Tax Policy and Immigration

Last week, Iowa Congressman Steve King introduced legislation designed to beef up enforcement of immigration laws. His bill, the New Illegal Deduction Elimination Act (New IDEA), would deny federal income tax deductions for salaries and benefits paid to illegal aliens.

In a press release issued June 28, King's office states that "last year no employers were sanctioned for hiring illegal workers." I haven't independently confirmed that statement, but if it is true, this is truly surprising. I'm not naive enough to believe that there were no illegal workers in the United States.

From all accounts, it looks as though immigration laws are frequently unenforced. My own employer, however, fastidiously applies them. It even requires high-level government officials (including judges and prosecutors) to submit their "papers" each semester they may be hired to teach a course. While that may go overboard, many others apparently do not get these forms, or they are satisfied through counterfeit documents.

A study released earlier this year by Bear Stearns, The Underground Workforce is Rising to the Surface (available at http://www.bearstearns.com/bear/bsportal/Info.do?left=Asset%20Managementhttp://www.bearstearns.com/bear/bsportal/Info.do?left=Asset%20Management ) suggests that there are as many as 20 million illegal immigrants in the United States, and that they may account for up to 15 million jobs -- or 8 percent of the workforce. This is a significant piece of the U.S. economy by any account.

If the INS has not been successful, perhaps the IRS will be. It would seem that this agency is already overtaxed in its audit duties, but this would perhaps provide another threat that might bolster enforcement. We have tried other more direct tactics, however, and they have not worked so well. Imposing potentially large fines on employers has not worked. We have also tried denying government contracts. However, unless the government gets serious about enforcement, these laws become dead letters or worse -- they are used selectively against those unfortunate souls who manage to hack off a government employee.

Of course, the issue of immigration has potentially huge impacts on our econonomy. Though some say that the low-wage jobs taken by illegal immigrants would not be done by anyone else, a lax immigration policy effectively increases the supply of labor at these levels and helps to maintain those low wages. Think about that when you argue about economic justice.

EAM