Reconciliation 2.0 Can Save Billions by Completing the Wall Around the Welfare State

Adam N. Michel and David J. Bier

The next reconciliation package should finish what the One Big Beautiful Bill Act (OBBBA) started. It should finish construction on the wall around the welfare state by drawing a clearer line between immigration and access to public benefits.

The 2025 law made meaningful progress. It restricted immigrant eligibility for programs including the Supplemental Nutrition Assistance Program (SNAP), tightened access to health subsidies, and required parents to have a Social Security number to claim the child tax credit (CTC). These are steps in the right direction, but more needs to be done. 

Now, the Treasury Department is considering reclassifying refundable tax credits (credits that are direct payments, rather than tax cuts) as “federal public benefits.” That move could restrict eligibility for some categories of noncitizens who currently file taxes and qualify under existing law.

The Treasury proposal is directionally correct policy. But major eligibility rules should be designed by Congress rather than regulatory fiat. Reconciliation 2.0 should codify these proposed changes to make them more durable and expand them to other programs to provide needed offsets for a package that promises to be expensive (but doesn’t need to be, as most of the new proposed spending is unnecessary). 

Immigration Is a Fiscal and Economic Positive

It’s important to acknowledge a key empirical point: On average, immigrants contribute more in taxes than they consume in benefits from all levels of government. Even lower-income immigrants tend to use fewer public resources than similarly situated native-born Americans. Under current law, immigration is a fiscal and economic asset.

But that does not mean the current policy mix is optimal. A system that limits access to public benefits can strengthen those positive fiscal effects and ensure that immigration policy is aligned with work, contribution, and upward mobility, not dependence. 

What’s Left to Fix? 

Despite recent reforms, significant access to federal benefits remains for immigrants. Eligibility rules operate on a spectrum, and recent reforms have only moved partway along it. Requiring a valid work-eligible Social Security number is a meaningful step that generally ensures a claimant is authorized to work in the United States. Congress could go further by limiting eligibility for major refundable credits and other transfer programs to lawful permanent residents or just US citizens. That would draw a clearer line between temporary labor market participation and full eligibility for taxpayer-funded benefits. 

For example, major benefit categories still allow relatively broad access under current law, often with carveouts that weaken otherwise clear eligibility rules.

• Tax credits: Recent reforms strengthened the Social Security number requirement for the CTC and narrowed eligibility for Obamacare tax credits, denying access to those with temporary protected status, refugees, asylum seekers, and migrants with parole. Here, Congress could codify the Treasury’s proposed federal public benefit rule for refundable tax credits, but an even stricter restriction to only US citizens would be better. Requiring self-certification of citizenship for all refundable tax credits—earned income tax credit, CTC, Obamacare credits, adoption credit, and American opportunity tax credit—would strengthen existing protections offered by Social Security number requirements, with minimal additional administrative burden compared to complex pre-certification requirements. Based on data from Cato’s recent report on the fiscal effect of immigrants, noncitizens received $456 billion in federal refundable tax credits over the last 30 years.
• Cash and income support programs: Following the OBBBA, Supplemental Security Income, Temporary Assistance for Needy Families, and SNAP are now generally limited to citizens, lawful permanent residents (often after a waiting period), lawful children (SNAP), and a narrow set of exempt groups such as certain Cuban and Haitian entrants. Social Security retirement benefits are limited to applicants with at least 40 quarters of work history in the United States, except for nationals of countries with which the United States has a totalization agreement. Illegal immigrants are ineligible, but other lawfully present noncitizens can qualify. Additional savings could be achieved by further restricting benefits to only US citizens and excluding work history prior to naturalization to qualify for Social Security. Over the last 30 years, noncitizens have received $218 billion in federal cash welfare, another $125 billion in SNAP and federal school lunch, and $501 billion in Social Security benefits. 
• Health programs: The OBBBA significantly narrowed Medicaid, Medicare, and Children’s Health Insurance Program (CHIP) eligibility, limiting federally funded coverage primarily to citizens, lawful permanent residents, and a small set of exempt groups while excluding many previously eligible populations such as asylees and refugees. The final bill omitted key enforcement provisions from the House version, including reduced federal funding for states that cover unauthorized immigrants and a requirement to withhold federal funding until eligibility is verified. These loopholes should be closed, and eligibility should be narrowed further to citizens only. Over the last 30 years, noncitizens have received $638 billion in federal Medicaid and CHIP funds, and they have benefited from another $437 billion in Medicare funds.
• Housing subsidies: Public housing, Housing Choice Vouchers, Section 8 project-based rental assistance programs, and rural rental assistance allow benefits to flow to most permanent lawful immigrants, while mixed-status households may still receive prorated benefits. Other programs, such as many grant-based housing and homelessness programs and the low-income housing tax credit, do not condition tenant eligibility on immigration status at all. Congress should standardize eligibility rules and, at a minimum, apply the same limits adopted in the OBBBA—restricting eligibility to citizens, lawful permanent residents, and a narrow set of exempt categories. Ideally, eligibility would be limited to citizens alone. Noncitizens have received $62 billion in federal housing and rent assistance over the last 30 years.
• Education and workforce: The College Assistance Migrant Program, High School Equivalency Program, and Migrant Education Program provide academic, financial, and support services to lawful immigrant and seasonal farmworker populations. Federal student aid extends grants and loans to a broad set of noncitizens, including refugees, asylees, and certain visa holders. These programs should be eliminated or limited to US citizens. Unemployment insurance is limited only to workers available to legally work, which may not include immigrants here without work authorization but may include other lawfully present immigrants. Over the last 30 years, noncitizens have received $181 billion in unemployment insurance payouts.
• Other programs: The Federal Communications Commission’s Lifeline program and Head Start have historically relied on income-based eligibility with limited immigration status verification. Recent proposed regulatory changes would tighten access by reclassifying these programs as federal public benefits. Congress should codify these changes and further narrow eligibility to ensure access is tied to citizenship. 

A Pro-Immigration Reform

The United States benefits enormously from immigration. Most people come to work, build businesses, raise families, and contribute to our communities, not to access public benefits. But good policy can reinforce those aims with clearer rules.

In a better-designed fiscal system, most federal benefit programs would be smaller or would not exist at all. But to the extent that they do exist, they should be tightly targeted. Limiting access to public benefits helps ensure that immigration remains a fiscal strength and may reduce political backlash, while helping keep labor markets open and welcoming.

While not every change listed above is eligible for the reconciliation process, lawmakers can go a long way toward finishing building the wall around the welfare state in Reconciliation 2.0.