Eakinomics: CBO and the Dream Act

As discussed previously, the clock is ticking toward the deadline for finding a legislative response to President Trump’s decision to end the Deferred Action for Childhood Arrivals (DACA) program. One candidate for such a solution is the Dream Act, which would “cancel removal and grant lawful permanent resident status on a conditional basis to an alien who is inadmissible or deportable or is in temporary protected status who: (1) has been continuously physically present in the United States for four years preceding this bill’s enactment; (2) was younger than 18 years of age on the initial date of U.S. entry; (3) is not inadmissible on criminal, security, terrorism, or other grounds; (4) has not participated in persecution; (5) has not been convicted of specified federal or state offenses; and (6) has fulfilled specified educational requirements.”

This past Friday, the Congressional Budget Office (CBO) issued its “score” of the Dream Act and concluded that it would increase federal deficits by up to $27.9 billion over fiscal years 2018 to 2027. This finding has dismayed long-term followers of immigration policy, especially because a similar version of the Dream Act in 2010 was scored to reduce budget deficits. How should one think about the CBO analysis?

The most important insight is to remember that the CBO score is a budgetary exercise. CBO scores bills; that is, it calculates how much legislation affects the inflow of revenues and the outflow of spending. To ensure that such scores are comparable, it computes all scores as compared to the March baseline. That is, in March it “locks” the outlook for the economy and projects the outlook for the federal budget. All subsequent bills are then scored against this baseline.

This has huge implications for the Dream Act. To begin, in March there was a functioning DACA executive action with no hint that the president was planning to suspend it. That meant that 800,000 registered DACA participants were able to work. Compared to this, the Dream Act would have no effect on their work, the reporting of their taxable incomes for either income or payroll tax purposes and so forth. In addition, the March baseline contains a full Affordable Care Act with the individual mandate in place. When the Dream Act bestows eligibility for federal programs, CBO expects that the mandate will cause individuals to sign up for ACA exchanges and Medicaid expansions. This contributes to increased spending in a way not anticipated in 2010. It also means that revenues are lower — the premium tax credits reduce the tax liabilities of exchange participants. Many of the budgetary impacts can be traced to the nature of the March baseline.

The CBO score also does not reflect the real policy choice. The real choice is between a legal netherworld with DACA suspended but deportations not yet being pursued and legal permanent resident status. The economic and budgetary implications of this are quite different. The Tax Cuts and Jobs Act removes the penalty for violating the individual mandate; how many Dream Act beneficiaries will take up insurance and the consequent revenue reductions and spending increases?

This should not be interpreted as either a criticism of the CBO or the budget process. It is simply a reminder that there are a lot more dimensions to important policy issues than the impact on the fisc.