This is America’s Black Economy

I came across this slide from the Census Bureau.

When you do the calculations on births/deaths/migrant workers you get the following results:

• Annual births: 4.5mm
  Annual deaths:2.9mm
• Net change: 1.6mm
• Net new migrant workers: 790,000

From this one gets the total increase in population at ~2.6mm. Fully one-third of that growth comes from foreign immigrant workers. I was surprised to see how big the migrant worker side of the equation was. That comes to 66,000 a month. If you follow the monthly Non-Farms Payroll report you know that there have been many months that we don’t create that many net new jobs.

Our friends at the Congressional Budget Office just happened to have issued a report on this subject on Friday. Catchy title:

A slide that I thought was interesting shows just how much money is leaving the country from those foreign migrant workers:

The total came to $66 billion in 2009. That is a very big number. Of the $31b that left the shores to go south of the border $20b ended up in Mexico. Asia was the beneficiary of $17b of inward money flows. Of that, $3.2b went to China. China manages to suck the blood out of the USA every which way. We send them our money for interest on our debt. We send them money for everything we buy from them. And those who come to work here send back a few billion more.

Allow me to “play” with these numbers a bit. I believe that the vast majority of the money going to Latin America (31b) is from undocumented workers. The same is true for the $5b going to Africa. I will assume a conservative estimate that only 50% of the $17b going to Asia is from illegal workers (9b). I will be generous and exclude all of the money (total 15b) going to Canada, Europe and the Middle East (there are many undocumented workers in this set). My conservative estimate is that ~$45b a year is leaving the country from undocumented workers.

A question is, “How much of an illegal workers pay is being sent back home?” My answer to that is: “Somewhere between 0 and 50%”. Call it 25%. This means that a worker sends home one week of wages for every month that they are here. I actually think the percent number is lower. It is hard to get by in America with just three weeks of wages a month. The savings rate for Americans is less than 5%.

If you accept my (conservative) one week in four argument then you can conclude that the total wages being paid to these workers is ~$180b a year (4 x 45b). That is a very substantial amount of money.

The average legal worker pays 7% in Social Security and other FICA taxes. The average Federal tax rate is about 20% and the average state income tax is another 5%. It comes to about 33 cents on the dollar.

Put that together and you get lost tax revenue of ~$60b (180*.33). I think this is a pretty good estimate given that I excluded the $15b going to Europe/Canada and 50% of Asia. But I will ‘haircut’ this estimate down to $50b a year. That still is a hell of lot of money.

-A ½ Trillion over the next decade would be very welcome.

-$50b a year would solve all of the state’s problems if the money were committed to them over a long period of time.

-$50b a year would be a hell of a down payment on the energy infrastructure build out that we so desperately need.

-$50b a year would turn Social Security into a perpetual “pay as you go system”. We could forget about any funding shorts falls forever.

-$50b a year would go a very long way to bring our educational system back up to par.

What would you do with an extra $50b a year? Let’s face it, we need this money and it would be very helpful if we had it.

The bottom line is that America needs immigrant workers. We also need the tax dollars that come from the wages that are paid. We don’t need to have all this money just leak out of they system while the social costs of illegal workers stay in country.

This is America’s Black Economy. It stares us in the face every day. For the life of me I can’t figure why we don’t confront the problem. But notice that neither the Republican nor the Democrats have even raised it as an issue for 2011. They are too busy fighting over budget cuts, yet there is a big bucket of money right at their feet.

We don’t need to solve the broad immigration problem today. That is a very complex/emotive task. We should start the process by making sure that illegal workers pay their taxes. Just like the natural American workers do.