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Friday, October 28, 2005

On immigration policy, we've got it backward

This article in Fortune Magazine written by Geoffrey Colvin explains that there are two groups of immigrants. Those that are legal and those that are illegal. Most of the legal immigrants are allowed into the country on a H1-B visa and allowed to work, go to school, and live in the US for a period of time. Currently there is a limit that allows 65,000 H1-B visas to be given out yearly. This group is generally comprised of highly skilled workers and “by law, they’re here only because no American is available to do the work they’re doing, and that work is so valuable that it helps US companies create more jobs for Americans”. These immigrants play by the rules, follow our laws, learn our language, and pay the appropriate taxes. On the other hand, the illegal immigrants come in by the hundreds of thousands every year and because they are here illegally they do not play by the rules.

Colvin explains that both types of immigrants are needed and desired for the American economy.
“Group one comprises highly skilled workers who come to the U.S. on H1-B visas. Group two is made up of the illegal immigrants who do lawn care, meat processing, house painting, and other low-skilled U.S. jobs. And while it sounds as if group one is desirable and group two isn’t, that’s not quite right. In fact, they’re more similar than different.
The U.S. labor force has long had shortages at the very top and the very bottom. Most people are trained and suited for the broad middle, leaving them overqualified for the lowest-level jobs and under qualified for the highest. Yes, our flexible labor market should solve the problem, but for whatever reason, they don’t. So we turn to foreign workers to fill some of the gaps.”


So, if Colvin is correct, what exactly is the problem with immigration? The two biggest complaints I hear is that illegal immigrants take jobs from Americans and that they do not pay taxes and yet take advantage of the things taxes pay for.

The picture Colvin paints shows that immigrants do not take American jobs. He says that the demand for low and high paying jobs is higher than the supply from American citizens causing a shortage. Therefore, immigration creates efficiency by reducing the shortage. In fact, if Colvin is correct, immigration laws that reduce immigration create inefficiency; the exact opposite of the role of government. So, taking jobs is not an issue.

Maybe not paying taxes is the problem. The main tax that is avoided by illegal immigrants is income tax. If they are being paid under the table their wages are never reported to the government. However, many illegal immigrants take on false identities for employment. So, the employer is paying the payroll taxes, but the immigrant does not pay the income taxes. Once the IRS catches up to them, they change identities again. However, as stated above most of the illegal immigrants work low paying jobs and I think that most of them probably make below the yearly level to pay taxes anyway. In addition, even if they wanted to pay taxes they cannot. If they crossed the boarder without going through the appropriate channels (where they could be denied) our system does not give them a way to pay taxes. If they try, they get deported. I’m not trying to convince you that most of them want to pay taxes because I’m sure they don’t, I’m just pointing out that our immigration laws make it impossible for them to pay income taxes. So, if they wouldn’t even qualify to pay income taxes, taxes aren’t the issue either.

Perhaps the problem is population growth? This article doesn’t discuss population growth and I don’t know if it’s an issue or not. Since I don’t hear people talk about it too much with regards to immigration I don’t think it’s a large problem.

Here are Colvin’s policy recommendations that I tend to agree with:
“The best solution for group one is simple: Eliminate the cap on H1-B visas, currently just 65,000 a year. That is hardly a radical notion. For nearly 40 years, until 1990, there was no cap. Now is the worst time to be turning away some of the world’s most capable, value-creating workers. The solution for group two is more complicated, but the outline is clear. Forget about deporting them. It’s impossible, and any attempt would just waste billions of dollars. Instead, make it worth their while to become tax-paying, on-the-books workers for at least a few years. Many would do it happily in return for one cost-free privilege: the right to travel freely between the U.S. and home.”

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