In his weekly column for Bloomberg Businessweek, Senior Fellow Charles Kenny writes on a tariff system for US immigration.
The following op-ed originally appeared in Bloomberg Businessweek.
After a presidential election that demonstrated the growing clout of Latino voters, the chance for serious immigration reform appears to be at its highest in years. But if lawmakers were really serious about improving the immigration system, they wouldn’t stop at more generous quotas on migrant numbers and amnesties for those already here. They’d move to a system primarily based on tariffs. It’s an idea that has the backing of Nobel Prize-winning Chicago economist Gary Becker and pretty much no one else. That’s a shame, because the change would generate revenue, reduce the pain and uncertainty faced by potential migrants, and possibly even make the issue less toxic in Washington.
Back in the 1960s and ’70s, one of the early and hugely important steps taken by GATT—the predecessor to the World Trade Organization—was to move the world from a reliance on trade quotas to a system based on tariffs. As a rule, quotas are less efficient than tariffs. If the market changes, and there’s more demand for an import, quotas mean that none of that extra demand is met. And someone has to chose who gets the imports that are let in. That process is, at best, bureaucratic, and at worst, rife with corruption and favoritism.
Tariffs, on the other hand, are applied equally to all imports, are flexible in the face of changing demand, and don’t favor the connected few. And governments get the benefit of tariff revenue to pay down the national debt or fund anything from flood relief to research on gun crime.
The same logic that applies to importing goods applies to importing people. The current immigration system involves a bunch of different quotas: for skilled workers from particular countries, for family members, for lottery winners—the list goes on. The process of deciding who gets in under the quota is expensive and chronically inefficient. And the government doesn’t even make any money from it.
A study for the National Foundation for American Policy estimated that to hire someone on an H-1B visa, a U.S. employer has to pay about $2,500 in legal fees; a $1,500 training fee; a $1,000 “premium processing” fee; a $500 antifraud fee; a $190 immigration service fee; around $125 in additional incidental costs; and a $100 visa fee. That totals almost $6,000. Complicated immigration cases can cost eligible applicants $10,000 or more in legal fees alone. Meanwhile, even unauthorized immigrants from Central America pay between $7,000 and $10,000 in smuggling fees to get across the border, according to Alex Nowrasteh at the Competitive Enterprise Institute—often more than once, because they get caught, thrown out, and try to return.
And, of course, the government spends a huge amount overseeing this pointlessly complex mess of a system. U.S. Immigration and Customs Enforcement has more than 20,000 employees and an annual budget of more than $5.7 billion. U.S. consular services and related State Department services cost over $2 billion (PDF).
A tariff system wouldn’t require all of the bureaucracy, and could considerably reduce the economic and emotional pain to migrants. Over the long term, immigrants are a considerable net plus to the U.S. economy and fiscal situation; a tariff makes sure the benefits of migration are immediate, substantial, and transparent to all.
So, how much could—or should—we charge for the right to live and work in the U.S.? Becker suggested the U.S. should let in anyone who can pay $50,000 to Uncle Sam and pass a criminal background check. That may seem like a lot of money, but Miao Chi and Scott Drewianka of the University of Wisconsin estimate (PDF) that, allowing for factors including age and education, the average recent Mexican immigrant with a green card (permanent resident status) earns roughly $20,000 a year more than the average Mexican immigrant without one (on a more limited visa or undocumented). So, allowing for education, the average immigrant from south of the border would recoup that $50,000 in less than three years.
Money generated from immigrant tariffs could be used to support low-income native workers through initiatives like the Earned Income Tax Credit—reducing political opposition to migration among those who see themselves most at risk. A $50,000 tariff applied to 1 million migrants (about one-third of 1 percent of the U.S. population) would be enough to almost double the size of the EITC program.
For those who oppose the very idea of selling citizenship or residence, you might want to look at existing law: The current EB-5 visa program gives green cards to people who invest $500,000 and create at least 10 jobs in the U.S. And the proposed (bipartisan) Schumer-Lee bill would provide a residency visa for anyone who simply spends $500,000 on buying a house. So Republicans and Democrats alike in Congress have already thrown their support behind a fee-based immigration system—all there is to haggle over is the price.
A more reasonable concern is equity. A tariff system would favor the rich over the needy. Of course, the current system does exactly the same thing, favoring a highly educated elite when it comes to H-1B skilled visas, for example. To help ensure poorer migrants have a shot through the tariff system, and given the benefits of legal working status in the U.S., businesses that want to see more legal immigrants enter could set up lending or subsidy services. Or perhaps a new development arm of the U.S. government could finance loans for migrants from low-income countries. Regardless, tariffs are not the only way you’d want to hand out permanent residence or citizenship. Spouses and immediate family of existing citizens, for example, should surely still get free access—and students alongside programs for temporary work visas should be exempted.
But for a country that champions the cause of free enterprise worldwide, our immigration system looks like it was designed by a failing-grade student of Soviet planning. Let’s allow the market to work, and set a fair price on the chance to make it big in America.
Read it here.