Low-Skilled Immigrant Workers Are Vital Contributors To The Economy

Low-Skilled Immigrant Workers Are Vital Contributors To The Economy

September 12, 2012
Originally published in Forbes

The Republican National Committee reformed its immigration platform this month to favor a new guest worker program. Unfortunately, the party still seems unwilling to accept permanent low-skilled immigrants. These workers are critical to America’s future competitiveness, yet they have received little GOP attention compared to high-skilled workers from Asia to whom Mitt Romney is promising green cards. The disparate treatment stems from a fundamentally flawed view of the economy.

Many people view low-skilled immigrants as an economic burden because they produce few income taxes. But it’s not just these immigrants—almost half of all Americans had no income tax liability in 2011. In other words, according to the logic of immigration’s opponents, America’s economy would benefit from deporting half the country’s population. Despite its absurd implications, no other argument against immigration receives more attention from Congress and the media.

The policies advocated by the major anti-immigration groups—NumbersUSA, the Federation for American Immigration Reform, and Center for Immigration Studies—actually do rest on the assumption that the U.S. would benefit greatly from significantly fewer people. These groups’ founder, radical environmentalist John Tanton, argued that reducing the population leads to environmental progress, but “[if you] double the number of people,” he says, and “we’re back where we started.” All three groups he founded apply his views to immigration and use the tax argument in favor of deporting undocumented workers and even ending low-skilled immigration altogether.

This view misses how low wage earners contribute to the economy and government budgets. These workers allow Americans to specialize in more productive endeavors. Consider a worker who files paperwork for a doctor. Because the doctor is now free to see more patients, the worker has created economic value from both his efforts and the doctor’s. Child care providers free mothers to work; construction workers allow U.S. engineers to finish more projects; many others create similar benefits, and so make a much more substantial contribution to the economy and to the U.S. Treasury than appear on tax returns.

Allowing people to reside where their work is most valuable creates even more economic growth, which means U.S. companies make more sales—including sales to low-skilled workers. More sales equal larger economies of scale, which lowers per-unit costs of production for businesses and cuts prices for consumers. Economies of scale allow consumers to spend, save, and invest more of their money, which leads to more (taxable) economic activity that benefits everyone.

The most important flaw in this myth is that low wage workers actually do pay taxes. They pay not just regressive sales taxes, payroll taxes, and others that target them directly, but they also indirectly bear the cost of those aimed at the rich. When taxes target the top 50 percent, they have spillover effects to everyone else. Companies compensate for higher taxes and lower rates of return partly with lower wages and higher prices, which disproportionately impact the poor. Lower rates of return discourage investment, meaning fewer jobs and slower wage growth.

The corporate income tax is the most studied tax that intends to target only the rich, but that also impacts workers. Although two recent studies found only a slight effect, many studies over the past twenty years have found corporate taxes are paid in large part by workers.  Studies by the Congressional Budget Office (CBO), Oxford University, U.S. Treasury, Federal Reserve Bank of Kansas City, National Bureau of Economic ResearchAmerican Enterprise Institute, and several others have all concluded at different times that lower hourly wages account for a substantial portion of corporate income tax payments.

The Kansas City Fed found that, “from 1992 to 2005, a one-percentage-point increase in the state corporate tax rate decreased wages 0.52 percent, on average.” In 2006, the CBO found that, “domestic labor bears slightly more than 70 percent of the burden of the corporate income tax.” The U.S. Treasury concluded in 2007 after reviewing the most recent economic research that, “labor bears a large burden from the tax, possibly exceeding the revenues collected from the tax.”

Conservatives have rightly argued for years that bigger government hurts the poor the most. Yet market advocates lose the force of their pro-liberty message when they characterize the working class as free-riding on the backs of the rich. In an economy in which everyone is connected, nothing is free. Immigrants and other low skilled workers are vital contributors to the economy. Rather than treating them as superfluous or parasitic, America must begin to see them as the base on which we all depend.