Thursday, June 20, 2013

An interesting study: granting amnesty will add to the debt

    A recent study by the Heritage Foundation found that granting amnesty to all illegal migrants will add $6.3 trillion dollars to the debt, primarily because the amount of taxes they would pay would be far less than the government services they would receive. This finding raises several questions.  Should we grant these illegal migrants legal status if they meet certain conditions or should we leave them as undocumented?  Should we have these illegal migrants pay penalties to recoup the costs of the social services they consumed or at least their share of the taxes that they have not paid?  How do we create disincentives for people to come to our country illegally?  How do we recoup the costs of the social services that these illegal migrants consume?

       Before I address this issue, I think it is important to first address the current administration's immigration plan. Under the current plan, migrants would have to pay back taxes, a fine, register with the government, and pass a background check.  I like the ideas of repayment, registration, and background checks. However, these steps will fall far short of recouping the financial shortfall caused by illegal immigration. The reason for this is that illegal immigrants have frequently taken low paying jobs because they have no marketable skills or the jobs pay in cash which makes it easier to avoid detection by the government.   Even if they were documented US citizens their low income jobs would require them to pay little if any income tax, and, those who work for cash would probably report little or no income at all.  Still, it is likely they would have received money in services, such as public school for their children, roads, and police protection.  It is likely that paying back taxes would be a minimal revenue to offset the large costs of the government services that illegal immigrants consume.

     The problem that they would provide little tax revenue if given legal status is compounded by the fact that legal residents could become even larger consumers of social services.  If allowed to become citizens these individuals would be entitled to healthcare, social security, and unemployment benefits.  This would be a huge increase in government spending with little increase in revenue.  In addition, giving these migrants legal status would give them every right to demand fair wages and working conditions.  This idea seems very humane but could result in higher prices for agricultural products.  Thus, from an economic standpoint, giving illegal immigrants a pathway to citizenship is a poor decision.

 A totally different picture is created by the Congressional Budget Office in their latest report on the economic effects of the immigration bill.  According to the CBO, passing the bill would increase federal spending but there would be a bigger increase in revenue due to the newly legal immigrants joining the legitimate labor force and paying taxes.  The CBO actually forecasts a decrease in the deficit.  The above two paragraphs are my argument as to why the CBO's estimate is overly optimistic.

     The idea of requiring illegal immigrants to pay back taxes or a fine in exchange for legal status sounds reasonable at first.  However, it seems unlikely that individuals with low paying jobs would be able to pay back taxes or a fine.  The government could extend a  low interest loan to individuals who register for legal status, but still these individuals would be unlikely to be able to afford the payments.  Thus, requiring payment in exchange for legal status is a disincentive for these migrants to register.  They would likely be better off to keep their illegal status and all of their money.

      It may be better for illegal migrants to avoid registration to avoid fines, but it is not better for the United States.   The U.S. should require these migrants to register.  One way to defray the cost of their consumption of social services would be to greatly limit the social services to which these these individuals would be entitled until they pay back taxes and a fine.  This idea removes most of the disincentive to register, but does not create any incentive to do so.  Because documenting the presence of all individuals is important to national security and law enforcement, the United States should deport those who do not register.

     Is there any way other way to minimize the cost of these illegal migrants?  I have two ideas: a national sales tax and penalties on businesses who knowingly hire illegal migrants.  A national sales tax is appealing because it captures revenue from all workers.  Even those workers who do not report any income to the government would still buy food and other products and be forced to pay some tax.  Individual income tax rates could be adjusted downward to avoid penalizing those who already pay their share of income tax.

     This addresses the cost previously, but doe not address the future cost. The current Senate plan ignores these costs. I think the solution should be that the migrants can only receive the money in entitlements that they pay into the system. After this, I can not see any way to get more money from the immigrants. However, this will not make up all of the money. One way to make it up would to fine corporations who knowingly hired illegal migrants. I think the fine should be a minimum of 10% of a companies post-tax earnings, with larger fines given depending on the involvment. If a company tried to lure people in another country to come here illegally work for them, the fine should be a minimum of 50% of post-tax earnings. In both cases, the company should also have to pay for the money the government used to get the information and for legal fees. Since this would make it that very few companies would want to hire illegal migrants, it would take away the incentive for new ones to come to America.

     Another way to cause new illegal migrants to not come to America is even tougher penalties for the people may come here after the bill is passed. That is why any illegal migrant who comes after the bill is passed into law would have to not only pay for the previous cost they caused tax payers like the original set off illegal migrants, but would also have to pay for their deportation. This, along with the tax penalties should dramatically reduce the number of illegal migrants coming to America.

    A larger debt, and thus less government spending and higher taxes would not be the only problem with allowing illegal migrants to become legal migrants. Since the illegal migrants who worked on farms would now have to be paid minimum wage, this would hugely increase the cost of food. Also, since many of those migrants would now be competing for higher paying jobs, it would increase the supply of those workers, thus decreasing wages  for more skilled workers. In essence, this would help the illegal migrants while hurting many more legal workers.

    A 4% national sales tax would also help. Since many of the illegal migrants would choose to stay illegal, and that the people who stayed illegal would not report their income, this would be a way to collect some of it for the federal government. This goes along with the tax plan I prepose earlier.

   I think that we should make it easier to allow high skilled workers who went to college in America to stay in America. This would boost the U.S. economy. This will face some resistance after what happened in Boston, but the benefits outweigh the cost.

   It is worth noting that there is absolutely no chance a bill similar to this would make it through congress, and it is possible it would not even get a single vote. But, I strongly feel that people who are in America legally should not have pay for people who came here illegally. If the illegal migrants want to stay here, they should have to pay in order to get the privilege of cutting in front of people who wait years to come to America legally, or they could go back to the country they came from, but they should not be able to get the privilege without paying for it. I think this is great metaphor for America as a whole, in that many Americans want privileges and services, but do not want to pay for it. However, in both cases, the solution is both financially and morally unworkable.

No comments:

Post a Comment