Taxation without benefits

While many Americans believe that illegal immigrants don't pay taxes, the Social Security Administration sees billions of dollars flow into its coffers every year that have been deducted from paychecks issued to undocumented workers using false names and phony Social Security numbers - money those workers will almost certainly never see again.

SSA officials keep a record of total wages that do not match up with real names and numbers in their system. The record is called the earnings suspense file.

In 2009, the last year for which figures are available, employers reported wages of $72.8 billion for 7.7 million workers who could not be matched to legal Social Security numbers.

In 2007, just before the recession, that total reached a record of $90.4 billion earned by 10.8 million workers.

Since those wages were reported by employers and not paid under the table, Social Security and Medicare deductions had to be made. A total of 12.4 percent of those wages went into the SSA system - 6.2 percent paid each by the worker and the employer. An additional 2.9 percent was paid into Medicare, half by the worker and half by the employer.

That means about $11.2 billion went into the Social Security Trust Fund in 2007, and $2.6 billion went into Medicare. While that money will be used to pay retirees and health care beneficiaries, most of it likely will never be claimed by the undocumented workers who contributed it.

Since the passage of 2010's payroll tax cut - which Congress on Friday extended through February - workers have paid 4.2 percent to Social Security instead of 6.2 percent.

'When you hear people voicing anti-immigrant sentiments, one of the first things they say is, 'They don't pay any taxes, and they just take money out of the system,' ' said Jeannie Economos of the Farmworker Association Florida, based in Apopka. 'But that just isn't true.'

Immigrants -- Go Home!

Beware of what you wish for. It might just come true.
The politics of immigration are poisonous, laced as they are with fear that foreigners will take our jobs, smuggle in terrorists or enter illegally and abuse our resources. But the fiscal arithmetic couldn't be simpler. To grow GDP you need a net increase in the size of the labor force, hours worked and productivity. Encouraging legal immigration, particularly of skilled workers, lifts all three.

Darrell West, a Brookings Institution scholar makes the economic case for relaxing our immigration policy in a new book, Brain Gain. It isn't hard:
• Foreign born Americans accounted for 25 percent of technology and engineering startups between 1995 and 2005. In Silicon Valley in particular, immigrants founded more than half the tech companies started in that time. By 2005, tech companies started by immigrants employed 450,000 American workers. 
• Today, foreign born workers hold 65 percent of PhDs in computer science. Technology accounted for most of the surge in productivity over the past two decades and figures to continue to be the source of productivity gains in the future.
• In fact, far from stealing income from native-born American workers, the economic contributions of immigrants make most of us richer. According to a 2007 study by the White House Council of Economic Advisors, 90 percent of American-born workers with at least a high school education experienced wage gains of 0.7 to 3.4 percent a year, depending on education level, from the economic contributions of immigrants.
• The same study concluded that immigrants overall add $37 billion to GDP per year.

Rather than welcoming such people, however, U.S. policy since the attack on the World Trade Center in September 2001 has done almost everything it could to keep them out. In 2004, Congress allowed the number of H1-B visas -- the special permits for highly skilled workers -- to drop from 115,000 per year to 65,000. That's turning our back on 50,000 potential scientists, engineers and physicians. A broken bureaucracy makes obtaining one of those visas an ordeal better-suited to the old Soviet Union than the bastion of free enterprise.

"A Chinese engineer coming out of a university here might wait 10 years here to get a green card," says Edward Alden, a senior fellow at the Council on Foreign Relations. "In the U.K. the process might take a year or two. In Alberta, anyone with oil industry skills can get citizenship immediately." That gives highly trained people an excuse to take their skills to a country that competes with us.

With millions unemployed here, a bit of xenophobia is understandable, emotionally.  Politically, it's impossible to resist. "It's easier for politicians to play on people's fears of job loss than it is to explain the complexities of global labor markets," says Adolofo Laurenti, an economist at Chicago's Mesirow Financial, and himself an immigrant from Italy.

Still, at a time when home countries are increasingly competitive, U.S. immigration policy is close to masochistic. "There's no question in my mind that over the past decade the U.S. has become a less attractive place for highly educated immigrants to settle,"  says AnnaLee Saxenian,  dean of the School of Information at Berkeley and an expert on immigration into Silicon Valley. "My foreign graduate students used to assume that they would stay here after graduation ... Now they say, 'I can go home and live like a king in India.'"

President Obama has stressed the moral obligation to fix a system that causes anguish for immigrant families and native-born Americans. He might have mentioned, but didn't, that reform could also help the country deal with another rapidly multiplying set of obligations. Amid all the unattractive alternatives we face for attacking our debt, welcoming the scientists and engineers that we are not producing at home seems like the easiest decision in the world. But these are emotional issues. "To get our debt under control, you'd think we'd put everything on the table," says Laurenti. "But we're doing exactly the wrong thing."

What's good for the Goose .....

The IRS paid out billions in refundable tax credits to undocumented immigrant workers last year, according to a new Treasury audit.

Federal law bars illegal immigrants from collecting tax benefits, like the Earned Income Tax Credit, that can be claimed by residents with Social Security numbers. But the Treasury report found that the tax code's lack of clarity is allowing the Additional Child Tax Credit (ACTC), which reduces taxes owed by certain individuals with children, to be heavily claimed by undocumented workers; if their tax bills dip below zero, they can collect government checks. 

Even wages earned illegally in the U.S. are taxed. Individual Taxpayer Identification Numbers (ITINs) are available to people without Social Security numbers who cannot legally work in the U.S. so they can file tax returns. These ITINs have become increasingly linked to fraudulent tax claims, which helped inflate IRS payouts on the Additional Child Tax Credit from $924 million in 2005 to $4.2 billion, the report said. 

The report attributed the massive outpouring of child tax credit refunds to the 2001 Bush tax cuts and the 2009 American Recovery and Reinvestment Act, the legislation that created the stimulus program.

In response to the report, IRS officials said they would follow one of its recommendations to meet with Treasury officials to determine whether people unauthorized to work in the U.S. can collect refundable tax credits. But the IRS rebuffed the audit's second recommendation that it collect additional documentation from people claiming the ACTC, arguing that the agency lacks the legal authority to challenge such tax returns.
"Any suggestion that the IRS shouldn't be paying out these credits under current law to ITIN holders is simply incorrect," said IRS spokesperson Michelle Eldridge.  "The IRS administers the law impartially and applies it as written. If the law were changed, the IRS would change its programs accordingly."

Congress has been unable to pass any meaningful immigration legislation this year, but the House couldn't miss a chance to stick it to immigrants by going after their U.S. citizen children in a recent tax bill. While Americans are debating whether taxes on millionaires should be raised, the House, at least, is planning to raise taxes on the most vulnerable of American citizens - children, 42 percent of whom (31 million) live in low-income families.

The tax package denies immigrant taxpayers who file their taxes using an Individual Taxpayer Identification Number (ITIN) the ability to claim the Additional Child Tax Credit for their U.S. citizen children. This provision will impact 2 million families and up to 4 million U.S. citizen children and take away a tax credit designed to keep children out of poverty.

Child tax credits can only be claimed by those paying into the system and were designed to alleviate some of the burden that tax payment imposes on low-income, working families. Taking away this credit from tax-paying families could drive more than two million families closer to poverty.

Unauthorized immigrants are required to pay their taxes, just like all Americans. Many fulfill their tax payment obligations using an ITIN, but they are not eligible for the vast majority of benefits their tax dollars pay into. According to the Treasury Department's Inspector General, in 2010, ITIN filers reported $60 billion dollars in wages, which according to an estimate by the National Immigration Law Center means they generated an estimated $9.2 billion in payroll taxes. This revenue, which benefits us all, is ten times the amount that would be saved by stripping the child tax credit away from the children of ITIN filers.

ITIN filers are doing the right thing by paying into the tax system with little hope of collecting any future benefits for themselves. If the Child Tax Credit to ITIN filers is removed, the only ones hurt in the process will be the children.

But perhaps the alternative of legalizing de facto undocumented immigrants and implementing legalized immigration reform and thereby broadening and enhancing the tax-base is just too steep a hill for the Hill to contemplate.

America 'free-loading' from illegal immigrants

Even wages earned illegally in the U.S. are taxed. Individual Taxpayer Identification Numbers (ITINs) are available to people without Social Security numbers who cannot legally work in the U.S. so they can file tax returns.

An April study by the Institute for Taxation and Economic Policy found that undocumented immigrants paid $11.2 billion in taxes in 2010. It estimated that nearly half of all illegal immigrants pay income taxes.

"Undocumented immigrants are undoubtedly positive for the fiscal health of this country," says Leticia Miranda, associate director of the Economic Policy Project at National Council of La Raza, a group that advocates for Hispanics in the U.S.  She says that harping on the number of undocumented immigrants glosses over the bottom line that these workers are paying hefty sums into the Social Security trust fund, despite having no claim on the benefits. The Social Security Administration's chief actuary estimated last year that undocumented immigrants had paid $120 billion to $240 billion into the Social Security trust fund as of 2007.

According to the Treasury Department's Inspector General, in 2010, ITIN filers reported $60 billion dollars in wages, which according to an estimate by the National Immigration Law Center means they generated an estimated $9.2 billion in payroll taxes. If the marginalization of illegal immigrants made it impossible for people to make those tax payments, that would be a self-inflicted wound to the budget of this country.

And if these figures represent the less than half of illegal immigrant ITIN-filers, the real figure could be in the order of $20 billion in payroll taxes if the de facto residence of these illegal immigrants was appropriately recognized and they came out of the shadows.

Visas for Home-Investors???

Two US Senators, Charles Schumer (D-NY) and Mike Lee (R-UT), recently introduced a bipartisan bill that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S. Designed to spur foreign investment in the flagging US Property Market, the Bill aims to entitle the investor to bring his family to live in the US. The Bill does however have strings attached - the residence visa is terminated if the investor sells the property and, more importantly, the visa does not entitle the investor or any member of his family to work in the USA.

So, unless the foreign investor and his wife and kids under the age of 18 are independently wealthy and capable and desirous of sitting around all day doing not a stitch of work, there is ample incentive and opportunity to seek employment opportunities. And since they are not entitled to work, this employment will be under the table with income either not being declared at all or simply being repatriated to the home country.

Indeed, this Bill offers nothing new - there has, to my knowledge, never been any restrictions on foreigners wanting to pay cash to own property in the USA - China has been doing this for years. All they need is a visitor-visa to enter the USA for limited periods of time. The proposed Bill now allows them to stay here permanently - well, at least until they sell the property or run out of permanent vacation cash and need to start earning again.

So here's the question of the moment - what's the difference between John coming to live legally and work illegally in the USA on a home-investor visa and Juan coming to live illegally and work illegally in the USA on a "Rio Grande Crossing-visa"?

Yup, you guessed it - $500K! The going rate for a Permanent Residence Green-Card to work illegally in the USA.

As my Pappy said to me "Son, everyone's a whore. You just gotta get agreement on the price!"

And there's even an added benefit - of your $500k investment you can spend as little as $250k on one property and the rest on a couple of rental properties which you can rent out as a source of income. Uh? But I thought the Bill excluded a work-authorization? So running a property rental business is not work? Wonder what the IRS will say about THAT?

If only the two esteemed Senators would invest an equal amount of energy and creativeness in repairing the legal immigration system which is blocking so many new skills from entering and staying in this country - less than 10 percent of permanent residence Green-cards (to live AND work legally in the USA) are granted on economic grounds.

In the Shadows of the DMV

When I was a child I had a friend who would rather destroy his toys than let me play with them. So I got my own toys and besides finding that MY toys gave me more pleasure than playing with Willy's toys, I soon found that I didn't really need his friendship either.

The N.C. DMV has just stopped me from renewing my NC Drivers License. Not because I'm a bad driver, not because I've broken any traffic laws, not because my vehicle is a road-hazzard and not because I have failed to pay my taxes. Quite the opposite - the DMV has denied me a driving license because after 10 years of living legally in the USA, owning my own home and successful business, my visa has expired and I have joined the ranks of illegal immigrants in this country. And the law says that illegal immigrants are not allowed to have drivers licenses. What my legal status has to do with my driving privileges, your guess is as good as mine. And so while I wait for my Private Bill HR 3505 (to grant me permanent residence in the USA) to be voted upon by Congress, my vehicles will remain parked in my garage.

My new status as a disallowed driver initially appeared to be a disaster, until I considered the hidden benefits of having "my own toys" : 

  • Not having to insure my vehicles is going to save me $1800 a year (based on 2011 actuals).
  • Not having to fill my vehicle's gas tanks is going to save me $4500 a year (based on 2011 actuals).
  • Not being able to drive to the store for my business and home supplies means I will now have to shop online, being able to select the best prices nationwide, cheaper than buying in Charlotte NC, and I won't have to pay 7.25 percent Sales Tax if I buy from out-of-state vendors.
  • And if I actually sell my fully-paid-for vehicles I should clear about $25000

And to keep me mobile, my $1300 49cc 40mph 120mpg $4 per tank-of-gas scooter does not require to be licensed or registered for road-usage and I do not require a drivers license to legally drive this scooter on public roads. So when you are stuck behind me in traffic, bear in mind that 40mph is the best I can do. Just relax. And reflect.

Bit silly isn't it?

Through no fault but its own, America has porous borders and 12 million illegal immigrants living here - sorry - 12 million and 3 now. These people are de facto permanent residents of the USA. So rather than fixing the border-controls and legalizing the 12 million de facto illegals, we set out to spite them - denying them bank-accounts, denying them drivers licenses, denying them vehicle finance, denying them vehicle insurance, denying them housing finance, denying them education, denying them pretty much everything - marginalizing them and keeping them in the shadows. Encouraging them to be creative and to find alternative solutions.

Who is the REAL loser here?

Website Powered by Morphogine