April 30, 2007

Progressive Indictment, By Randall Burns

Immigration Policy Squanders The Value of Citizenship

To move towards sensible immigration policy we need to look at the costs and benefits of immigration.

In my article on corporate welfare, I made an estimate of the current market value of citizenship based on Indian dowry markets—which showed that an Indian engineer who obtained an H-1b visa, which confers a 50-50 chance of obtaining permanent residency, could expect about $50,000 in additional dowry revenue--which suggested a value of about $100,000. A National Academy of Sciences report put the cost of each immigrant to the US economy at a similar value of $100,000—using a fundamentally different methodology.

Virtually no First World country had either significant social programs or serious restrictions on immigration up until World War I. The only country that required a passport for entry was Czarist Russia. But shortly after WW I, every major country developed significant requirements for entry.

Every modern developed country is now significantly selective of its immigrants. The US gets 10,000,000 applications per year for immigration rights—but only 700,000-1,000,000 per year are legally admitted. Many of those currently admitted are unskilled, Spanish speaking, with a higher crime rate than the existing US population. But this is the result of a poor selection process, not the lack of a selection process.

This change in immigration composition is partially explained by other notable changes we saw after WW I: the development of significant social programs—programs that varied in value from country to country, but became common in virtually every developed country. These programs removed the economic urgency to migrate from many more developed countries.

Today, US social programs would probably not draw poorer immigrants from Germany or Sweden. But libertarian Charles Murray in his recent book In Our Hands, notes that, if US social spending were uniformly allocated on a per citizenship basis, we could have a "safety net" equivalent of $10,000 per year per citizen with very little expansion of the overall existing level of government in the US. (Murray admits the need for secure ID to administer such a program). That is immensely attractive to most of the world's residents—who live in less developed countries that have no such safety nets.

To look at the current real value of citizenship, we need to ask ourselves: "What is the value of a financial instrument that pays $10,000 the rest of your life—and the lifetime of your descendents in perpetuity—and is likely to be periodically adjusted for inflation?"

I would estimate the value of such an instrument at least $300,000—using the overly conservative assumptions of a discount rate of 3% for long term inflation-free return, assuming that future generations start when the present generation dies—not assuming any multiplier effect for future generations.

Even if we just look at the current average value of existing spending per American, we get a figure of around $153,000 using similar excessively conservative assumptions. The median level of benefits received by the current US population is likely significantly more.  

As a progressive, I would favor sensible expansion of US government social programs and economic regulation. After we have contained the  excesses of corporate welfare queens like Bill Gates and Larry Ellison, invested appropriately in US education and infrastructure, and adjusted the supply of immigration rights to something approaching the needs of the American citizenry, I'd guess the present value of US citizenship to be closer to $450,000.

I would argue for looking at the value of benefits while discounting taxes like FICA that all US citizens typically pay—because, if you look at world markets, those citizens wouldn't readily get markedly more for their labor than US labor markets pay—even in locales without those social services and similar cost of living.

There are peculiarities in arrangements like WTO regulations that virtually mandate tax arrangements that are collected broadly on payrolls. However, the economic reality is that these taxes tend indirectly to fall largely on landed property and the most monopolistic of businesses and wealth concentration. If we eliminated these taxes, after a time, we would likely see property values rise rather than the take-home pay of folks of modest means (which is largely the legacy of the Reagan-Bush era when the wealth held by the top 1% went from 20.5% to 37.2%).

There may be a few top earners who have special access to world markets—and could earn similar levels anywhere in the world. Possibly they should be special targets for recruitment as immigrants. Still, I would argue that the overwhelming majority of US top earners, other than those with asset income, have incomes closely tied to the stability and existence of the US.

Of course, this calculation isn't precise. We haven't looked at the specific taxes the US imposes on its citizens, at world labor markets. Nor have we properly assessed the value of citizenship across generations. We'd also need to factor in the age of a specific immigrant, since older and poorer immigrants are more likely to need whatever safety net is available.

And the value of US citizenship to a foreigner who does considerable international business may be considerably enhanced.  Being able to call the US embassy can be very valuable, although relatively few US Citizens use that particular service.

However, even these rough and overly conservative estimates give us some starting point

Citizenship can and should be thought of as a very peculiar type of property in land. (Indeed, in some countries like Mexico is a prerequisite to actual ownership of land). The US and Canada already have arrangements that amount to de facto sale of citizenship. It is only by a proper assessment of value that we have any chance of the public is getting value for their resources—attracting immigrants that create significantly more public value than the theoretical value of citizenship.

If we take the current theoretical value of citizenship at a midpoint estimate of $225,000: we can ask ourselves, is the American public really getting $1.4 trillion per year in value for current levels of legal immigration?

I would argue that it isn't. In fact recent immigration—which is often unskilled, uneducated and often actively hostile to the existing US population— is creating nowhere close to that level of benefit.

It also isn't surprising that the predatory wealthy like Bill Gates can make money when they have something to dangle in front of prospective foreign employees—the perquisites and privileges of US residency and citizenship, paid for by the rest of us..

To underscore the importance of my point: If we look at the median level of privately- held wealth, it was only about $61,000 per citizen family in 1998. (The average level of privately held wealth is around $270,000 per family). That means decisions regarding immigration policy and the definition and value of citizenship are far more important to a clear majority of Americans than any personal savings or earnings they are likely to have over their lifetime.

If we use a higher value on citizenship, immigration swamps even our currently absurd trade deficit as a liquidation of American assets.

As we move towards a saner immigration policy, we need to think of policies that maintain the current value of US citizenship and broadly held private property levels for those already here-and that are calculated to attract those immigrants who really do bring something to America.

Americans deserve at least the consideration from their political leaders that property owners would get from a real estate developer.

Randall Burns [email him] holds a degree in Economics from the University of Chicago.  He works in the information technology sector and is a graduate student at Carnegie Mellon University.  Burns has been active in furthering the introduction of immigration, trade, and tax realities into the progressive agenda. In 2004, he helped create the Kucinich campaign’s position paper on H-1b/L-1 visas.