DHS Deals Citizen Grandparents Three Financial Blows

By David North on May 30, 2012

If you are a grandparent and one of your grandchildren is about to graduate from college and look for a job, the U.S. Department of Homeland Security (DHS) has just attacked your family finances in three significant ways:

  • It is taking money away from the fund that pays your Social Security;

  • It is taking money away from the Medicare fund; and

  • In some cases it is paying employers not to hire your grandchild, but to hire a foreign college graduate instead; the bonus to that employer for hiring the alien graduate can be as much as $4,950 a year (if the job pays $60,000 a year).

How can DHS do these things when it does not control Social Security, Medicare, or the U.S. Treasury?

It is all a matter of definition, and DHS has used its power of defining "foreign college student" to include former foreign college students who have been out of school for close to two and a half years.

These alien students on F-1 visas are not subject to payroll taxes and neither are their employers; so the recent DHS decision means that an employer does not have to pay those taxes when hiring certain foreign college graduates, but would have to pay them if he hired a U.S. citizen to do the same job.

In other words, while DHS does not make payroll tax policy generally, it has expanded the definition of people who are not covered by those taxes.

This is an arbitrary decision that simultaneously hurts the nation's financial balance sheet, the aging population using the Social Security and Medicare trust funds, and citizen and legal resident college graduates who have to compete with heavily subsidized foreign college graduates.

It's a disgraceful trifecta, and it was imposed on America in an earlier form by the Bush II administration and expanded last week by the Obama administration.

An interim program for F-1 students with new degrees has been in place for decades. Under the DHS program called Optional Practical Training (OPT), they can obtain jobs in the field in which they have trained and keep them for 12 months after graduation. Specific decisions about this program are largely made by universities, not by the U.S. government.

In 2008, the Bush administration extended that period for an additional 17 months if the alien student's academic work had been in one of a series of STEM (science, technology, engineering, and math) occupations. During this 29-month period the alien is treated as though he or she were still in college, and neither the former student nor the employer has to pay payroll taxes.

In 2011 and again this month, the Obama Administration added numerous additional occupations to the now 14-page list, thus expanding the number of jobs in which employers are subsidized to hire alien graduates rather than resident ones. There are more than 400 occupations on the list.

We estimate, based on DHS's own statistics, that some 30,000 jobs for new college graduates are going to aliens rather than to the country's own hard-pressed new graduates because of the extended OPT program. We estimate that 98,000 jobs are involved for the basic, 12-month program.

Meanwhile, the program is costing three federal trust funds more than three quarters of a billion dollars a year because of subsidies to the aliens' employers and to the aliens themselves. The Social Security and Medicare trust funds are in enough trouble, without the additional problem of using these funds to subsidize jobs for foreign college graduates.

The program for the aging that is hurt most by OPT is Social Security. Other victims include Medicare and the federal unemployment insurance programs. Employers currently pay 6.2 percent of wages into the Social Security trust fund, 1.45 percent into Medicare, and at least 0.6 percent into the federal unemployment system, for a total of 8.25 percent. Workers (other than OPT aliens) currently pay 4.2 percent into Social Security and 1.45 percent into Medicare, for a total of 5.65 percent.

I don't mind foreign college graduates competing with American graduates for jobs, but it should be on a level playing field. Employers should not be given substantial subsidies for not hiring our citizens.