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A Proposal to deal with Illegal Immigration

by Bill McGaughey



Over 12 million persons are believed to reside in the United States illegally.  These are individuals who crossed the border without permission, overstayed their visas, or otherwise failed to comply with U.S. residency or citizenship requirements. 

Most immigrants came to the United States seeking economic opportunity.  Incomes are higher here than in their country of origin. Such immigrants are typically willing to work for less money than U.S. natives; and that makes them attractive to employers.  Additionally, illegal immigrants tend to be more docile than other workers because of fear of possible disclosure and deportation if they should complain.  That is an additional factor in keeping wages low.

A benefit of illegal immigration is that their low wages mean increased profits for employers and lower prices for products.  It is also said that immigrants take jobs than U.S. natives are unwilling to take. Therefore, in a sense, they do not compete with workers born in the United States.  On the other hand, willingness to take jobs depends on the wage that is offered.  An influx of new workers into a national economy will increase labor supply which, given constant demand, will tend to reduce the price of labor - i.e., the level of wages.  By that argument, immigrants do compete with the native work force and have a negative effect on wages.

From time to time, elected officials have introduced proposals for immigration reform, attempting to reduce the flow of illegal immigration while treating those persons already in the United States in a humane fashion.  

The Immigration Reform and Control Act of 1986, signed into law by President Reagan, made it illegal for employers knowingly to hire or recruit illegal-immigrant workers, and placed the burden on employers of determining immigration status.  At the same time, it granted amnesty to certain immigrants who were in the United States before 1982.  While it was expected that this law would fix the immigration problem, the problem has instead become much worse.  Sen. Alan Simpson and Rep. Romano Mazzoli, authors of the 1986 legislation, argued in a recent Washington Post opinion article that “the shortcomings of the (Simpson-Mazzoli) act are not due to design failure but rather to the failure of both Democratic and Republican administrations since 1986 to execute the law properly.”

Another attempt to fix immigration was the North American Free Trade Agreement (NAFTA).  In support of this agreement, Mexican president Carlos Salinas de Gortari assured the American public that a free-trade agreement with his county would reduce immigration from Mexico because it would more and better jobs that Mexicans could take without migrating.  The result has been quite different.  Too often, the new employment in Mexico has followed the maquiladora or export-platform model in which multinational employers pay low wages, pollute the environment, and crush attempts to organize unions.  Additionally, the free trade in grain has introduced low-cost corn from the United States into rural areas of Mexico undercutting the local farmers on price.  As a result, many who lived in small communities have migrated first to the cities and then to the United States.

As the pace of illegal immigration increased, a group of mostly Republican members of Congress, led by Colorado’s Rep. Tom Tancredo, pushed for immigration reform.  A bill passed the House of Representatives in 2006 calling for tougher border enforcement including erection of a fence. The Senate responded with a bill calling for “comprehensive immigration reform”, which meant that, in addition to increased border security, there should be a path to citizenship for illegal immigrants living in the United States.  The idea was that these immigrants might pay a fine, go back to their country of origin to apply for legal admission, learn English, and, after a period of residency in the United States, become U.S. citizens.  

Senator Edward Kennedy and Senator John McCain, the Republican presidential candidate, both supported this bill as did the Democrat’s presidential candidate, Senator Barack Obama.  Nevertheless, it failed to pass.  Resistance to amnesty for illegal immigrants remains strong.

The Politics of Immigration

Both Democratic and Republican administrations have “winked at” illegal immigration, so to speak.  In the words of Simpson and Mazzoli, they have failed to “execute the law properly.”  

With their constituencies in agribusiness, Republican administrations may have failed to enforce immigration laws as stringently as they might have done for fear of offending an important segment among their supporters. Many of their supporters in the business community appreciate the chance to employ cheap labor and will reward their political enablers accordingly.  In addition, the Bush family (mindful of Jeb’s Latina wife) has long entertained the idea of bringing Hispanics into the Republican fold as African-Americans have been loyal voters for the Democrats.  A Republican-led crackdown on illegal immigration could well end those dreams.

Democrats, on the other hand, have come to rely on constituencies in the so-called “Rainbow Coalition”.  The Civil Rights movement of the 1960s brought blacks into the Democratic fold.  Then, as another socially disadvantaged group, came women - feminist women who objected to the patriarchal structure of a society dominated by white males.  Gays and lesbians soon joined this coalition, objecting to homophobic prejudice in society.  In this context, immigrants, and especially illegal immigrants or “undocumented workers”, have become a prime candidate for inclusion among the Democrats’ diverse constituencies.  They are, in fact, economically and socially disadvantaged.  Democrats know how to talk about such demographic grievances and gain votes.

I would say that the framing of this issue leads to a politics of hate.  On the Republican side, we find persons of “moral clarity” who characteristically see things in black and white.  To them it is clear that illegal immigrants knowingly broke the law when they crossed over the border into the United States without permission of the U.S. government.  Lawbreakers need to be punished.  In this case, those who reside illegally in the United States need to be deported to their country of origin. A wall then needs to be built to ensure that they will never return.

Such persons, in turn, become objects of hate for the Democrats.  They are, in a word, “bigots”.  They are ones who display ethnic and racial prejudice against Mexicans and others who entered the country illegally.  In that respect, critics of unrestricted immigration  become politically analogous to the southern segregationists of the 1950s and 1960s who tried to keep black people in their place.  In both cases, we have relatively uneducated persons in rural communities or small towns venting their anger at a group of people less fortunate than themselves.  It’s easy to come at these “bigots” with high-minded scriptures from Judeo-Christian religion recommending hospitality to the stranger or whatever else shows us to be morally superior to those yokels.  But it is just another version of hate.

Both positions break down upon further examination.  Yes, it is true that the illegal immigrants knowingly broke the law.  But it is also true that the law was not being enforced.  There is such a concept as “adverse possession” - a legal right given to someone who has unlawfully occupied someone else’s land for a long period of time unchallenged.  In this case, both Republican and Democratic administrations have tacitly told those relatively poor and uneducated groups of people crossing the border that it was OK to come into our country because nothing was ever done.  Powerful business interests wanted them here.  Should the Mexican “wetbacks” have scrupulously resisted that invitation to benefit unseen people in the United States?

On the other side, there are the small-town “hicks” who want the illegal immigrants deported.  And why shouldn’t they?  They’re the ones who must pay.  They must pay in a variety of ways when outsiders come into their community.  First is the loss of identity - the American small-town values and culture - from a massive influx of strangers with a different religious, ethnic, linguistic, or cultural background.  Second is the increased competition for jobs, especially when the newcomers are willing to work for much less than the prevailing wage.  Third is the direct cost of social services that taxpayers must pay when impoverished workers move into a community.  Many of these immigrants have children needing to be educated at public expense.  They have health-care needs without possessing health insurance.  Some may enter the criminal-justice system.

And so I would say that if the politics of immigration is framed in terms of competing demographic interest groups, it will lead to endless animosity.  To put a Mexican face on illegal immigration will make some people hate Mexicans all the more.  And to put the face of a white or Anglo “bigot” on the issue will kindle feelings of righteous indignation against that group.  It’s easy for the good church goers or attendees at synagogue services to recite the tolerant pronouncements of Jesus or Moses when they’re not directly involved.  Couldn’t they at least take up a collection every once in a while to defray part of the cost of this uninvited influx of people into America’s small towns?  No, let the small-town taxpayers pay.  Let those bigots pay.

Almost unnoticed in this clash of competing values and groups is the fact that one player profits from the situation without bearing much of the cost.  That, of course, is the employer of illegal immigrants.  To the extent that wages and benefits are kept low, the employer will gain increased profits from keeping labor-costs low.  The social costs can then be externalized to the surrounding community and its taxpayers.  And if anyone objects to that mismatch of costs and benefits, the well-heeled employer can hire public-relations professionals to deflect public criticism, make political contributions to politicians who might otherwise intervene, and engage the services of attorneys to beat back legal challenges.  That’s the way it’s done in America:  The rich get richer.

Ultimately, if we are serious about solving the problem of illegal immigration, we will be led back to the approach that Simpson and Mazzoli chose:  making the employers bear greater responsibility for a problem that would not otherwise exist if their tender of employment did not lure people to a community.  I doubt that much can be done about loss of cultural identity.  I doubt that much can be done about the existence of “lean and hungry” people on our southern border who will work for a pittance if given a chance to come to the United States.  Something can be done, however, about the social costs that are incurred by third parties when illegal immigrants come to work at a particular factory.  

The solution is obvious:  Let the employer pay all or part of those costs.  Take the money from the employer on the front end.  For every dollar earned from someone’s underpaid labor to produce goods sold at a big profit will be an appropriate sum of money added to the employer’s share of the F.I.C.A. tax which will need to be paid to the government to defray additional costs borne by the community.  That’s the guts of my proposal.

Some Financial Implications

When illegal immigrants take jobs in a community, they produce goods and services of value and pay taxes.  What is the difference, then, between this situation and that where American-born workers hold the jobs?  I do not dispute that the immigrant workers are mostly hard-working and honest, just like immigrants of previous generations.  A difference lies in the relatively generous social-service benefits that we have now and what earlier immigrants found.  It also lies in attitudes about socially disadvantaged persons that are a legacy of the Civil Rights movement.  The politics of immigration are rooted in that legacy.  For social peace to come, the focus should be shifted to economics.

A question is asked whether immigrants contribute more to the economy than what they cost in social services.  From a perspective of government finances, do their tax contributions exceed government expenditures on their behalf?  According to a study done for the state of Minnesota, the answer is no.  In 2002, illegal-immigrant households imposed $26.3 billion in costs on the federal government and paid taxes totaling $16 billion.  The deficit is $10.4 billion or $2,700 for each household.  That is not necessarily the immigrant workers’ fault.  Low-paid workers pay less in taxes.  Considering that many employers hire illegal immigrants because of their willingness to work for less, the below-average remittance in taxes may be inherent in their situation.

On the other hand, it is also true that many illegal-immigrant workers pay no taxes at all.  Some may receive unreported payments in cash for work.  In an environment of murky documentation, much takes place under the table.  The estimate is that there were between 80,000 and 85,000 illegal immigrants, including family members, in Minnesota in 2005.  In the same year, around 8,000 illegal immigrants paid state income taxes.  The low rate of tax paying could be due to several factors:  noncompliance with tax laws, taxable incomes below the threshold, large family size, etc.  It does suggest, however, an anemic collection of tax revenues from this particular group - again, a reflection of their low-wage condition.

How does this compare with the general population?  The Minnesota report found that illegal-immigrant households paid an average of $1,371 per year in federal income taxes compared with an average of $7,103 per year for all households.  They paid $1,687 per year in Social Security taxes (employee’s share) compared with $4,310 in Social Security taxes for all households.  Their annual contributions to Medicare were $446 per year compared with $1,227 per year for all households.  Illegal-immigrant households paid a total of $4,212 in all federal taxes per year compared with $15,099 per year for all households.  These are significant differences reflecting, again, their low-wage status.

What, then, of the social costs?  The largest expense was for public-school education.  The study found that in 2004 illegal-immigrant families cost Minnesota taxpayers between $118 million and $158 million in K-12 education.  (This includes both the cost of education for children brought illegally into the United States and for U.S.-born children of illegal immigrants.) They cost taxpayers $17 million in public-assistance health care for fiscal year 2005, and $13 million for costs of incarceration in the same year.  These add up to a total of between $148 million and $188 million in costs for Minnesota taxpayers.

These numbers account for a small percentage of the state budget, of course.  The problem is that the population of illegal immigrants is rapidly growing. The Pew Hispanic Center estimates that there were 10.3 million “unauthorized immigrants” in the United States in 2004, up from 8.4 million in 2002.  Two years later, in 2006, this population had reached 12 million.  Traditionally, the Hispanic population was concentrated in six states - mainly, California, Texas, and New York.  Recent growth, however, has taken place in so-called “new settlement areas”, including Minnesota, which did not previously attract such immigrants.  In 1990, there were only 13,000 illegal immigrants in Minnesota.  This population numbered between 80,000 and 85,000 in 2005.  Illegal immigrants took one third of the new jobs created in 2004.

A more detailed picture of the social costs imposed by illegal-immigrant households shows that, besides K-12 education, 2,500 to 3,000 children of illegal immigrants in Minnesota attended college.  Unlike some other states, Minnesota does not allow such students to enjoy in-state tuition.  There are various programs for indigent health care that disproportionately benefit illegal immigrants.  Such families cost Minnesota taxpayers $35.5 million in health-care assistance programs in 2005, $16.3 million in emergency medical assistance, and $15.5 million for the state children’s health insurance program (SCHIP) that serve mothers and babies.  Nationwide, illegal-immigrant families cost the federal government $2.2 billion for uncompensated care at hospitals.  Illegal immigrants in federal prisons cost taxpayers $1.6 billion in 2002.  Illegal immigrants comprise 3.6% of the U.S. population but around 20% of the prison population.

In my view, it would be a mistake to view this situation moralistically.  Apart from incarceration costs which do reflect moral shortcomings, illegal immigrants have human needs the same as others.  Expenditures for uncompensated costs at hospitals, for instance, are also incurred for other kinds of indigent peoples. With rising health-care costs, this is a major source of irritation to taxpaying citizens.  However, the problem should not be laid at the feet of illegal immigrants; it is the system that is at fault.  So, generally, dysfunctional systems are to blame for other problems associated with illegal immigrants - particularly the ability of large companies to externalize certain of their costs while enjoying healthy profits.  

It’s more profitable for us to approach the problem dispassionately, leave the politics behind, and find a better way of matching benefits and costs.  That’s why I think more costs should be loaded onto employers of illegal immigrants and onto the price of products that those employers produce and sell.  Less should be borne by the general taxpayer.

A mechanism for shifting costs

I am proposing that an extra tax be imposed on employers of illegal immigrants and that the proceeds of this tax go to local governments to compensate them for the extra costs of educating, medicating, and financially aiding illegal immigrants and their families.  The financing would be pay-as-you-go.  The tax would be collected from employers for each hour that an illegal-immigrant worker works.  It would be calculated for each paycheck and the proceeds be remitted regularly to the federal government.

There is a model for this type of tax:  the payroll (F.I.C.A., or Social Security) tax.  In 2008, U.S. wage earners pay to Social Security 7.65% of their gross earnings for the first $102,000 earned in a year.  This amount includes 6.2% of wages for Social Security plus 1.45% for Medicare. The employer pays the same amount as the employee’s share of Social Security.  I am proposing that a surcharge be applied to the employer’s share of Social Security which would cover the “social costs” - education, health care, etc. - to local communities for services to illegal immigrants and their families.   

A novel feature of my proposal is that, unlike the payroll tax in other respects, the surcharge would not be a flat percentage of earnings; it would be an hourly rate tailored to the particular situation of the illegal-immigrant worker and family.  The object would be to calculate the additional cost to the community of the government-paid services that this family requires.  First, there would be a calculation of the total annual cost of the service. Then would come a calculation of the offsetting revenues from the employee’s federal and state income taxes, property taxes, sales taxes, etc. and the cost offsets from health insurance if the employer provides such. The one cost would be subtracted from the other. That net cost, divided by 2,080 hours, would be the hourly cost reflected in the surcharge.  For one employee, it might be $1.03 per hour; for another employee, $1.71 per hour.  The surcharge would depend on the employee’s wages and benefits, size of family, and other factors. 

Would not this system entail much new record keeping, calculation, and administration which would amount to a bureaucratic nightmare?  If so, the burden would not fall on the employer.  I propose that each illegal-immigrant worker be required to register at the Social Security office to receive a document authorizing that person to work and at the same time fill out a simple questionnaire.  The questionnaire would request the names, ages, and health condition of each person in the immigrant’s family.  There would be a preliminary assumption regarding the prospective employee’s wage rate and benefits.  Then a computer would use this information, along with cost averages for services in the particular community, to calculate a total annual cost. From this calculation would come the hourly payroll surcharge.  That number would be sent to the prospective employer.

In Minnesota, for instance, it cost taxpayers an average of $8,379 to educate children in the public schools in 2003-04.  In some districts, it was more; in some, less.  The calculation would be based on the rate in the particular district.  The same would be true of health-care costs, food-stamp and welfare benefits (if any) and an insurance-like calculation of costs related to demands on the criminal-justice system.  The computer database possessed by the Social Security Administration would contain all this community-specific cost information and integrate it with information about the particular immigrant worker to calculate an hourly rates that would go into the F.I.C.A. surcharge.  This surcharge could cover all the additional costs or it could cover a portion of those costs - say, 60% - based on a political decision.  

The point is that at least some of the additional costs which the community incurs would be assigned to the employer at the point of origin.  It would be an honest attempt to reimburse the general taxpayer for community costs that otherwise would not exist if the employer did not hire the illegal-immigrant worker.  That, in turn, might relieve some of the legitimate concerns of persons opposed to this type of employment and employee.

A major obstacle to comprehensive immigration reform has been what to do about illegal immigrants currently living in the United States.  Should they be deported or should they receive permission to continue living here through an amnesty program?  Most proposed legislation envisions “amnesty” if certain penalties are applied.  The same is true of my proposal.  While I favor deportation for illegal immigrants who commit serious crimes, I also think nothing should be done about other such immigrants living in this country.  They would neither receive U.S. citizenship nor be deported.  Discovery of illegal status would not in itself be grounds for deportation.  That should alleviate some of the personal fears that many immigrants have in identifying themselves to the authorities.

However, there would be an economic penalty for having entered the country illegally.  The employer would be required to pay a surcharge to the employer’s share of the payroll tax in order to employ such workers.  That requirement would make it financially less attractive to the employer to hire illegal immigrants.  As these prospective workers met a chillier reception in the employment offices, residence in the United States would become a less attractive option.  There would be less need to build walls and fences to keep immigrants out when word got back to the home country that it was becoming more difficult to find jobs in America.  As a regulatory tool, the politicians could decide whether the F.I.C.A. surcharge should fully or partially reimburse social costs.  We would not want immigrant families to starve while residing here but be less motivated to enter the United States illegally.

We are talking then of a system of universal registration.  It would be illegal for employers to hire illegal immigrants if they did not possess the required documents from Social Security.  The employers would have to verify those documents with the office that issued them.  Meaningful fines would be given employers who violated those rules.  At the same time, legal residents of the United States would not be required to go through this process.  There would thus be a two-tiered employment system working to the advantage of legal residents.  But that should be a small price to pay for ending the fear of discovery of illegal status and deportation.  The certificate received from Social Security would be a kind of ticket to lawful residence for those who entered the country illegally, leading to the issuance of driver’s licenses and legal protections that other Americans enjoy.  In the meanwhile, the Department of Homeland Security would continue to tighten border security.

I am talking then of a grand bargain of “amnesty” for illegal immigrants in exchange for a more or less permanent economic disadvantage.  At the same time, this bargain would begin to address the grievances which taxpaying citizens have when illegal-immigrant workers are employed in their community.  Such an arrangement ought to end the politics of demonization that has plagued both sides of the discussion.  Both “bigot” and the “illegal” person would be forgotten as the immigration debate boiled down to a simple calculation of benefits and costs.  Those employers who benefited from the low wage of employees would be required to pay their fair share of community costs. 

Such a bargain is intended to be a compromise acceptable to both sides of the political discussion though perhaps not everything on their respective wish lists.

See another statement based on the experience of the Agriprocessors plant in Postville, Iowa.


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