, foreign nationals who were born in Asia accounted for 37 percent of the people granted LPR status, and people who were born in North America (including Central America) accounted for 33 percent. 
• The number of individuals admitted on the basis of employment preferences decreased slightly between 2004 and 2009 and accounted for 13 percent of admissions. The category of people admitted for humanitarian reasons, which constituted 17 percent of the permanent admissions in 2009, grew by almost 60 percent from its level five years earlier.

Visas for temporary admission to the United States are granted to foreign nationals who seek entry for a limited time and for a specific purpose, such as tourism, diplomacy, or study. In addition, foreign nationals who meet certain criteria may be permitted to work in the United States for a limited time that depends on the type of visa they receive. Foreign nationals with temporary visas are not eligible for citizenship, and to remain in the United States on a permanent basis they would be required to apply for permanent admission. CBO’s publication reports that: 

• About 5.8 million visas for temporary admission were issued in 2009, of which 24 percent were for temporary residents and 76 percent were for visitors. 
• Although the number of visas issued was 15 percent higher than the number in 2004, it was down by almost 800,000 (or 12 percent) from the 6.6 million visas issued in 2008. The decrease was most likely a result of the global recession: Fewer visas were issued for business, for tourism, and for employment.
• The number of legal temporary admissions is much greater than the number of visas because many people do not need visas or had multiple admissions. In 2009, there were about 163 million legal temporary admissions, the lowest number since the Department of Homeland Security began reporting those data in 2003. About 135 million of those admissions were people from North America (including Central America).

Legal permanent residents may become citizens of the United States through a process known as naturalization. To become a naturalized citizen, an applicant must fulfill certain requirements set forth in the Immigration and Nationality Act. The report shows:

• About 744,000 people became naturalized U.S. citizens last year, which is well below the number naturalized in 2008 but close to the average for the past five years. Of the 2009 total, the largest percentages of people were born in Mexico (15 percent) and India (7 percent).

The Department of Homeland Security (DHS) is responsible for enforcing immigration law and arrests, detains, returns, and removes foreign nationals who violate U.S. laws. CBO’s report indicates that:

• In 2009, about 580,000 people who were arrested or detained returned voluntarily under the supervision of a DHS official to their home country or to another country, a figure that is well below the number in recent years. 
• About 393,000 people were ordered removed in 2009, which is 63 percent more than were ordered removed in 2004. In 2009, about two-thirds of total removals were for noncriminal violations, such as a lack of proper documentation, and the other one-third were for criminal violations of U.S. laws.

The updated study is one of a series of updates of earlier CBO immigration studies. All of CBO’s immigration publications can be found here. This update was prepared by Paige Piper/Bach and Brian Prest of CBO’s Microeconomic Studies Division.

In addition to the information provided in my testimony yesterday, you can find further information on trends in federal revenues and how changes to U.S. tax law would affect the behavior of taxpayers and the economy in the following CBO publications:

• Trends and projections of federal revenues are discussed in The Budget and Economic Outlook: An Update (August 2010); and Sources of the Growth and Decline in Individual Income Tax Revenues Since 1994 (May 2008).
• Analyses of the effects of tax policy options on economic activity are discussed in Statement of Douglas W. Elmendorf, Director, Congressional Budget Office, before the Senate Committee on the Budget, The Economic Outlook and Fiscal Policy Choices (September 28, 2010); An Analysis of the President’s Budgetary Proposals for Fiscal Year 2011 (March 2010); and Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates (December 2005).
• The effects of tax rates on economic activity are examined in The Effect of Tax Changes on Labor Supply in CBO’s Microsimulation Tax Model, Background Paper (April 2007); Computing Effective Tax Rates on Capital Income, Background Paper (December 2006); Effective Marginal Tax Rates on Labor Income (November 2005); and Taxing Capital Income: Effective Rates and Approaches to Reform (October 2005).
• Subsidies to expenditures through the tax code are discussed in An Overview of Federal Support for Housing, Issue Brief (November 3, 2009); Key Issues in Analyzing Major Health Insurance Proposals (December 2008), pp. 29–37; The Deductibility of State and Local Taxes (February 2008); and Statement of Peter R. Orszag, Director, Congressional Budget Office, before the House Committee on the Budget, Performance Budgeting: Applications to Health Insurance Programs and Tax Policy (September 20, 2007).
• Supplemental analyses and detailed data on average federal tax rates and income, by income category, for 1979 to 2007, are available at www.cbo.gov/publications/collections/collections.cfm?collect=13.
• Issues involving tax rates and how household income changes over time are discussed in Effective Tax Rates: Comparing Annual and Multiyear Measures (January 2005).

Today I testified before the Senate Finance Committee on historical trends in federal tax revenues and rates. My written testimony is a collection of tables and figures with descriptive text (shown below). It addresses three broad topics: revenues collected by the federal government, how taxes affect economic activity, and the tax burden and who bears it.

Federal Revenues: Trends and Projections

Total federal revenues as a percentage of gross domestic product (GDP) change over time because the size of the tax base for each source changes relative to GDP, because changes in the distribution of income can raise or lower average tax rates, and because changes in tax law affect the amount of revenues collected from a particular tax base. As detailed in the first three exhibits:

• Over the past 40 years, federal revenues have ranged from nearly 21 percent of GDP in fiscal year 2000 to less than 15 percent in fiscal years 2009 and 2010, averaging 18 percent of GDP over that span. Most of the revenues—about 82 percent in 2010—come from the individual income tax and the payroll taxes used to finance Social Security, Medicare, and the federal unemployment insurance program (see Exhibit 1).
• Under current law, revenues will rise significantly from their recent low relative to GDP as the economy recovers from the recession and the tax reductions enacted in 2001, 2003, and 2009 expire. We project that under current law, federal revenues will reach 21 percent of GDP in fiscal year 2020, just above their peak share reached 10 years ago (see Exhibit 2).
• We also project that under current law, federal spending will reach nearly 24 percent in 2020—slightly lower than the peak level of almost 25 percent in fiscal year 2009 but well above the average of roughly 21 percent over the past four decades. Compared with that historical experience, the components of federal spending that are projected to be unusually large relative to GDP by 2020 are the expenditures for Social Security and the federal health programs.
• Even with the projected substantial increase in revenues, under current law deficits between 2015 and 2020 will range between 2.6 percent and 3.0 percent of GDP. If the Congress extended most or all of the 2001 and 2003 tax cuts and made no other changes to taxes and spending, revenues would be lower and deficits would be significantly larger (see Exhibit 3).

How Taxes Affect Economic Activity: Marginal Tax Rates and Tax Expenditures

Taxes raise the price of taxed activities and thereby lower the relative price of other activities. In particular, the income tax and payroll tax reduce the returns from working, and the income tax reduces the returns from saving. One measure of the effect of taxes on the returns from working and saving is the marginal tax rate—that is, the tax paid per dollar of extra earnings or dollar of extra income from savings. Exhibits 4 through 6 present information about marginal tax rates, including the following points:

• The highest marginal income tax rate (the tax rate that applies to the top tax bracket) was as high as 70 percent as recently as 1980, although a lower maximum rate applied to earnings in that year. Since 1988, the highest marginal income tax rate has ranged from 28 percent to 39.6 percent.
• For a representative family of four with median income, the marginal tax rate on earnings (combining the rates for both income and payroll taxes) has remained at about 30 percent since the mid-1980s.

Provisions of the tax code can also affect economic activity by subsidizing certain types of spending. Revenues forgone because of certain special features of the tax code are known as tax expenditures. Tax expenditures have helped to accomplish various goals, but because they reduce the base to which tax rates apply, tax rates must be higher to collect the same amount of revenues that would be collected in the absence of those subsidies. Exhibits 7 through 10 present information about tax expenditures, including the following points:

• The two largest tax expenditures are the deduction of mortgage interest on owner-occupied residences and the exclusion of employers’ contributions for health care, health insurance premiums, and long-term care insurance premiums from the individual income tax. Each of those results in forgone revenues equal to about 9 percent of individual income tax revenues.
• There are significant corporate tax expenditures as well.

The Tax Burden and Who Bears It

The final set of charts beginning with Exhibit 11 shows the impact of federal taxes on various categories of households, which bear the economic cost of taxes that they pay directly as well as taxes paid by businesses. One measure of the tax burden is the average tax rate, which equals taxes paid as a share of income. Federal taxes are progressive, meaning that average federal tax rates generally rise with income. Specifically:

• In 2007, households in the bottom fifth, or quintile, of the income distribution paid about 4 percent of their income in federal taxes, while the middle quintile paid 14 percent, and the highest quintile paid 25 percent.
• The individual income tax has average tax rates that rise rapidly with income. Payroll taxes have average tax rates that vary little across most income groups but fall for the highest quintile because earnings above a certain threshold are not subject to the Social Security payroll tax and because earnings are a smaller portion of total income for that group. The average social insurance tax rate is higher than the average individual income tax rate for all income groups except the highest quintile.
• Between 1979 and 2007, the average tax rate for federal taxes declined for all income groups.
• The share of taxes paid by the top fifth of the population grew sharply between 1979 and 2007. Almost all of that growth can be attributed to an increase in that group’s share of before-tax income. In 2007, households in the highest quintile earned 55 percent of before-tax income and paid almost 70 percent of federal taxes; for all other quintiles, the share of federal taxes was less than the share of income.