Thread: THE ILLEGAL IMMIGRATION IS A TAX PROBLEM

http://br.endernet.org/~akrowne/writing ... migration/

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Taxes and Illegal Immigration

The core argument is very simple. Illegal immigrants are, by definition, not living in the U.S. as citizens. This means they are not participating in the tax system. In sum, they are not paying taxes.7

It seems to be an implicit assumption that the thing about immigrants which enables them to accept lower wages is that they have some innate ability or desire to live, in the U.S., in more austere conditions than natives. Perhaps willingness to live on the cheap is a factor. But I would argue the dominant factor is that their their overall expenses have been lowered 20-30% by the fact that they do not pay taxes! Put another way, each dollar they earn is worth 20-30% more, so they require proportionally fewer dollars from employers.8

``So what,'' many will say--``no one wants those jobs anyway.'' This point (alluded to earlier) is another version of the politically-correct, but foolish platitude that illegal immigrants are actually needed to do the domestic jobs no one wants to do. In fact, this ``dirty jobs'' argument is quite silly upon serious inspection. It is in part obviated by the fact that most Mexicans don't really ``want'' to do these jobs either; the work simply provides a means to survive and maintain a better situation. And of course, it is also partially false: there are plenty of unemployed U.S. citizens who ``want'' to do these jobs just as much as the illegal immigrants. So while we're all not ``wanting'' to do these jobs, why should we give the benefits to illegal immigrants?9

History shows that these jobs were previously taken up by U.S. citizens, and currently, there are plenty of unemployed who would and could do them. We should not necessarily think of them as ``undesireable careers,'' which is how people seem to assume Mexicans see them. Such jobs in fact provide a natural safety net for those down on their luck, those faced with major economic change, those with no high-value marketable skills, or those just starting out (like teenagers--remember when teenagers used to mow lawns instead of Mexicans?) From this perspective, these jobs are part of a system which allows all citizens to have some place in the labor market, at all times, for all situations.

Such jobs are precipitously reduced (or largely eliminated) by the competition of a labor force which demands a drastic 20-30% fewer dollars. Assuming a conservative 20% labor cost savings, a $7/hr salary becomes a $5.60/hr salary--suspiciously within the minimum wage range. This is a no-brainer for any business or individual that can substitute illegals for tax-paying U.S. citizens.

Ultimately, because they skip out on taxes, illegal immigrants are actually rewarded for the lower wages they can automatically accept. In essence, they have a much higher effective purchasing power from each dollar--which they, as illegal immigrants uniquely enjoy--and therefore have lots of available employment. This is discriminatory against the least fortunate of U.S. citizens in a perverse, backwards sort of way.


Risk and Incentives

For a decision as big as whether or not to move to the United States and live illegally, you can bet there is some risk vs. reward and cost-benefit figuring going on in the minds of prospective illegals, even if only implicitly.

Take on, if you can, the perspective of a poor Mexican, either living at the bottom of the economic system, or completely jobless and in absolute poverty. Life is not so good for you, and you want to improve your situation. You know that you have the option of immigrating to the U.S. and living illegally, in a black wage market. You know people who can make the trip happen, and you may even have some relatives living in the U.S. (legitimately or not) who will help fund it for you.

Do you do it, or not? Let's summarize the current situation:


Risk/Cost: Really, none. Worst case: you get deported (its the humane solution, after all). The cost is whatever it takes to get across the border. This is probably a relatively steep fee for a poor Mexican, but also probably one your relatives in the U.S. will pay for.

Reward/Benefit: A much better life. Living at minimum or sub-minimum wage in the United States is drastically better than being a poor Mexican (especially an urban one, I'd imagine). If you get kicked out, you still ``keep'' all the untraceable money you sent back to your family. If you think you can make it across the border, then, you probably will make the trip. It's as much a no-brainer as the U.S. employer who is considering hiring domestic labor at $7/hr versus you at $5.60/hr.

In sum, the tax system of the U.S., and the juxtaposition of the economies of the U.S. and Mexico (and to a lesser extent, other countries) has led to a situation where there is almost no cost or risk to illegally immigrating--and an enormous benefit.


How This Damages The Domestic Labor Market

Besides that fact that people are suspicious of lots of foreigners in their country (who refuse to integrate), there are hard economic reasons that illegal immigration is a bad thing.

As discussed, illegal immigration provides a pool of labor which can work significantly cheaper than domestic labor, purely as a result of tax evasion. This has two key, interconnected results:


Increased unemployment amongst legitimate U.S. citizens.
Downward pressure on all wages, but which is most apparent towards the low end.

Recall that a quantity equivalent to about 4% of the native (or naturalized) U.S. population is living and working here illegally. Also consider that unemployment in the U.S., of late, hovers around 5%. In fact, this number is so persistant that economists call it structural unemployment. We can't seem to make it go any lower.

These numbers--4% illegal immigrants and 5% unemployment--are on the same order of size. We should be concerned about this. To be a little more explicit: let's assume that only 2/3 of the illegal immigrants are of working age and working. That leaves a pool 2.6% the size of the population in general. Further, lets assume that, were these people to leave, half of their jobs would be taken up by the domestic unemployed. This would mean that unemployment would be reduced to about 3.7%, and over 3.7 million additional people would have jobs.

If you ask me, that is a lot of people.

Consider, also, that this assumes only half of the vacancies would go into new jobs. The other half would consist of already-employed people moving from their current jobs to jobs vacated by illegal immigrants. Why would they do this? Simple: because the wages would be higher.

Let's look at a simple, illustrative scenario, with a simplified, ``toy'' labor market, to see how this can be.

Assume that you're a U.S. citizen, without highly-valued, marketable skills, who needs a basic job to survive. You could be a teenager or college-aged youth, a veteran, someone emerging from retirement because of financial misfortune, or anyone else in the demographic typically called ``the working poor.'' Let's say there is no illegal immigration, and there are two jobs available to you. You can work for Wal-mart for $8/hr, or you can work on a landscaping crew for $7/hr. Obviously, you take the Wal-mart job, if only because it is higher-paying.

Now, let's add in the illegal immigration problem. You've suddenly got 7.7 million extra people in the U.S. Since they dont pay taxes, for them, $5.60/hr is the same as your $7/hr. To compete with domestic labor, these illegal immigrants actually bid wages down to this level (or lower, if they are willing to live in worse conditions). Responding to this, landscaping companies are now paying $5.60/hr instead of $7.

So hundreds of thousands of domestic laborers have now been driven out of landscaping work, since they've all been underbid. And suddenly, they are all competing for the jobs at Wal-mart. What does Wal-mart then do? Of course, it gleefully bids wages down as low as they'll go, which, lets assume, is now $6/hr. Wal-mart lowers prices. But there are now a lot of pissed off domestic laborers, and everyone is pissed off at Wal-mart, and most people are also pissed off at the illegal immigrants.

All we did was add in illegal immigration, and now you are only able to earn $6/hr at the same Wal-mart job. Note that you aren't working on a landscaping crew and you haven't lost the job, yet you've still had to take a pay cut due to the indirect, but massive influence of adding over seven million sub-base laborers.

This effect can be extended upward: IT desktop support may fall from $12/hr to $11/hr, and so forth, because now lots of Wal-mart's best former employees are competing for relatively ``cushy'' IT jobs. Thus, one can see how the introduction of illegal aliens has effects that ripple throughout the labor market, though they are felt most markedly near ``the bottom.''

So, without the illegal immigrant labor force, wages would go up for the domestic unemployed who took up the previously-black market jobs. Wages would even go up for those who stuck with their current jobs, rather than switching into vacated roles. Wages would have to go up--because now nearly everyone working would be paying into the same tax system; thus they would have to be paid more.

What this all shows is that illegal immigrants have a distorting effect on the labor market in general, because they represent a ``sub-base wage'' labor contingent. Since they're not part of the tax system, they don't represent the normal lowest-wage contingent; they're below even this. Without such a contingent, wages would have to snap back to a normal scale. Domestic low-wage earners would no longer have to compete with those who can, in effect, demand less than subsistence wages.


Related Problems

The illegal immigration problem, or more accurately, the distorting effect of the tax system that causes it, is related to a number of other surface problems which are normally considered separately:


Un-integrated immigrants - Perhaps causing the greatest ``insult'' to native citizens, illegal immigrants are perceived as ``un-integrated,'' or worse, not wanting to integrate. These concerns are, in fact, largely justified. Quite often, they don't speak even a functionally minimal amount of English. But it is easy to see why this is the case. In general, would you want to integrate into a system which you had to expressly avoid in order to continue to reap the advantage which allows you to escape a worse fate? Or in specific, would you bother trying to mingle with the very people at whose expense you gain, when they can clearly see it is only by ``cheating'' that you are beating them? I'd sure stay away.
So, a parallel, illegal immigrant subculture exists, initially to help newcomers into a strange country, but justifying itself on an ongoing basis because of these hostile social adversities. Staying within the boundaries of this subculture feels much more safe for its constituents.


The crime problem - Illegal immigrants in the U.S. constitute a disadvantaged group, because of poverty and lack of education and local language skills. It is easy to see how this population would be a major source of crime. Indeed, Hispanics are, proportionally-speaking, the second-largest ethnic contingent in U.S. prisons [Bureau of Justice Statistics, 2005].

High taxes - The unemployed pay few taxes. The ``working poor,'' and those in their economic vicinity, pay very little.10 As established earlier, illegal immigration at the levels we are seeing (equivalent to 4% of the population) must therefore have have measurable effect on the tax burden. Assuming a ballpark estimate of $2000/yr per person of lost revenue for 2.6% of the population (1.3% who don't have jobs, and 1.3% worth of people living on lower wages), $15 billion of yearly tax revenues are lost.11 Finally, the illegal immigrants inevitably place a burden on the domestic social services infrastructure (including roads, telecommunications, police, defense, etc.), none of which they pay for. This increases the necessary expenditures of government on the other side of the balance sheet, which becomes the extra burden of tax-paying citizens.

The living wage problem - The lower tax revenue discussed above is of course a result of lower wages and employment. Thus, the quantity of ``working poor'' are increased, and these people become a visible contingent for ``living wage'' activists. It is hard to tell how many citizens are ``working poor'' who would not be without the illegal labor presence, but just a few million is within reason and probably enough to lend credence to the movement. This is a shame, because artificially mandating higher wages would be a band-aid fix, well-known to economists to be more destructive than helpful (it creates precisely the amount of extra unemployment to counteract the higher wages). To really make a dent in this ``working poor'' population--without causing more problems, the illegal labor population needs to be removed.

Globalization, outsourcing, and unemployment - As pointed out, illegal immigrant labor likely forces domestic unemployment higher. By itself, this is something of a problem, though it is not seen as much of a problem in the U.S., because we do well relative to other developed nations with respect to this indicator. Putting this absolute issue aside, however, we can see that the interaction of domestic unemployment with globalization and outsourcing is a bad one. Some brief background: globalization is the process of corporate outsourcing of various portions of the supply chain, and information services, to offshore locations with lower cost structures. The corporation saves money on labor this way, and can lower prices. But this leaves a contingent of angry U.S. citizens, who rightly observe that there is nothing innately better about the foreign people who are getting ``their'' jobs.

Most of these people are either in high-tech services (programmers, technicians, call center staff) or in the blue-collar sector (factory workers of all sorts). Even if they eventually find domestic jobs, the illegal immigrant labor force inevitably has some effect on this process, making those jobs lower-paying, extending the amount of time it takes to find them, and leaving fewer ``temporary'' low-skill jobs to act as a fall-back. To make matters worse, this domestic unemployed contingent is very aware of the working illegal alien presence, especially in southern and western areas, where it predominates.................

Illegal aliens are under taxed and over serviced. Our unemployment rate is not 0, so we don't need illegal aliens.

Dixie

Certainly illegal invaders are undertaxed. And they also use up more in services than they contribute. In addition their children frequently grow up uneducated and the circle of poverty continues as they continue to use more and more government benefits.

In my complex, I have never once seen a kid past 16 in school here. They simply do not care to educate themselves enough to get beyond the low-wage level, it is like a self-imposed victimhood of poverty.

You'd think if they really felt they were being vicitmized all the time by Anglo Americans (Los Voz de Aztlan as the source for this opinion), then one would expect they would automatically want to better themselves to be able to break free of this supposed "oppression" by becoming better educated. Yet, they never seem to.

Then, it also makes me wonder "why?". I have to say that they may not be the simple hardworking people that our own mentally deficint politicians would like us to think. I am beginning to believe that they see school as more work than just getting a job, and are again, like their illegal crossing into America, taking the easy way out.

Sure they will work, anyone will work for money. Very few would take being homeless and hungry over working any menial job. However, I think that in this self-imposed vicitmhood, by taking those nastier, or less desirable jobs, they are subconciously vicitmizing themselves, so that they can feel oppressed, and also feel that they are doing us Americans a favor by taking the jobs they have convinced themselves that only they are willing to do, thus making some ignorant Americans say to themselves "boy, what would we do without those illegal aliens to do those icky jobs?".

They see themselves as oppressed, but it is of their own doing, no one else's. They are the only ones who have the power to make those changes for themselves.