David R. Henderson  

Immigration: Taxes vs. Fees

Scott Sumner, for the Myth of ... A Tax and Transfer Company wit...

Bryan posted a provocative item yesterday in which he made the case for a 10-percentage-point higher income tax rate on immigrants vs. an up-front fee. I have two comments.

But before doing so, I emphasize that Bryan and I are both talking about a second-best world in which we can't get our ideal immigration policy--in his case, no limits, and in my case probably no limits although I'm a little more nervous about that policy than he. (My worries are expressed here; Bryan's response is here.)

Now on to the issue.

1. I think Bryan drastically understates the ability of even fairly low-skilled workers to come up with a substantial five-figure admission fee. (I'm assuming the fee would be somewhere between $40K and $100K.) My basis: look at what many of these same people are willing to pay "coyotes" to smuggle them here. And remember that this is a situation in which the people are not assured of making it here and take a substantial risk of dying. So the price they would be willing to pay to be assured of a green card would be substantially more for three reasons: (1) they get here, (2) they don't die on the way, and (3) they are legally in the country, saving substantial future hassles. My view is that even if the government charged a lump sum of $100K, you would have 5 million instant takers. If I'm right, that would be a cool $500 billion. Think of the one-time drop in the deficit.

2. Let's say Bryan's argument about the inability of people, especially the unskilled, to raise that kind of cash is right. That doesn't imply a 10-percentage-point increase in the income tax rate. It implies installment payments. If the $100K is the right amount (remember, I'm in a second-best world here: Bryan would say the right amount is $0), then the government could charge the person $10,000 a year for 15 or 16 years. That avoids the substantial dead-weight loss that comes with higher marginal tax rates.

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COMMENTS (4 to date)
Andrew writes:

Taxes v. fees is like equity v. debt. If you take a percentage of the immigrant's income, you give yourself an incentive to help the immigrant succeed and more than make up for the fee you might have charged.

David R. Henderson writes:

In your second sentence, who’s “you?"

Brett Gall writes:

Question to consider: Would fees or taxes incentivize illegal immigration less? A fee incentivizes illegal immigration at the point of entry meanwhile a tax incentivizes "going off the grid" it seems. The issue of compliance would play a substantial role, I believe.

PrometheeFeu writes:

I think the fee has a political advantage. If we institute an entrance fee, it will be most likely implemented as a new program for immigrants going forward. If we institute a tax, you can bet politicians will tax people who are already in the country legally. I for one would rather not pay a new tax. Also, there will be tremendous political pressure to make it harder to become a citizen. Right now, you just need to have immigrated in the country for a couple of years before you qualify for citizenship. But if we are talking about a tax, politicians will want to collect that tax as long as possible. Citizenship will probably require a much longer time as an immigrant and with an extra tax.

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