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Fact check: What are the economic impacts of illegal immigration on the US economy according to a 2025 study?
Executive Summary
A July 2025 Penn Wharton Budget Model analysis projects that a large-scale, multi‑year deportation program would shrink U.S. GDP and substantially increase federal primary deficits, estimating a 1.0% GDP decline and $270 billion higher primary deficits for a 4‑year program and a 3.3% GDP decline with $862 billion higher primary deficits for a 10‑year program [1]. Alternative recent studies and reviews show a consistent pattern that increased immigration tends to raise federal revenues over time while imposing modest near‑term state and local costs, and commentators differ sharply on magnitude and distributional consequences [2] [3] [4] [5].
1. Why the Penn Wharton model sounds an alarm: macro losses and fiscal holes
The Penn Wharton modeling exercise quantifies the macroeconomic fallout of mass deportation as meaningful GDP losses and large increases in primary deficits, with a 4‑year program cutting GDP by about 1.0% and a 10‑year policy cutting GDP by about 3.3%, while increasing primary deficits by $270 billion and $862 billion respectively. The model also reports labor‑market dislocations where deportation reduces wages for many high‑skill workers and affects about 63% of the workforce, and it finds that authorized low‑skilled workers could see wage gains only under a specific scenario of permanent deportation sustained after four years [1]. These results depend on assumptions about the scale, speed, and permanence of removals and the subsequent contraction of production and demand.
2. The counterweight: studies pointing to net fiscal gains from immigration
Congressional Budget Office and Economic Policy Institute analyses present a contrasting fiscal picture: immigration surges increase federal revenues and can lower federal deficits over long windows. The CBO reported that immigration boosted federal revenues and lowered deficits by roughly $0.9 trillion over 2024–2034 and projected large revenue additions over that period, signaling longer‑run fiscal benefits from rising employment and tax contributions [2]. The Economic Policy Institute emphasizes a consensus that immigration tends to reduce overall budget deficits over immigrants’ lifetimes and across generations, warning that wholesale deportation would disrupt production and labor markets [4]. These frames rest on different accounting horizons and which levels of government’s fiscal flows are included.
3. State and local budgets feel the pinch even as the federal picture brightens
Recent CBO analysis highlights that the immigration surge imposed measurable state and local fiscal costs, estimating a direct net cost of about $9.2 billion in 2023 (roughly 0.3% of state and local spending), driven by increased outlays for services and infrastructure [3]. That pattern — federal revenue gains paired with concentrated local spending pressures — explains political tensions: states and localities often face frontline costs for education, health and local services even as the federal treasury accrues tax receipts. Policy choices about federal aid and cost‑sharing therefore shape whether localities bear persistent fiscal strain.
4. Academic reviews and litigation of assumptions: what drives divergent results
Literature reviews and academic work underline that results hinge on key modeling choices: whether deportation scenarios assume rapid, comprehensive removals; how economists treat long‑run productivity, labor complementarities, and dynamic fiscal contributions; and whether analyses include indirect impacts on housing, wages and consumption. A Carsey School review and other academic syntheses find that mass deportation would lower output, tax revenue and raise unemployment, reinforcing Penn Wharton’s headline claims while differing in magnitude and geographic detail [6]. The CBO and academic reviews show the same directional effects but stress different timelines and sectors.
5. The partisan razor: think tanks frame numbers through policy priors
Advocacy and research organizations present coherent but different emphases: the Center for Immigration Studies frames immigration as a significant long‑term fiscal drain, estimating per‑person lifetime costs and very large aggregate burdens and housing impacts, which supports stricter enforcement arguments [5]. By contrast, the Economic Policy Institute stresses overall net fiscal benefits and economic disruption from deportation, supporting regularization and labor integration [4]. Penn Wharton and CBO present technical model outputs that can be interpreted by policymakers on either side; readers should note that source agendas and chosen accounting windows strongly influence headline conclusions [1] [2].
6. Bottom line for policymakers and the public: tradeoffs, timelines, and policy design
The recent 2024–2025 literature converges on two stable facts: immigration materially affects output, taxes and local service demand, and large‑scale deportation would cause measurable GDP losses and higher federal deficits in the scenarios modeled [1] [6]. The magnitude and distribution of costs depend on assumptions about scope and duration, and whether analyses privilege short‑term local budgets or long‑run federal fiscal balances [3] [2]. Policymakers should weigh these tradeoffs explicitly and design targeted fiscal transfers, labor‑market policies, and staged legalization or enforcement strategies to manage both national benefits and local burdens identified across these sources [4] [5].