Looking Carefully at the Proposed Immigrant Entrepreneur Bill

By David North on March 21, 2011

While I am fond of Senators John Kerry (D-MA), Richard Lugar (R-IN), and Mark Udall (D-CO), all valuable members of the Senate, there is an air of unreality about the immigrant entrepreneur bill that they have introduced.

The twin premises behind the legislation, which I question, are that innovative potential immigrants who want to come to the U.S. are not coming because of the current laws, and that this legislative proposal will take care of that alleged problem. For the details of their proposal, the Startup Visa Act of 2011 (S.565), see here.

They offer three options in the bill, which is interesting in and of itself, including option two which I find troublesome for several reasons. It would grant a green card to people with the following characteristics:

  1. Present in the U.S. legally on an H-1B (high-tech) visa;

  2. or having a U.S. master's or a doctorate in a high tech field;

  3. having an annual income of at least $30,000 in the U.S.;

  4. securing from a very narrowly defined financial entity in the U.S. a $20,000 or more investment in their would-be business;

  5. raise, in the two years after they get their visa, $100,000 for that business from the same kind of investment entity, and

  6. have it create three new jobs in those two years.

That may sound like a well thought-out set of credentials, but let's examine these requirements closely and see to what extent they make sense and/or are in conflict with each other.

The first three provisions are so sweeping as to be nearly meaningless; I think that something like three-quarters of a million people could meet those requirements, including some brilliant innovators and huge number of pretty average workers.

The fourth and the fifth provisions, on the other hand, are very restrictive, sharply limiting the kinds of investors who could fund the innovators. The final requirement, three new jobs, is modest, perhaps too modest.

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The new visas would be drawn from the unused ones in the EB-5, immigrant investor category, thus increasing the flow of migrants to the U.S., but not increasing the numerical limits.

Let's look at the "you all come" provisions, the first three. The general idea, apparently of the legislators, is that if you, an alien, can secure an H-1B visa, or have a master's degree in high-tech subjects from a U.S. institution, and are making $30,000 a year then you are a potential innovative genius.

It is a little like saying that you have to be at least five-feet tall to play professional basketball. That is perfectly true, but it is hardly a meaningful stipulation.

The populations open to the senators' proposal are too large, and too undistinguished to be of much use for these purposes. As UC-Davis Professor Norm Matloff argued recently, just getting into the H-1B program does not make you one of the "best and the brightest." And, as I have estimated in a CIS Memorandum, there are probably 650,000 aliens in the country, legally, who came with H-1B visas. In addition there are probably something like 100,000 aliens with advanced, high-tech degrees from U.S. universities who are not in the H-1B population. So, maybe, 750,000 in all, most of whom are pretty average.

Then let's look at the incomes that our would-be innovators must receive – this is probably the least realistic provision of them all.

Our future innovative geniuses have to be making $30,000 a year. That's a little less than twice the minimum wage in California ($8/hour), where many H-1Bs cluster, assuming 2080 hours of employment. It's a little more than twice the national minimum wage of $7.25 an hour, again assuming full-time, year-around employment.

I have been looking at the wages offered school teachers in the H-1B program, and they are paid about half as much as the high-tech people. Very few of the elementary school teachers, even those working in either poverty-stricken school districts or chintzy ones, are offered less than $30,000 a year.

It would be almost impossible to find a high-tech H-1B worker employed at less than $30,000 a year – but that's a bit of reality beyond the ken of the senators three.

So, on one hand, we have a huge population of 750,000 people who meet the initial requirements of the program. These are the at-least-five-feet-tall potential professional basketball players.

And then we have the investor requirements, which could be compared to placing basketball baskets 40 feet above the floor.

Whereas in real life the sources of investments of $20,000 and $100,000 are many and varied, the senators (out of a commendable effort to avoid fraud) have created a definition that I think is overly restricted. Here is the provision, as described in Sen. Udall's press release:

The investor(s) eligible to 'sponsor' immigrant entrepreneurs must be based in the U.S. – with the majority of partners being U.S. citizens – and have made $10 million capital commitments over the course of two years, with at least four investments exceeding $500,000 as stipulated in applicable SEC investor rules.

This definition, apparently eliminates potential investments from: a) the entrepreneur; b) the entrepreneur's family, c) any and all individuals; d) all corporate entities; e) all pension funds; f) partnerships dominated by non-U.S. citizens; g) partnerships that did not make at least four $500,000 investments in the last two years; h) partnerships whose investments do not meet the (unspecified) SEC rules; and i) those partnerships that have not made $10 million in "capital commitments" in the prior two years.

Thus the would-be innovators would not only have to create a potentially profitable new business, they would have to sort through the investors of America – not just to find someone interested in their potential business, but to find exactly the right kind of partnership to do the investing. Selling the idea to Microsoft or IBM, or some subsidiary thereof, would simply not do.

It is odd that the "you all come" provisions are so open, and the investment provisions, of the same legislation, are so constricted.

Some small businesses may need capital to get underway, but do we need $120,000 (all from U.S. sources) so badly that we have to create a convoluted scheme like this one?

Further, Senators Kerry, Lugar, and Udall seem to think that potential alien entrepreneurs and innovators have brilliant technological skills but no administrative smarts; they can do wonders with computers, say, but are hopelessly inept when it comes to manipulating our multi-part immigration system. My strong suspicion is that if you are good at one kind of innovation, you probably can handle the other.

The senators have also laden their bill with the need for academic credentials for the would-be entrepreneurs. Bill Gates and all the other brilliant but lightly-educated multi-billionaires in the computer and software industries seem to have done well for themselves without such backgrounds.

Senators: I would not try to repair this legislative proposal – let it die a natural death.