Tom Church

Tom Church

Tom Church is a research fellow at the Hoover Institution. He has a master's degree in public policy with honors from Pepperdine University and a bachelor's degree in mathematics and political science from the University of Michigan.

 

The good news coming out of the Republican Party’s Principles for Immigration Reform released this afternoon is that the prospects for passing immigration reform were not further degraded. At first glance, it looks like they provide a decent platform to move reform forward. There is even substantial agreement between the two parties on a few key issues. But principles don’t give details, and where they give indications they still leave us with questions.

Let’s take them in order.

Border Security and Interior Enforcement

The GOP principles say the border has to be secured first and declare “a zero tolerance policy for those who cross the border illegally or overstay their visas” after the reform. One has to wonder to what extent deportations will change in practice under a zero tolerance system. And securing the border first begs a few questions: Or what? Does all incremental legislation offered depend on first declaring the border secure? What percent secure do Republicans want, and what is reasonable in practice? A requirement that the border be 100% secure would be both impossible and insincere.

Pro-immigration reformers might be squeamish about including language that specifies a zero tolerance policy for future illegals, but as long as the end result of the process is many more visas – both green cards and temporary work visas – that alleviate the incredible demand for access to the United States, there is nothing inherently wrong about inflating enforcement measures. More visas means border enforcement will be much easier since fewer people will try to enter the country illegally.

The Republican principles also call for an entry-exit visa tracking system, which seems entirely reasonable. If Facebook can handle the amount of “checking in” that goes on everyday, the United States should be able to figure out where you entered the country and where you left.

E-Verify

At first glance, E-Verify seems like a no-brainer: Employers run potential employees’ Social Security numbers to verify that they are eligible to work. But many privacy advocates are wary of a system that gives the government control over the ability to hire. They look at the error rate of current E-Verify employment checks and forecast a few million people a year being caught in employment limbo for something that is not their fault.

Their fears are well intentioned but slightly overblown, or at least easily remedied. Even if the government gets a few E-Verify checks wrong, the simple presumption by the government that the employee is legal until proven illegal would allow employers to continue with the hiring process while the mistakes are remedied – which is how it works now with the voluntary system. E-Verify is okay as long as it continues to be monitored with a skeptical eye.

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Businesses in 103 Metropolitan Statistical Areas (MSAs) representing 20% of the total civilian labor force would be ineligible to hire new ‘W’ guest workers if the Senate Gang of Eight’s immigration bill (S.744) were passed today. Regulations in the bill prevent businesses from hiring guest workers if the unemployment rate in their MSA is higher than 8.5%, absent special consideration by the commissioner of the soon-to-be-created Bureau of Immigration and Labor Market Research. MSAs with higher than 8.5% unemployment include Los Angeles, Chicago, Detroit, Sacramento, and Las Vegas. Businesses in areas of high unemployment looking to hire guest workers would be out of luck unless they followed government-specified recruiting activities, or if the commissioner declared a shortage in the occupation of interest or chose to make additional positions available.

Nine MSAs with census populations of more than one million people had unemployment rates higher than 8.5% in March 2013. (All unemployment rates displayed are seasonally adjusted.)

Table 1 - MSA

Fourteen MSAs in March 2013 with civilian labor forces containing over 200,000 people would need their unemployment rates to drop by more than one percentage point before they would be eligible to hire ‘W’ guest workers. Even if the economy recovers quicker than expected, those fourteen MSAs – representing 12.7 million civilian workers – would have a much longer wait than the rest of the country before they could hire guest workers.

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Yesterday’s Wall Street Journal op-ed by Peter Diamond and Emmanuel Saez received quite a reaction. Diamond and Saez advocate raising the top marginal tax rates on the rich to between 50-70%. Their recommendation is based on a 2011 paper they published in the Journal of Economic Perspectives (PDF) where they advocated 1) Raising marginal tax rates on the very rich, 2) Subsidizing earnings (phasing out at a high rate) for low earners, and 3) Taxing capital. Their paper was widely discussed when it was published, and it is serving as a justification for many on the left to raise taxes on high-income earners. It’s their first recommendation that I would like to address.

There are several key limitations with the authors’ methodology used to conclude that raising marginal tax rates is optimal social policy. Two I’ll mention here are the dynamic effects of raising marginal tax rates in the medium and long term, and the volatility that comes with higher rates on a small portion of the population.

First, and this is the most important issue with the paper, Profs. Diamond and Saez are unable to produce estimates of the effect higher marginal tax rates have on economic growth or tax revenues in the medium or long term. (I’d note that Scott Sumner highlighted the following excerpt months ago. Still, it should be front and center of the criticism of their recommendation.) From their paper:

It is conceivable that a more progressive tax system could reduce incentives to accumulate human capital in the first place. The logic of the equity-efficiency trade-off would still carry through, but the elasticity e should reflect not only short-run labor supply responses but also long-run responses through education and career choices. While there is a sizable multiperiod optimal tax literature using life-cycle models and generating insights, we unfortunately have little compelling empirical evidence to assess whether taxes affect earnings through those long-run channels.

Translated: We don’t know what will happen in a few years as a result of this change.

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Answer: You get positive changes in school districts. The first effects of Wisconsin’s law to restrict collective bargaining agreements are being felt. We can’t make generalizations yet about its overall effect, but the experience of Kaukauna School District in Wisconsin, highlighted by Byron York, may be indicative of what is to come.

The school district’s budget went from a projected deficit to a $1.5 million surplus. And as York points out, it is the result of “the very provisions that union leaders predicted would be disastrous.”

Contributions to health insurance plans and pension plans from teachers were increased, from 10% to 12.6% and 0 to 5.6%. Are those teachers going to be upset about having more of their paycheck diverted into paying for their benefits? Absolutely. But since the national average of contributions for health and retirement benefits for employees in the private sector is much higher than 12.6% and 5.6%, being sympathetic to their outrage is going to be tough. And considering other changes based on limiting collective bargaining are leading to smaller class sizes, “more one-on-one sessions with troubled students,” more teachers hired based on the savings, and higher pay for the best teachers, one cannot help but see the law’s merit.

Perhaps the best part of York’s article is the section on purchasing health insurance. Lo and behold, more competition means lower prices:

In the past, Kaukauna’s agreement with the teachers union required the school district to purchase health insurance coverage from something called WEA Trust — a company created by the Wisconsin teachers union. “It was in the collective bargaining agreement that we could only negotiate with them,” says Arnoldussen. “Well, you know what happens when you can only negotiate with one vendor.” This year, WEA Trust told Kaukauna that it would face a significant increase in premiums.

Now, the collective bargaining agreement is gone, and the school district is free to shop around for coverage. And all of a sudden, WEA Trust has changed its position. “With these changes, the schools could go out for bids, and lo and behold, WEA Trust said, ‘We can match the lowest bid,’” says Republican state Rep. Jim Steineke, who represents the area and supports the Walker changes. At least for the moment, Kaukauna is staying with WEA Trust, but saving substantial amounts of money.

Other states in fiscal trouble will want to watch the effects of Wisconsin’s non-collective bargaining experiment. Most local politicians dream of bragging about budget surpluses, smaller class sizes, and lower health care costs. Based on early results, I am thrilled I don’t have to stand on the other side and argue in favor of maintaining collective bargaining agreements. That responsibility is likely going to become less and less fun as more districts report their results.