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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration 4 The Fiscal Impacts of Immigrants: A California Case Study Michael S. Clune INTRODUCTION Shifts in the settlement patterns of immigrants to the United States since 1965 have placed California at the forefront of any discussion of immigration issues. Along with sharp increases in the volume of immigration, a shift in the country of origin distribution away from flows from Europe to flows from Mexico, Central and South America, and Asia led a much larger share of immigrants to settle in California. Since 1976, California has been the top destination of choice for new legal immigrants to the United States, receiving 34.6 percent of immigrants in 1992. That year, 61.8 percent of Mexicans, 43.1 percent of Vietnamese, 44.0 percent of Filipinos, and 57.5 percent of Salvadorans admitted to the United States chose California as their state of intended residence. California receives a disproportionate share of immigrants from all entry categories. In 1992, 29 percent of admitted immigrants indicated California as the state of intended residence, and 32.7 percent of refugees and asylees granted permanent legal resident status in 1992 resided in California. In addition, the overwhelming majority of applicants for legalization under the Immigration Reform and Control Act of 1986 filed applications in California (U.S. Immigration and Naturalization Service, 1993). As a result, California contains the largest population of immigrants, both as a proportion of total residents and in real numbers. By 1995, 7.7 million California residents were foreign born, 24.4 percent of the state population and 34.3 percent of all non-native U.S. residents. At that time, 34.0 percent of all California residents and 42.4 percent of children in California lived in a household
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration headed by an immigrant. More than half of all immigrant-headed households in California were headed by an immigrant from Latin America and approximately one-fourth were headed by an Asian immigrant. With the rise in the number of foreign-born residents, immigration issues have taken center stage on the California political scene. In 1994, Californians voted in favor of Proposition 187, which, had it not been blocked by the courts, would have eliminated public education and health services for undocumented aliens (Ayres, 1995). Decrying the costs of incarcerating and providing public education and other services to undocumented aliens. Governor Pete Wilson sued the federal government in 1994 for funds to cover the state's expenditures, claiming that California was adversely affected by failed federal policy ( New York Times, 1994; Freedberg, 1997). In 1998, Californians will return to the polls to determine whether the state will continue to provide bilingual education in the public schools (Pyle, 1997). The debate over the provision of services to immigrants and costs incurred has been fueled by extensive research into the fiscal impacts of immigration on government revenues and expenditures. Generally, these studies have found that both natives and immigrants make the largest tax contributions to the federal government, that immigrants make lower average tax contributions, and that immigrants are a greater burden on state and local governments (Vernez and McCarthy, 1996; Garvey and Espenshade, 1996). Three studies have examined fiscal impacts of immigrants in California. Los Angeles County (1992) found that recent legal immigrants, legalized aliens, and undocumented aliens and their children incurred costs to the county in excess of their share of the population. Although these immigrants and their families composed 25 percent of the county population, this group consumed 30.9 percent of total county services while paying only 8.7 percent of tax revenues, most of which flowed to the federal government. Two later studies (Romero et al., 1994; Urban Institute, 1994) found that the benefits and services consumed by undocumented aliens greatly exceeded their tax contributions. Rothman and Espenshade (1992) review immigrant fiscal impact studies completed through 1992; Vernez and McCarthy (1996) and MaCurdy et al. (in this volume) review more recent studies. Several problems with these studies make the results difficult to compare and to fully assess the fiscal impacts of immigration. Among these problems, the earlier studies are limited in scope either because of their focus on undocumented aliens or a small geographic area. The studies do not provide estimates of the contributions of natives, preventing examination of the relative impacts of immigrants. Comparisons of subgroups of immigrants by age or region of origin are also not available. Finally, because the studies examine a limited number of benefits and taxes and fail to match estimates provided with administrative budget information, a full accounting of the relationship between immigrants and government budgets is not provided. In this chapter I examine the fiscal impacts of native and foreign-born house-
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration holds in California on federal, state, and local governments. Five principles established by the Panel on Demographic and Economic Impacts of Immigration guide the research. First, the study seeks to identify the current annual impact of immigrants—the flows of government funds to and from Californian immigrants during the single fiscal year 1994–1995. Two questions summarize this focus. How much did the average immigrant pay in direct taxes and fees during 1994–1995, relative to the average native? How much did the average immigrant receive in government benefits during 1994–1995, relative to the average native? I do not consider the long-term fiscal effects of immigration, which may be different from current annual effects because of the age structure of the immigrant population.1 Indirect effects of immigrants on government revenues or expenditures, which might occur through impacts on the wage rates of natives, prices of goods, or business income, are also not considered in this chapter. Thus, the analysis proposes a short-term partial equilibrium answer to the experimental question of how much an additional immigrant affects government budgets: what would happen to government revenues and expenditures if a single immigrant household entered the state at the beginning of the fiscal year and no adjustments were made in the structure of taxation or government spending per household and this arrival had no effect on other households, prices, or business income? Second, the analysis considers the household as the unit of analysis, primarily because households or quasi-household units pay most taxes (e.g., income, property, sales, and excise taxes), and households or quasi-household units consume most government services (e.g., public assistance, police, and fire protection). Other taxes paid and benefits received by individuals (e.g., employment taxes, education benefits) can be aggregated to households with relative ease. Use of the household as the unit of analysis has one important effect on the results: native-born children, who receive high levels of education benefits while paying almost nothing in taxes, are counted as part of their parents' households. Thus, the household method appropriately assigns the costs of education for native-born children of immigrants to immigrant households. However, the native-born adult children of immigrants, who are no longer resident in their parents' households, are not counted as part of an immigrant household. The taxes paid and benefits received are counted as native contributions. 2 Third, the analysis follows a micro-level "bottom-up" approach to assigning tax payments and benefit receipt to households. Sample households from survey data serve as the unit of analysis, and characteristics are identified that allow the estimation of each tax payment or benefit amount for each household. House- 1 The lifetime fiscal impacts of immigrants and their descendants are considered in Chapter 7 of the panel's report (National Research Council, 1997) and by Lee and Miller (in this volume). 2 This results in a seemingly unfair bias in the results, assigning the children of immigrants to the foreign-born impact during the childhood years in which they receive high levels of education benefits, but counting the taxes paid by these individuals during adulthood to the native impact. Lee and Miller (in this volume) consider the fiscal impacts of the adult children of immigrants.
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration holds are then organized into categories, such as by age, nativity, and region of origin of the householder, and the mean values of tax and benefit items are compared. Espenshade and King (1994) conducted the first application of this microdata approach to the study of immigrant fiscal impacts, examining the impact of immigrants in New Jersey using the 1980 Census. Garvey and Espenshade (1996) conducted a similar study for New Jersey using the 1990 Census. The methodology for this California study follows largely on the New Jersey studies. The alternative "top-down" approach, used in most other fiscal impact studies, involves making estimates of total taxes paid (or benefits received) by immigrant households as a group, which are then divided by the estimated number of immigrant households. One problem with this approach is that variation across households resulting from characteristics other than nativity is often ignored. As a result, the top-down method precludes comparisons of native and immigrant households by age of householder, region of origin, citizenship status, or household income. The microdata approach allows these comparisons. Fourth, an attempt was made at comprehensive treatment of all tax and benefit items at the federal, state, and local government levels. In this study, 13 tax revenue items (67% of total government revenues) and 25 benefit and service items (100% of government expenditures, excluding federal debt interest payments) are allocated to households. The remaining 33 percent of government revenues, primarily taxes paid by corporations and tourists, are addressed later in the chapter. Fifth, household tax and benefit estimates are reconciled to match administrative totals from government budgets. Allocations to households are made in such a away that the average revenue or expenditure allocated to each household multiplied by the total number of households equals the actual total revenue or expenditure in the government budget. In this way, the study provides a full accounting of the flows of revenues from and expenditures to native and immigrant households. The following section describes the data and methodology used for this study. In the third section I review the structure of the federal, state, and local revenues and expenditures for fiscal year 1995. In the fourth section I provide an overview of the characteristics of California's native and immigrant households, providing the foundation for the tax and benefit estimates discussed in the fifth section. In the final section I summarize and discuss the results. DATA AND ALLOCATION METHODOLOGY The primary data source is the California sample of the Current Population Survey (CPS), March 1995, Annual Demographic File. The file contains data for 4,590 California households completing a detailed survey of income earned or received in 1994. The CPS universe encompasses the civilian noninstitutional
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration population living in households and members of the Armed Forces living in civilian housing units on a military base or in households not on military bases. The CPS does not cover institutionalized persons, including residents of military barracks, rooming houses, mental hospitals, rest homes, and correctional institutions. The interviews contain questions about 20 types of cash income, and 9 types of noncash income, as well as participation in public housing programs. Among these are the major income transfer and noncash benefit programs provided by the federal government, the state of California, and local government agencies. The cash transfer income types identified are Social Security, federal retirement and disability benefits, welfare (AFDC and general assistance), Supplemental Security Income, unemployment compensation, workers' compensation, veterans' benefits, and educational assistance. The noncash income types identified are Medicare, Medi-Cal, food stamps, school lunch programs, public housing, rent subsidies, and energy assistance. The 1990 Census of Population and Housing Public Use Microdata Sample (PUMS) provides supplementary information. Revenue and expenditure data for federal fiscal year 1995, which began October 1, 1994, and California budget year 1994–1995, which began July 1, 1994, are collected from a number of government sources. Federal revenue and expenditure data are estimates for 1995 reported in the 1996 federal budget (Office of Management and Budget, 1995). The Bureau of the Census (1996b) provides direct benefit and intergovernmental transfer amounts. Expenditure figures for the state of California reflect actual amounts of expenditures for 1994–1995 as reported in the 1996–1997 Governor's Budget (Department of Finance, 1996a). The 1994–1995 Governor's Budget provides state revenue estimates (Department of Finance 1995a); this information is supplemented by information on taxes collected from the Board of Equalization (1995). The California Office of the State Controller (1995, 1996a, 1996b, 1996c) compiles records of city, county, school district, and special district revenues and expenditures. The most recent reports provide information for fiscal year 1993–1994. The Governor's Budget provides supplementary information about transfers to local governments and local spending. After estimation of taxes paid and benefits received, households are classed by the nativity and age of the householder. Native households are those in which the householder was born in the United States, Puerto Rico, or U.S. outlying areas, or born abroad of American parents. Third-generation households are those in which both parents of the householder were native born. Second-generation households are those in which at least one parent of the householder was foreign born. Immigrant households are those in which the householder was foreign born. Comparisons are made for each of these household types, as well as for households further classed by the age of the householder (15–39, 40–64, and 65+) and by the place of birth of the householder. These region-of-origin classes are Europe/Canada, Asia, Latin America (encompassing Mexico, Central and
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration South America, and the Caribbean), and other. Comparisons are also made for foreign-born households by citizenship status and native and foreign-born households by income level. Tax Estimation Methodology For each tax and benefit item, a combination of household demography, program participation, and income sources and amounts is used to estimate the contribution or cost to government. Estimates are developed for household payments of federal and California personal income taxes; federal and state employment taxes (Social Security, unemployment insurance, and state disability insurance); California and local sales taxes; local property taxes; federal and California tobacco, alcohol, gambling, and fuel taxes; California motor vehicle fees; and federal and California gift and estate taxes. Federal and state personal income tax values imputed by the Bureau of the Census based on income, home ownership, and household size are adjusted proportionally to match budget or empirical figures. 3,4 Assuming that employer shares of employment taxes are passed on and borne by workers, Social Security, unemployment compensation, and state disability insurance taxes are calculated using earned income of household members employed in nonexempt sectors.5 Sales taxes are calculated by estimating the amount of household income spent on taxable items, based on work by Sheffrin and Dresch (1995), and applying the average statewide tax rate of 8 percent. Property tax amounts are estimated for owner-occupied and rental properties using tax and rent payments reported in the 1990 Census by nativity and age of householder and adjusting these to 1995 levels. Taxes on rental properties are assumed to be passed on by property owners and fully borne by renters. Excise and other taxes are allocated based on estimates of household participation, such as the number of persons age 21 and older who are eligible to pay alcohol taxes, and assuming no differences in tax paid by participating households or individuals by nativity. The specific methods and assumptions made for each benefit item are included in Appendix A. 3 The Bureau of the Census (1993a) used these variables to impute filing status, capital gains, itemized deductions, and exemptions and to calculate estimated tax payments. 4 The total weighted sum of state personal income taxes imputed by the Census Bureau exceeds actual state receipts by $4 billion. In order to match the administrative total, household estimates are reduced proportionally by 16.95 percent. Similarly, federal income taxes imputed by the Census Bureau appear to underestimate federal receipts from California and these estimates are increased by 7.23 percent. With ideal data, the survey estimates would match administrative totals, and no adjustment would be necessary. 5 My goal in this chapter is to provide a cross-sectional examination of tax and benefit flows. All taxes are treated as contributions to a general fund rather than to a trust fund from which the taxpayer may draw at a later date. Similarly, benefits are treated as monetary transfers from a general fund, rather than as a government-held retirement, disability, or health plan.
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration Corporations and out-of-state tourists pay less than 33 percent of taxes contributed in California. Although some share of corporate taxes is likely passed on to households through higher prices, these indirect taxes are not estimated in this chapter. Instead, an adjustment is made in the calculation of household fiscal impacts assuming that corporate and tourist taxes pay for services and benefits received by these entities, and the benefits received by households are reduced by the amounts of these taxes. Benefit Estimation Methodology For each budget item, the amount ''paid" to California households by government entities is identified and, where possible, an estimate of administrative costs is added. The average household or individual benefit is estimated by dividing the total program expenditure amount by the CPS estimate of the number of participating households and individuals. Estimates of household benefits and services received are developed for all major federal, California, and local income transfer programs; health care; K-12 and higher education services; corrections costs; and other federal, California, and local expenditures. 6 Three methods are used to allocate benefits. The first method identifies participating households and assumes no differences by nativity or age of householder in average benefits received by these households. Average household benefits are allocated to participating households for federal civilian and military benefits, railroad retirement benefits, veterans' benefits, unemployment compensation, workers' compensation, energy assistance, housing assistance, and general assistance. The second method identifies the number of benefit recipients in each participating household and assumes no differences by nativity or age of householder in average benefits received for each individual participant. Average recipient benefits are allocated to participating households based on the number of recipients for food stamps, educational assistance, Medicare, Medical, and school lunches, and the number of students participating in K-12 education7 and higher education. The third method identifies participating households 6 The multiple beneficiaries of government spending may not be reflected in this analysis. For example, education spending may benefit both those receiving educations resulting from government spending and indirect beneficiaries such as corporations that profit from a highly trained labor pool. In this case, the benefits of education spending are allocated to the students incurring the expenditure. 7 The statewide average per pupil expenditure for K-12 education is allocated to each student. Two important issues arise here and in other studies of fiscal impacts. First, immigrants and their children may reside in school districts in which per pupil expenditures are different on average than those in which the children of natives are enrolled. This may not be a significant issue in California because the state attempts to equalize funding across school districts. In 1976, the California Supreme Court ruled in Serrano v. Priest that funding mechanisms which created disparities across school districts were unconstitutional. A study of California school financing found that by 1985–1986, 91 percent of public school students were enrolled in school districts with per pupil expenditures within $100 of the statewide average expenditure (Silva and Sonstelie, 1995). A second issue is variation in the "true" benefit received by students, which may result from variation in the quality of education received across schools or school districts.
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration and assumes benefits depend on the nativity and age of the household head in proportion to benefit differentials observed in the 1990 Census. Average benefits for each householder nativity and age class are estimated for 1995 based on average benefits in 1990.8 This method is used for allocation of Social Security, AFDC, and Supplemental Security Income (SSI). Government expenditures on general government activities, national defense, environmental protection, transportation, public health, public safety, and criminal incarceration are assumed to benefit all households equally. Federal debt interest payments are not allocated. Average rather than marginal costs are allocated.9 The specific methods and assumptions made for each benefit item are included in Appendix B. Sources of Inaccuracy Several sources of inaccuracy in the CPS data must be acknowledged. Sampling error may be large because the California sample is small (4,590 households) and is not a simple random sample. Census Bureau methods and parameters are used to calculate standard errors for household characteristics and program participation rates. These methods yield error estimates based on the size of the population for which the error is being calculated rather than the number of households or persons sampled. Adjustment parameters are included for specific characteristics and population subgroups and depend on the Bureau's assessment of the effect of the sampling method on the accuracy of the estimate. Nonsampling error may result from inaccurate reporting of income sources and amounts. The Census Bureau reports an estimate of underreporting of 11 percent of all income in the 1987 survey, resulting both from underreporting of receipt and from underreporting of income amounts. Some income types are subject to greater underreporting than others, and 99.4 percent of wage and salary income is reported. Irregular income such as interest and unemployment com- 8 For example, native recipient households in 1990 received higher average Social Security benefits compared with immigrant recipient households. Benefits allocated reflect this differential, after controlling for changes in the age and nativity distribution of recipients. 9 Two areas where marginal costs are arguably important are K-12 education and incarceration costs. California's school districts spent approximately 10 percent of K-12 funds on building costs during 1993–1994 (Office of the State Controller, 1996b). Some of these funds were spent on new school buildings needed because of enrollment growth, whereas other funds were spent on retrofitting older school buildings for earthquake safety. For this reason, and because both immigrant and native households experienced increases in the number of school-age children since 1990, it is not clear to what extent capital outlay is attributable to enrollment growth due to immigrant households. Capital outlay was 1.2 percent of the $3.5 billion state corrections budget in 1994–1995 (Department of Finance, 1996a).
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration pensation is subject to particularly high underreporting (Bureau of the Census, 1993a). Underreporting of benefit receipt is corrected in this analysis by allocating total budget amounts to households reporting participation. This method has the effect of raising the average allocation to an individual participating household, but the average benefit across all households does not change. In other words, the underestimated participation rate is multiplied by an overestimated benefit amount. As mentioned above, ideally, survey data would reflect administrative totals, and these crude adjustments would not be necessary. However, if underreporting is proportional to the observed participation rate and not related to nativity or age, perfect reporting would not produce different results. Top coding of income amounts will result in underestimates of income tax paid, particularly because of progressive taxation. Furthermore, use of the March 1995 CPS data may underestimate income and overestimate program participation in 1995. Income levels and income transfer program participation rates in the data reflect household experiences during 1994, while the budget year examined includes part of 1994 and most of 1995. Improvement in California's economy likely led to lower participation in welfare programs and increased tax contributions. California payrolls grew 4.5 percent during the second quarter of 1995 and personal income rose 5.2 percent during the 1994–1995 budget year (Board of Equalization, 1995). The net effects of underreporting and economic shifts are likely to exacerbate underestimation of taxes contributed, but declines in program participation resulting from an improving economy should offset underreported participation. Underestimation of taxes is avoided by adjusting income tax amounts proportionally to match budget or empirical data. GOVERNMENT REVENUES AND EXPENDITURES Government Revenues Revenues from California by government level are displayed in Table 4-1. Federal revenues from taxes and borrowed funds totaled $1,538 billion during fiscal year 1995. Personal income taxes constituted 39 percent of federal revenues, the largest single source of revenue. Social security and unemployment insurance contributions were the second largest revenue source (32%). Corporate taxes, excise taxes on alcohol, tobacco, and motor fuels, and miscellaneous receipts constituted another 18 percent of total revenues. Borrowed funds accounted for the remaining 11 percent (Office of Management and Budget, 1995). Federal tax contributions in 1995 from California households and corporations are not directly available and must be estimated based on the percentage of federal revenues paid by California households and corporations during previous years. In 1993, 13.2 million California households and individuals filed federal income tax returns and paid $63.9 billion in federal personal in-
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration TABLE 4-1 Revenues by Level of Government, Fiscal Year 1995 (in thousands) Revenue Item Federal Governmenta State of California Local Governments Total Government Revenues Total Allocated to Householdsb Individual Income Taxes 71,711,000 18,500,000 90,211,000 90,211,000 Social Security (OASDHI) 54,2311,750 54,311,750 54,311,750 Railroad Retirement 323,000 323,000 323,000 Unemployment Insurance 3,199,601 3,199,601 3,199,601 State Disability Insurance 1,967,827 1,967,827 1,967,827 Corporate Taxes 15,933,000 5,716,000 21,649,000 0 Sales Tax 16,283,000 7,130,000 23,413,000 10,540,019 Property Tax 19,300,000 19,300,000 11,287,156 Tobacco Tax 429,840 685,383 1,115,223 970,093 Alcohol Tax 990,486 269,056 1,259,542 1,094,743 Fuel Tax 2,913,429 2,752,005 5,665,434 3,206,937 Gambling Fees 649,829 649,829 649,829 Other Excise Taxes 1,685,756 1,685,756 0 Estate and Gift Taxes 2,335,283 599,000 2,934,283 2,934,283 Customs Duties 2,383,000 2,383,000 0 Vehicle Fees 4,700,000 4,700,000 1,944,968 Insurance Premiums 1,059,000 1,059,000 0 Current Services/Other Sources 27,705,000 27,705,000 0 Miscellaneous Receipts 2,428,000 1,689,344 4,680,000 8,797,344 0 Total Taxes and Fees $158,644,145 $54,870,444 $58,815,000 $272,329,589 $182,641,206 a Federal amounts are estimates for taxes paid by California households and corporations based on Current Population Survey and historical data. b Amounts in this column represent the revenues directly attributable to households. These amounts are allocated to households in later tables. The remaining revenues are revenues contributed primarily by corporations. Per-household shares of these "Unallocated Revenues" are included in Table 4-7. Sources: Office of Management and Budget, 1994, 1995; Bureau of theCensus, 1996b; Department of Finance, 1995a, 1996a; Office of theState Controller, 1995, 1996a, 1996b, 1996c.
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration come taxes, constituting 12.0 percent of federal personal income taxes collected (U.S. Internal Revenue Service, 1995b). In 1992, Californians contributed $44.94 billion to the OASDHI funds, 11.42 percent of the national total (Social Security Administration, 1996). Railroad retirement contributions from California were $323 million in 1994. The share of corporate taxes generated from California is assumed to be proportional to California's share of total U.S. households. Using these historical data, the estimated contributions of California households and corporations are approximately $72 billion in federal individual income taxes, $54 billion in Social Security taxes, and $15.9 billion in federal corporate taxes during fiscal year 1995. Based on state excise tax revenues, sales of taxable items in California generated an estimated $2.9 billion in federal fuel taxes, $991 million in federal alcohol taxes, and $430 million in federal tobacco taxes (Board of Equalization, 1995). In 1994, 15.4 percent of federal estate taxes were paid in California (U.S. Internal Revenue Service, 1995a). Based on this figure, the government generated an estimated $2.3 billion in estate taxes from California in 1995. The total federal tax contribution from California is estimated at $158.6 billion, 11.6 percent of total federal receipts (excluding borrowed funds). California households' share of borrow funds equals $19.2 billion during fiscal year 1995. The state of California collected $54.9 billion in taxes and other revenues during 1994–1995. Personal income taxes are the largest source of revenue for California: In 1994–1995, the state collected $18.5 billion in personal income taxes, amounting to 33.8 percent of total state revenues. Sales taxes are the second largest revenue source for the state, totaling $16.3 billion in 1994–1995. Bank and corporation taxes constituted 10.5 percent of state revenues, and gasoline taxes and vehicle license fees were 13.4 percent of state revenues (Department of Finance, 1995a). Local governments in California include 58 counties, 469 cities, 1,001 K-12 school districts, and more than 4,000 special districts. The primary source of revenue for local governments is property tax revenue, totaling $19.3 billion during 1994–1995. Of this revenue, 52 percent is allocated to K-14 schools, 19 percent to counties, 11 percent to cities, and 18 percent to redevelopment agencies and other special districts. Sales and use taxes contributed $7.13 billion to local government coffers (Board of Equalization, 1995). Other taxes, including utility users, business license, and transient occupancy taxes contribute $4.68 billion to local government revenues. Current services and other revenue sources raised $27.7 billion10 (Board of Equalization, 1995; Office of the State Controller, 1995, 1996a, 1996b, 1996c). 10 This figure was calculated as the total of other revenue sources for counties, cities, school districts, and special districts as reported in the 1993–1994 series of reports from the Office of the State Controller. The 1993–1994 values were carried over to 1994–1995.
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration of total tax collected was associated with commercial property. Owner-occupied housing with homeowners' exemption claims accounted for 37.3 percent of tax assessed, and other residential property made up the remaining 21.2 percent (Board of Equalization, 1995).16 Studies of property tax incidence assume that property taxes are borne by the owners of owner-occupied housing, but debate continues concerning the burden of taxes on rental property. For a review of perspectives and findings, see O'Sullivan et al. (1993), Carroll and Yinger (1994), and Wassmer (1993). Other studies of tax burden and immigrant fiscal impacts have generally allocated one-half of tax payments on rental property to renters (Los Angeles County, 1992; Clark et al., 1994; Sheffrin and Dresch, 1995). Estimates provided in this chapter are calculated using the assumption that the tax incidence falls on the renter. CPS property tax amounts imputed by the Census Bureau are not used because the imputation method did not rely on length of tenure, which strongly affects tax amounts in California. Self-reported tax amounts in the 1990 Census show that among homeowners, immigrant households pay higher taxes than natives.17 European and Asian immigrant homeowners report paying the highest average tax amounts while Latin American homeowners pay the lowest average taxes. The averages also decline with the age of the household head, but immigrants as a group report higher average taxes than natives in all three age groups. Higher tax contributions by immigrants may reflect more recent purchases, higher property values, or both. European and Asian immigrant homeowners also report property values and monthly mortgage payments higher than those of natives. Reported property values are highest for householders age 40–64 and lowest for homeowners age 65 and older. Effective tax rates, calculated as the reported tax paid divided by the reported property value, are slightly higher than for natives for all immigrant groups except European/Canadian homeowners. More notably, effective tax rates decline with the age of the homeowner. Young householders are taxed at 0.71 percent while householders age 40–64 are taxed at a rate of 0.56 percent and elderly householders are taxed at a rate of 0.41 percent. State data prevent easy estimation of average property taxes paid by type of property because some owner-occupied properties are included in the category of rental property. In 1994–1995, the Board of Equalization reports that 5.09 million households took the homeowners' exemption of $7,000 of assessed value, while the CPS estimate of owner-occupied households exceeds 6.3 million, suggesting that 19.8 percent of owners failed to claim the exemption and/or did not 16 In 1994–1995, the homeowners' exemption was claimed for only 5 million properties, while 6.3 million householders owned the property in which they lived. As a result, a sizable proportion of owner-occupied properties are classified as rental property by the Board of Equalization. 17 Means for property taxes paid and property values are estimated by using the midpoint of each category on the census form.
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration pay taxes. Using the Board of Equalization figures, these 5.09 million owners paid average taxes of $1,415.62. The following assumptions are made in estimating property taxes. First, the mean payment by homeowners is adjusted to reflect lower average payments by owners who failed to claim the homeowner's exemption. The 1.3 million owners who fail to claim the exemption and the 4.9 million renters paid total taxes of $4.09 billion and average taxes of $664.93. Adjusting the average owner-occupied tax paid to reflect lower tax payments by owners who did not take the exemption yields an average tax payment for owners of $1,267.14. Second, data from the 1990 PUMS are included to estimate differences in property taxes and rent paid by nativity and age. Proportional differences between natives and immigrants by region of origin and age were assumed to be the same in 1995. This adjustment lowers the average tax allocated to native owners and raises the average tax allocated to native renters. Fuel Taxes The state of California taxes motor vehicle fuel and diesel fuel at a rate of $0.18 per gallon. Additional taxes are levied on aircraft fuel, liquefied petroleum gas, liquid natural gas, alcohol fuel, and compressed natural gas (California Legislature, 1995). In 1994 –1995, motor fuel sales in California generated $2.75 billion in state taxes (Board of Equalization, 1995). The federal government levies taxes of $0.183 per gallon of motor vehicle fuel and $0.244 per gallon on diesel fuel (California Legislature, 1995). Fuel consumption in California generated an estimated $2.9 billion in tax revenues to the federal government in 1994–1995, 12.4 percent of total federal fuel tax revenues. The shares of fuel taxes paid by businesses and tourists are estimated to be 35 percent and 8.5, percent, respectively, yielding an estimate of fuel taxes paid by California households of $3.21 billion. Fuel taxes are allocated to households on a per vehicle basis based on the average number of automobiles reported in the 1990 Census for age and nativity categories. The average household owned 1.78 automobiles in 1990. Using this average to estimate the number of vehicles per household in 1995, I calculate an average tax contribution of $161.02 per vehicle. Liquor and Excise Taxes California alcohol excise tax rates are $0.20 per gallon on beer, dry and sweet wine, and sparkling hard cider; $0.30 per gallon on sparkling wine; and $3.30–$6.60 per gallon on distilled spirits (California Legislature, 1995). Revenues for 1994–1995 totaled $269 million (Board of Equalization, 1995). Federal taxes on alcohol are $0.58 per gallon on beer, $1.07–$13.50 per gallon on wine depending on alcohol content, and $13.50 per gallon on distilled spirits (California Legislature, 1995). California alcohol sales accounted for an estimated $991
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration million in federal alcohol tax revenues in 1994–1995, 10.9 percent of total federal collections. Out-of-state tourists are assumed to contribute 8.5 percent of alcohol taxes paid in California. The remaining $1.1 billion is allocated to households based on the number of adults of legal drinking age per household. The average household contains 1.9 persons age 21 and older, and the estimated average tax contribution is $52.32 per adult. Tobacco Taxes The state of California levies tobacco taxes of $0.37 per package of cigarettes and, in 1994–1995, 31.20 percent of wholesale cost on tobacco-related products (California Legislature, 1995). State tobacco revenues in 1994–1995 were $685 million (Board of Equalization, 1995). The federal government levies tobacco taxes of $0.24 per package of cigarettes and additional taxes on other tobacco products (California Legislature, 1995). In 1994–1995, the federal government collected an estimated $430 million in tobacco taxes from sales in California (6.4% of revenues nationwide). Out-of-state tourists are assumed to pay 8.5 percent of tobacco taxes. The remaining $970 million is allocated to households based on the average number of adults age 18 and older per household. The average household contains 2.03 persons age 18 and older and the estimated average tax contribution is $43.95 per adult. Motor Vehicle Fees The state of California assesses annual operation fees of 2.0 percent of automobile market value, based on an 11-year depreciation period. The vehicle registration fee is $28 on motor vehicles, trailers, and other vehicles. License and registration fees generated $4.7 billion in revenue to the state of California in 1994–1995 (California Legislature, 1995). Assuming the average number of vehicles per household has remained constant since 1990, automobiles owned by households account for 35 percent of registered vehicles. The remaining 65 percent include automobiles owned by government and corporate entities and other vehicles such as trailers. Of vehicle license and registration fees, 35 percent is allocated to households based on the number of vehicles owned. For license fee allocation, all vehicles are assumed to have the same value. The average household contributes $97.86 in fees per vehicle annually. Inheritance and Estate Taxes California estate taxes range from 0.8 to 16 percent of the federal taxable estate, determined to pick up the maximum credit allowed against the federal tax
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration rate. Federal tax rates range from 18 to 55 percent of the taxable estate (California Legislature, 1995). In 1994–1995, the state estimated total estate tax receipts at $599 million. Federal taxes collected on California estates totaled $2.335 billion in 1994–1995, 15.4 percent of total federal revenues (U.S. Internal Revenue Service, 1995a). Following the methodology of Garvey and Espenshade (1996), a household is considered eligible to pay inheritance taxes if the householder is a native or has been in the United States for more than 20 years. Taxes are allocated on an average per recipient household basis, assuming inheritance amounts are unrelated to recipient household income. This method is used to allocate federal and California estate taxes. The average eligible household contributes $312.73 in estate taxes. APPENDIX B: BENEFIT INFORMATION AND METHODOLOGY Social Security, Retirement, Health Care, and Poverty Programs For the 17 programs listed in Table 4-B1, the government expenditure total was divided by the number of participating households or individuals identified in the CPS data. This average benefit was then allocated based on household participation or the number of recipients in the household. For most programs, the allocation is made with the assumption that no difference in recipient benefit levels exists by nativity. For Social Security, AFDC, and SSI, differentials in average recipient household benefits observed in the 1990 Census were incorporated. These average benefits were adjusted to reflect the total expenditure in 1995. Earned Income Tax Credit Earned income tax credits received by California households totaled $2.4 billion. CPS-imputed estimates of earned income tax credits are adjusted upward by 11.48 percent to reflect this figure. K-12 Education California households contained 6.19 million school-age children (children ages 5–17) in 1995, an average of 0.551. In 1990, 82.4 percent of children age 5–17 were enrolled in public schools, 9.7 percent were enrolled in private schools, and 7.8 percent were not enrolled in school.18 Total expenditures for K-12 education were $29.14 billion in 1994 –1995. Revenue sources were as follows: $16.37 billion of general and special fund state revenues, $2.40 billion in federal funds, $8.2 billion in local taxes, and $2.16 billion from miscellaneous local 18 Application of this figure to the 1995 estimate of the school-age population yields an underestimate of enrollment in the public schools. Use of the 1990 figure yields an estimate of 0.454 public school enrollees per household and a total enrollment of 5.10 million in 1995. This estimate is 200,000 students short of the budget estimate of 5.316 million students. According to the state budget, public school enrollment in 1994–1995 was projected to be 5.316 million, suggesting that 85.9 percent of school-age children attend public school.
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration TABLE 4-B1 Program Benefits, Expenditures, and Allocations Program Allocated Benefit Allocated to Social Securitya per recipient household Federal Retirement $16,074 per recipient household Military Retirement $14,534 per recipient household Railroad Retirement $4,836 per recipient household Medicare $5,104b per recipient Unemployment Benefits $4,058 per recipient household Workers' Compensation $843 per recipient household Veterans' Benefits $5,713 per recipient household Pell Grantsc $1,050 per recipient Medicaidd $1,927 per recipient AFDCa per recipient household SSIa per recipient household Housing Assistance $8,104 per recipient household Food Stamps $990 per recipient School Lunches $385 per recipient General Assistance $3,627 per recipient household Energy Assistance $203 per recipient household a Benefit allocations for Social Security, AFDC, and SSI vary by nativity and age category of households. Benefit averages observed in the 1990 Census for each nativity and age category are inflated to reflect 1995 expenditures. b Medicare allocations are reduced by the per-recipient annual premium of $493 for Supplemental Medical Insurance. c Student loan interest subsidies for Californians totaled $120 million in 1995 (Bureau of the Census, 1996b). Because beneficiaries do not directly receive the subsidy, they are unlikely to report receipt in the CPS. These benefits are not allocated to households. d The Medi-Cal allocation total was reduced by 33.7 percent, reflecting the share of costs paid for nursing facilities and intermediate care facilities for the mentall y retarded. sources (Department of Finance, 1996b). Schools report spending $2.8 billion of the budget on capital outlay (Office of the State Controller, 1995). The only funds designated explicitly for bilingual education are $91.97 million of federal funds (Bureau of the Census, 1996b). 19 The number of children per household is multiplied by the estimate of the percentage of children attending public school by age and nativity of householder from the 1990 Census. The allocation of educational benefits to households is based on this estimated number of public school children per household; bilin- 19 California school districts also receive $734.5 million in a fund called "Education for disadvantaged," but these are not dedicated specifically to educating the children of immigrants (Bureau of the Census, 1996b).
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration gual education funds are allocated based on the estimated average number of LEP students per household. The estimated average benefit per enrolled child is $5,362.74. The additional benefit per limited English proficiency (LEP) student is $101.39. Higher Education Total expenditures on public higher education (including state administrative offices) was $11.04 billion in 1994–1995. State, federal, and local shares of expenditures were 52.3 percent, 36.2 percent, and 11.5 percent, respectively. Of federal funds 85 percent went to the University of California (apparently research dollars). The CPS data only identify college students age 16–24. Surveyed households reported 882,975 college students age 16–24 either living at home or in college dormitories in 1995.20 A higher education benefit of $13,428.62 is allocated to each identified college student. The allocation of higher education benefits is made difficult by a number of problems. First, the CPS misses a large number of students, particularly those over age 24. However, those over 24 are much less likely to be full-time students (see Bureau of the Census, 1993b), and therefore students age 16–24 will incur most of the higher education costs. Differences in full-time and part-time status also exist across nativity categories, with students in native households more likely to attend full time in the 1990 Census. In 1990, college students in native households were also more likely than students in households from Latin American countries to attend private colleges, but they were less likely to attend private colleges than students in European/Canadian and Asian immigrant households. Finally, costs will vary across students due to differences in enrollment patterns. Nationally, Hispanic students are more likely than non-Hispanics to be enrolled at the community college level (Bureau of the Census, 1993b). In 1993 Asian-American students constituted a disproportionate share of new students at the University of California (Office of the President, 1995). Expenditures per full-time-equivalent student are much higher at the University of California than they are at California community colleges. Because data on the institutional attendance of college students by nativity of parents do not exist, average benefits are assumed for all students. Incarceration Costs The state of California spent $35 billion on youth and adult corrections 20 The CPS questionnaire only asks about school enrollment for household members age 16–24. However, interviewees are asked to include information about family members living in college dormitories, so the CPS should provide a complete census of 16 to 24-year-old college students affiliated with California households. Some of these college students attend college out of state and some proportion attend private colleges.
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The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration during 1994–1995. Although incarceration costs are not directly attributable to households, the argument can be made that costs are linked to households as the former residences of the incarcerated population. To distribute costs to household classes, the nativity distribution of the prison population is needed. Nativity data from the California Department of Corrections (CDC) is limited to undocumented persons. According to the Department of Finance, the CDC conducts a one-day census each year to estimate the number of deportable (undocumented) aliens in the prison population. In 1994–1995, 14.89 percent of the adult corrections population, 15.44 percent of the paroled population, and 10.9 percent of the youth corrections population were identified as deportable. Generally, 10 percent of those identified as deportable are determined not to be undocumented by the U.S. Immigration and Naturalization Service (Department of Finance, 1996b). These data appear inconsistent with the 1990 Census. In 1990, among all persons in institutions (primarily prisons and nursing homes), 15.5 percent were foreign born. PUMS coding does not allow direct estimates of the nativity of the incarcerated population, but among institutionalized persons with no income from public assistance, Social Security, or retirement, 16.6 percent were foreign born. It is unlikely that three-fifths of foreign-born inmates are undocumented. Because of the poor data, incarceration costs are allocated as a public protection benefit received by households, and each California household is allocated an average benefit. ACKNOWLEDGMENTS I gratefully acknowledge the research support, direction, and valuable comments of the Panel on Demographic and Economic Impacts of Immigration. Barry Edmonston and panel members Tom Espenshade, Ron Lee, Alan Auerbach, Bob Inman, and Jim Smith were particularly helpful in directing the research. Jim Smith also provided very helpful comments for editing the paper. Deborah Garvey and Tom Espenshade provided useful information about the methodological approach. I also thank the University of California Data Archive and Technical Assistance office and Tim Miller both for computing support and helpful comments. REFERENCES Ayres, B. Drummond, Jr. 1995. ''Federal Judge Voids Some Limits on California Services to Aliens." New York Times 145 (November 21):C18. Bean, Frank D., Jennifer V.W. Van Hook, and Jennifer E. Glick 1997. "Country-of-Origin, Type of Public Assistance and Patterns of Welfare Recipiency Among U.S. Immigrants and Natives." Social Science Quarterly 78(2):432–451. Board of Equalization 1995. Annual Report. Sacramento, Calif.
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Representative terms from entire chapter: