Aliens and Money: Let's Look at the Big Picture

By David North on February 26, 2016

Suppose there are two stacks of money, which can either be used in our economy or in that of some other nation. In each case there is an alien population tied to the money.

One stack consists of $2-3 billion dollars.

The other stack consists of more than $50 billion and growing.

Which stack of dollars do you think would get the most attention from our policy makers? The big one or the little one?

You might think that the little stack would be ignored, and all the attention would be paid to the big one — the one worth $50 billion-plus.

You would be wrong.

I'm thinking of highly portable money, whose destination can be either determined or heavily influenced by government policy, and I believe I am bringing up a neglected subject.

The smaller stack of money is now largely in China, and some $2-3 billion a year of it can be laboriously and clumsily brought into glittering big city investments (usually) through the EB-5 (immigrant investor) program.

The other stack of money, some $50 billion-plus, is the sum of all the remittances currently flowing out of our country every year. Much of this is untaxed earnings. With some rather minor public policy adjustments, a significant fraction of those funds, say $5-10 billion, could be caused to stay in America.

Which would you, the American people, prefer? The controversial, labor-intensive creation of an inflow of $2-3 billion (i.e., EB-5) or the avoidance of what would have been an outflow of $5-10 billion in remittances?

Virtually all the attention paid to these two topics is focused on the little EB-5 program — including two congressional hearings in the last few weeks.

Meanwhile, we can be grateful to Sen. David Vitter (R-La.) for calling our attention to the huge outflow of remittances. Most of these person-to-person transfers of money are from migrants, legal or illegal, to relatives in the homeland. There are also transfers of criminal moneys mixed in with these remittance flows. The latter angle is an important public policy subject, but one I leave to others.

I wrote recently about the isthmus in southern Mexico through which virtually all the Central American illegal migrants flow and which offers enforcement opportunities. There is a similarly narrow channel for the outward flow of remittances; it is through controllable bank and wire transfers. The relatively tiny sums that can be carried, or mailed, in cash or jewels or gold can be safely be ignored in a conversation about remittances.

There are two obvious ways to reduce the outflow of tens of billions of dollars from our economy, but the administration has no interest in reducing remittances by shrinking the size of the illegal alien population. The other way to reduce remittances is to use the wire and banking systems to discourage them and to tax them. But before we discuss the mechanics of such a program, let's return to Sen. Vitter's contribution.

The senator successfully asked the Government Accountability Office (GAO) to conduct two studies on the outgoing flow of remittances. The total amount of money in this category leaving the United States, according to a letter to the senator accompanying one of the reports, is a thunderous $54.2 billion, with the largest single segment of it, $25 billion, going to Mexico. GAO is critical of the way these remittance estimates are made and calls, in a second report, for better accounting of the remittances and better record-keeping on those who send them.

Sen. Vitter's legislative proposal in this connection, the Remittance Status Verification Act of 2015, S. 79, would require screening of all personal remittances (but not those of corporations) to make sure that only those in legal immigration status are sending them. For those who cannot prove legal status, a 7 percent penalty would be imposed; this would generate, he estimates, $1.29 billion that could be used to help enforce immigration law.

The problem with Sen. Vitter's proposal is that every grocery store clerk and bank teller handling overseas remittances would have to play the role of immigration inspector and would have to make a decision on each customer's legal status in the United States. This would set up a totally avoidable flood of criticism.

I would suggest an alternative based on the highly successful Oklahoma wire-transfer program, which we at CIS have been following as it has grown over the years. This program calls for a flat 1 percent fee on all personal wire transfers of funds out of state; this fee is not strictly speaking a cost to the sender because it can be used as a credit when the person files his or her state income tax return. Oklahoma records show that the fee is rarely used in income tax filings, however, indicting that the moneys are being sent by people who are not filing an Oklahoma tax return, and thus the fee system is, in fact, taxing non-reported income.

Oklahoma is not known for its large illegal alien population, but this little program generates $11 million or so every year, and the annual total keeps rising by 5-10 percent.

My suggestion would be a 2 percent fee (a withholding against the federal income tax) for all non-corporate fund transfers. This, too, would produce an estimated total of $1.08 billion in fees, many of which would be on otherwise untaxed income. Since this data would also be conveyed to the federal and state income tax organizations, it would give them a series of leads on people who are not otherwise paying their income taxes, presumably resulting in billions more in tax collections, largely from illegal aliens.

Any such law should see to it that Oklahoma's little program is not harmed and that remittance senders in Oklahoma do not pay more taxes than those in other states.

Sen. Vitter, unfortunately for the concept of remittance control, is on his way out of the Senate; he ran for governor of Louisiana recently and lost. His Senate term expires in January of next year.


Topics: Remittances