There was a piece published in The Economist this week that had an ingenious analogy and idea for immigration. It went something like this: if there was a door you had to go through to make 6 times more than what you are making now, wouldn’t you go through it? Now imagine that door is locked and there is a person on the other side with a key. Wouldn’t it make sense to pay that person to open the door or promise them a piece of your wages for a time once you get to the other side to let you in? Well immigrants are trying to get through the door to rich countries and voters hold the key.
Essentially, the piece argues for a temporary tax on immigrants wages to counterbalance the largely social costs of letting them in. There doesn’t seem to be much evidence that immigrants overall make people less poor, although there will definitely be some losers in some industries if low skilled immigrants come in droves. However overall, the piece proposes this tax as a compromise to both sides of the divide in the rich world on immigration. It would mean that we let in more immigrants legally but also that society gets a dividend for letting them in. The tax could pay for the increased cost of immigration enforcement as well as social programs for citizens.
Our national borders hold back economic growth. It is estimated that if there were no controls on immigration the world would be twice as rich as it is now. Studies indicate that immigration does not necessarily make us poorer and that immigrants are net contributors in terms of taxes. In addition, they are more likely to start a business, file a patent and keep out of jail compared to native born Americans.
Not a Right or Left Issue
Both sides of the aisle have contradictions when it comes to immigration. The left approaches the subject from an ethical and multicultural point of view. Although the left is not entirely united when it comes to immigration, in general they feel that immigrants here should be able to come out of the shadows and as long as they are law abiding, be allowed to stay. However this conflicts with the protectionist labor union side of the left, many of whom moved right in the last presidential election. Unskilled or low skilled immigrants may compete with many blue collar workers for jobs and if they come in large numbers, many feel they can drive down the wages in certain fields. Although this is not true, perception seems to be reality in politics.
The right looks at it from a cultural perspective and a law and order perspective. Many on the right see rapid immigration changing the fabric of their community to the point that they don’t recognize it. They also feel that permitting so much illegal immigration undermines the rule of law and sets a precedent for further widespread destabilizing influences. They may also share the fears of the left leaning blue collar unions that immigrants may make it more difficult for them to find work. The contradiction for the right is that immigration tends to increase economic growth and opportunity and not letting any immigrants in conflicts with the fabric of American ideals in general, being that it is already a nation of immigrants.
Neither side here has a monopoly on the truth. It’s not practical to have no border control and let in everyone who wants to come in. They have to be screened for security at the very least. I’m sure many countries would be happy to do what Fidel Castro did during the Mariel Boatlift and use the opportunity of mass immigration to empty their jails a bit.
The right cannot expect no immigration either and can’t expect a country as diverse as the US to remain frozen ethnically in time. Minority childbirths are now the majority in the US and white fertility rates remain below replacement at around 1.8 children per mother. It’s inevitable that the ethnic composition of the country will change even with no immigration at all.
Why Soak the Rich?
There is a lot of talk about new taxes during this presidential campaign. Taxes on wealth, taxes on financial transactions, raising income taxes etc. Rather than further burdening the citizens who are already paying taxes, we could easily just close the loopholes for the super wealthy and then tax immigrants with the caveat that we would have to systematically let them in and screen them properly.
The idea that dividends should be taxed lighter because the profits are already taxed at the corporate level is a nice idea but in practice makes it so that billionaires pay less taxes in percentage terms than their secretaries. Simply taxing dividends and capital gains as ordinary income when they are over say, $500,000 would be easy enough.
Take income phase out off of social security, which currently is $132,900, and you would solve the underfunding of social security with the stroke of a pen.
Now add to both of those a tax on immigrants for the first 5 years of wages or until they become citizens and you may have solved many of the issues we currently are having.
The money could be used for increased enforcement and border protection. It could be used to plug the gaps in healthcare and further subsidize premiums. Or it could help to pay down the national debt, which both parties seem to have forgotten about.
Immigrants Already Pay an Implicit Tax
The counter argument against a policy like this is that it singles out immigrants who already have a hard enough time as it is. They lack many of the advantages of native born citizens such as access to state benefits and no employment hurdles.
A tax like this would have to come hand in hand with a much more open immigration policy to make sense. There couldn’t be a tax as well as a point system like in other countries to reduce the flow to a handful of skilled immigrants.
It would mean that those that go through the process of getting a student visa would also have the right to work immediately as soon as their studies are done.
Immigrants already pay a high price to enter the country and then work. In New York it is common to hear of people marrying for a green card because the process to get one legally otherwise takes so long and is so cumbersome. This is like an implicit tax we place on immigrants getting the right to work already, in terms of the time waiting for paperwork to be processed and lawyers to be paid just to become legal. You can even quantify part of the cost of this already. Many native born citizens will marry you for a period for a cost of $10,000. How much money is lost in tax revenue due to these fake marriages to my knowledge has never been quantified.
Why not eliminate this behind the scenes maneuvering and make the process simple and efficient with the understanding that the process will be simple but an extra tax will then be paid for a period to compensate?
Letting Go of Entitlement
The world currently has about 7.7 billion people. Of those 7.7 billion, last year the UN counted that 272 million lives outside of their country of birth or about 3.5% of the global population. Even if everyone who wanted to move could, polls estimate that 750 million people, or about 9.7% of the global population would move.
Those are just the people that say they would move, that isn’t to say that they would actually do it. We often forget that moving to a new country, with a new language, new culture and new laws is incredibly difficult. Most people do not want to move where they are from, even if it becomes incredibly difficult to stay.
One aspect of immigration that is not often talked about is that even if they are poor, the immigrants that labor to come to rich countries are the go getters where they are from. There are likely many people depending on them and they are in a sink or swim mode for years at a time before they can even start to think about resting. Most of us born in the rich world will never have to experience pressure and hardship like many immigrants have to endure to get here and stay in the US. They come here for the opportunity to do something better, while many of us feel so entitled that we feel society owes us meaningful work. On top of that, many of us feel the work should come to us. God forbid we have to emulate any of our ancestors and actually move to where opportunity is in order to make a living.
In fact, most people in the US don’t even want to move to another state, let alone another country. As of the last census, internal migration was at an all time low. Only 3.9% of Americans moved to a different county or state compared to 6.4% in 1948.
Source: US Census
There is a bit of entitlement on both sides of the immigration debate. No one owes you a job and no one owes you the memory of the place you grew up in. Immigrants could offer a great boost to the economy if they are let in through an orderly process and required to pay a special tax that benefits the society that has granted them the privilege to work and live there. It’s a compromise that doesn’t tax any of the current voters at all and in some ways would satisfy both. It’s time we started asking for more and better ideas from our politicians rather than tallying points for the twitter mob.
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