Want to Resurrect the Grand Bargain? Try Immigration Reform
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By Marc Joffe,
The Fiscal Times
August 25, 2014

We don’t hear much about the “Grand Bargain” these days. The idea of achieving long-term budget balance through a mix of entitlement reform and revenue positive tax changes has fallen off the agenda – replaced by overseas emergencies, urban unrest, scandals and election-year politics.

Recent sharp declines in the federal deficit have put an end to any serious talk in Washington about producing a comprehensive long-term budget plan similar to the one issued in late 2010 by the National Commission on Fiscal Responsibility and Reform, chaired by Republican Alan Simpson and Democrat Erskine Bowles.

Related: CBO Warns Unchecked Entitlement Spending Is ‘Unsustainable’   

The Congressional Budget Office projected earlier this month that the deficit will total roughly $500 billion by the end of fiscal 2014, which would make it the smallest budget shortfall since 2007. But the need for a grand bargain remains. The recent shrinkage in annual deficits – which had been predicted by experienced budget observers – does not mean the problem has gone away. The fact that we continue to have large deficits five years into an economic recovery should give the optimists pause. Sooner or later, there will be another downturn, followed inevitably by a new gusher of red ink.

Worse, even in the absence of a recession, CBO projections show the deficit rising toward the end of this decade as baby boomers swell the ranks of Social Security and Medicare beneficiaries.Grand bargain proponents like me have suggested that the absence of a deal would result in a fiscal emergency at some point.

However, the prospects for a future grand bargain appear dim. Because voting for a grand bargain is politically unappealing, politicians can only be expected to support it at times far away from their next election. Since the House is up every even year, a grand bargain is best advanced in an odd year. Although next year is an odd year, it will be dominated by President Obama and potentially a Republican-majority House and Senate – ingredients unlikely to yield bold action.

Related: Obama’s August Playbook: Own the Immigration Fix

So can a crisis be avoided here, and, if so, how?

On the policy side, immigration reform that brought into this country a large number of young, productive, on-the-books entrepreneurs and workers would produce some much-needed revenues that could help get us over the hump in the 2020s and 2030s. Unfortunately, for now, immigration reform seems to be almost as stymied as a grand bargain. But perhaps there is a way to save it. Most House Republicans oppose comprehensive immigration reform for a variety of reasons. If some of these objections could be taken off the table, perhaps they would join The Wall Street Journal editorial board and other business-oriented Republican voices in supporting higher levels of legal immigration.

Aside from increasing border security, two changes that may appeal to Republicans are ensuring that new immigrants become neither a drain on the public purse nor a major new Democratic voting bloc. The latter could be addressed by replacing the immigration bill’s “path to citizenship” with a “path to permanent residence.” Since immigrants are attracted more by this country’s economic opportunities than by the chance to vote and serve on juries, they may be satisfied with a path that ends with the receipt of a green card.

Related: Voters Know What We Should Do on Immigration

What can be done to ensure that immigrants are revenue positive? We can start by prioritizing immigrants that have money and/or skills – those coming here to start businesses or take jobs in the lucrative fields of science, technology, engineering and math, or STEM fields. Second, we could charge these immigrants extra fees that would partially offset their children’s use of K-12 public education and in-state tuition at public universities. Finally, we could defer their eligibility for Social Security and Medicare.

If we set the eligibility age for retirement programs at age 70 for new permanent residents and then indexed this eligibility age to life expectancy, we could substantially increase the probability that new arrivals will be net payers into these systems.

Another benefit of this later immigrant retirement age is that it sets a precedent that could be applied to other groups if and when the political resolve is found. For example, the new retirement age calculation might reasonably be applied to everyone who is now below working age. These non-voters can then have a new, more sustainable retirement promise from the moment they enter the work force.

Immigration reform that brings in new entrepreneurs and skilled employees is revenue positive. By applying entitlement reform to new entrants, we can make sure that it reduces long-term deficits as well. More revenue and less spending: just what the grand bargain was supposed to do for us.

Marc Joffe is the Principal Consultant at Public Sector Credit Solutions and was previously a senior director at Moody’s Analytics.  

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