Immigration tariffs

This page discusses one of many keyhole solutions. Loosely speaking, keyhole solutions represent approaches to combine significant liberalization of migration with particular tweaks intended to address real or perceived concerns about substantially more liberal migration. The site does not endorse any particular keyhole solution, but rather discusses them as part of an attempt to comprehensively cover approaches to freer migration.

The term “immigration tariff” is used for the broad cluster of ideas whereby a (predetermined) entry fee is charged to potential migrants for the right to migrate to a new country. Two closely related ideas, that are sometimes conflated with immigration tariffs because of their conceptual similarity, are:

  • Immigration auctions: A fixed number of slots to migrate are auctioned off to the highest bidders.
  • Immigration surtaxes: Migrants are subject to a higher tax rate, such as a higher income tax rate. See, for instance, Nathan Smith’s DRITI proposal.

The similarities and distinctions between auctions, tariffs, and surtaxes are discussed later in the page. Although this page uses the term “immigration tariffs” most of the points made here also apply to auctions and surtaxes. The exceptions are clearly noted.

Summary of main points on this page (TL;DR)

  1. Immigration tariffs have three main effects: they generate revenue for governments, they prevent some people from migrating (relative to a world of open borders), and they impose selectivity but in a manner different from the status quo regime.
  2. Immigration tariffs fall under the broad category of “keyhole solutions” but, in a sense, are not very keyholish because they attempt to regulate the act of migration itself rather than specific harms associated with migration.
  3. Immigration tariffs, auctions, and surtaxes are similar in using financial means as opposed to dicretionary control and points-based systems to regulate migration, but there are important differences.
  4. A number of economists and policy wonks have argued, on theoretical economic grounds, in favor of moving toward financial means, such as immigration tariffs, to regulate and manage migration, and move away from discretionary approaches.
  5. Immigration tariffs are not necessarily “citizenship for sale” — they could be used only for granting economic and civil rights rather than political membership. The question of the rights and privileges packages is somewhat separate from the question of whether immigration tariffs are used to replace discretionary control.
  6. Immigration tariffs can be used in conjunction with other discretionary mechanisms for vetting migrants (such as criminal background checks).
  7. The level of the tariff will affect how close the regime is to open borders, but evidence suggests that poor people may well be able to migrate with immigration tariffs through their own friend and family networks, government, future employers, credit markets, and philanthropists.
  8. To be realistic, an immigration tariff must be set at a level that people can afford to pay, and at a cost that is not much greater than the cost of migrating illegally. An extremely high immigration tariff would be used by very few, and people would either not migrate at all or would migrate illegally, as they do under the status quo. However, if the financial costs are comparable, people are likely to use legal migration channels far more because of the other advantages.
  9. Visa categories based on immigration tariffs can be used either to replace existing visa categories or in addition to existing visa categories. If existing visa categories fall into disuse, they can be gradually phased out.
  10. Immigration tariffs may be flat or may vary based on age, country of origin, or skill level. The less flat the immigration tariff, the closer the system moves to discretionary migration control.
  11. Governments can use the revenue generated to reduce their fiscal deficit or to compensate natives who might lose out, through tax cuts, tax credits, cash transfers, or community spending.

The main effects of immigration tariffs

  • They generate revenue for governments, that can then be deployed to address real or perceived costs of migration, or make migration a (bigger) win for more people. In technical jargon, an immigration tariff could convert a Kaldor-Hicks improvement (i.e., a potential Pareto improvement) into an actual Pareto improvement. In non-technical jargon, they could convert a “big win for immigrants, small gain for some natives, and small loss for other natives” situation to a “win for (almost) everybody” situation.
  • They fall short of open borders (some potential migrants may be dissuaded from migrating based on the additional costs imposed). The extent to which they fall short depends on the precise proposal and the values of relevant parameters. At a very low price or high quantity cap, they resemble open borders. At a sufficiently high price or low quantity cap, they resemble the status quo. This still isn’t quite closed borders, because people have the option of breaking the law by crossing borders illegally or overstaying temporary visit visas.
  • They impose selectivity, but in a manner that does not depend on direct selection by governments of who may or may not migrate. Rather, they use a more “market-like” process, and avoid some of the downsides of non-price competition, but in a manner that is biased against people with low disposable wealth or income and low earning power.

Do immigration tariffs fit the “keyhole solution” label?

Immigration tariffs are generally discussed among the broad category of approaches called keyhole solutions. Do they fit the label? The idea behind keyhole solutions is to target the remedy as narrowly as possible to the precise problem, while letting other things proceed with as little restriction as possible.

In this sense, immigration tariffs are not really all that keyholish — they impose a financial cost on migration as a whole rather than on any specific bad associated with migration. Thus, they are a very broad-brush all-encompassing solution, rather than a “keyhole” solution.

In another sense, immigration tariffs are more keyholish than the existing regime of discretionary migration control found around the world, insofar as they address potential concerns about the fiscal impact, as well as the economic impact on subsegments of the native population, through a more narrow, targeted approach.

The distinctions between auctions, tariffs, and surtaxes

  • Tariffs are fixed prices charged at the point of entry, that are known in advance.
  • Auctions are a way to allocate a fixed quantity of migration slots, by allowing people to bid on those slots and selling the slots to their respective highest bidders.
  • Surtaxes are levied on specific forms of activity by migrants in the host country. For instance, they might have to pay income tax, social security tax, or capital gains tax at a higher rate.

The key way that all of these differ from the status quo is that they remove (or reduce) government discretion regarding who can migrate, letting money talk instead.

The key way that tariffs and surtaxes differ from auctions is that they regulate by price rather than quantity.

The key way that surtaxes differ from auctions and tariffs is that surtaxes are not levied at the point of entry. Therefore, tourists and people who want to move without engaging in taxable activity do not need to pay anything. This also reduces the need for countries to monitor tourists for potential immigrant intent, by reducing the need for any clear distinction at the point of physical entry between visitors and long-term migrants.

For more, see the blog post Auctions, tariffs, and taxes by Nathan Smith, Open Borders: The Case, February 5, 2013.

Theoretical economic arguments in favor of using financial rather than discretionary approaches to determine who can migrate

A number of economists have argued for moving away from discretionary approaches to migration control, citing economic efficiency:

Some public policy wonks have also made the arguments in a more concrete context:

Below are some objections/concerns/questions about immigration tariffs and the answers to each of them.

Are immigration tariffs citizenship for sale?

Not necessarily. An immigration tariff could be structured as a citizenship fee, but it could also be designed to only provide economic and civil rights without citizenship or the political rights and duties associated with that.

Finally, a tariff may only guarantee a temporary right, renewable periodically subject to some conditions (such as lack of a criminal record). Thus, an immigration tariff could be attached to a liberal guest worker program such as the Red Card proposal.

What kind of vetting needs to be done for immigrants under an immigration tariffs system?

Below are some vetting criteria that have been included in various proposals related to immigration tariffs, in roughly increasing order of controversy.

  1. Criminal background check
  2. Involvement with radical terrorist or extremist organizations
  3. Carrying a dangerous communicable disease
  4. More controversially, basic mental sanity and financial solvency, i.e., the person should not be mentally retarded and should not have become financially insolvent (bankrupt) in the recent past. Note that the ability to pay an immigration tariff and fill out immigration paperwork likely already take care of this.
  5. Even more controversially, a requirement might be instituted that the potential immigrant should be either able-bodied (i.e., capable of physical work) or have some type of skill that can be used to earn money. In particular, potential immigrants who suffer from physical handicaps (blindness, deafness, or missing arms and legs) may need to provide proof of some skill or show that they have a legitimate job offer.

Further, lying about or concealing information about any of the items on the list could be considered adequate grounds for rejecting the potential immigrant and deporting the immigrant later when the lies are discovered.

Would poor potential immigrants really be able to pay immigration tariffs?

Of the 600 million+ people who claim they wish to migrate, not many would have the money upfront to pay a reasonable immigration tariff. The key counter-argument is that thanks to the high place premium of migration, immigrants would gladly pay the immigration tariff if they could borrow against their future earnings. The mechanism could be any of these:

  • Deferred payments at the government level: The immigration tariff could be structured to offer an option of deferred payment along with taxes for the first few years. Those who choose this deferred payment option would need to provide adequate proof of employment and income as well as provide a sufficient down-payment.
  • Borrowing from employers: Even if the tariff is required to be paid upfront, potential employers may be willing to shoulder the tariff costs by deducting it against the worker’s future pay periods. This would require the worker to be tied to the employer for the first few months of employment. However, given the high place premium of migration, this will not be for too long.
  • Credit markets: If immigration tariffs become a reality, it will not take long for credit markets to emerge. Immigrants will receive loans from private lenders to pay immigration tariffs, and these loans will easily be paid back through the higher wages immigrants receive upon migrating. Obviously, there will be some risk of non-repayment of the loan. However, the purpose of credit markets is to accurately measure the risks and calibrate interest rates accordingly. Further, to reduce the risk of non-repayment, a good credit history can be made a precondition for immigrants extending their stay beyond a minimum of 5-10 years. If non-repayment is a problem, immigration tariff loans can be made recourse loans.
  • Charity and philanthropic payments: Credit markets and potential employers may be hesitant to experiment with providing loans to people with physical and mental disabilities or other problems. They may also be hesitant to venture out with giving loans to people from certain geographical areas that don’t have a positive track record with immigrants. This is where philanthropic organizations can step in by partially or completely subsidizing the immigration tariffs for some immigrants. Considering the benefits of immigration to immigrant-sending countries in addition to the benefits to migrants themselves, this might be a worthwhile “investment” for philanthropists keen on making a lasting reduction in world poverty.

An important point to remember is that a number of poor migrants already pay huge smuggling fees to migrate illegally. Although this number is far less than what we’d hope to see with a reasonably set immigration tariff, it provides some indication of how an immigration tariff might be funded. See also the blog post How can migrants afford huge smuggling fees? Three answers by Vipul Naik, Open Borders: The Case, December 10, 2014.

Incidentally, surtaxes offer an advantage over tariffs in this regard: by not requiring people to make huge upfront payments, they allow cash-constrained individuals to move to try their luck. If they succeed, the government benefits through the extra revenue generated by the surtax.

If immigration tariffs are imposed, won’t the majority of illegal immigrants still immigrate illegally?

This depends on the value of the immigration tariff. Clearly, an astronomically high immigration tariff (like a million dollars) would not attract many immigrants. In fact, the United States already has some visa categories (such as the EB-5 investor visa) that could be viewed as immigration tariffs of half a million dollars.

However, a reasonable immigration tariff, comparable to a couple of years of income post-migration, may well be affordable. Consider the following:

  • Immigrants pay coyotes, smugglers, and document forgers considerable sums of money. For more on this, see coyote fees.
  • Generally speaking, illegality carries additional costs and risks. The risk of deportation and the absence of proper documentation make it harder to get jobs, find places to stay, get gas and electricity connections, obtain driver’s licenses, and travel freely within the country or visit the home country. Further, legal migration channels allow for more options in terms of borrowing against future earnings (see the previous question). Thus, for the same upfront financial costs, potential immigrants are likely to prefer to comes legally than illegally.

The upshot is that a reasonable immigration tariff that is set at about the level of coyote and smuggler fees will shift most of the current illegal immigration to legal channels and possibly result in a lot of additional immigration by people who were unwilling to immigrate illegally (given the associated costs and risks) but are willing to use legal channels given their greater convenience and greater ease of borrowing against future earnings.

The possibility of illegal migration does suggest that to combat illegal immigration, immigration tariffs for people in countries that can easily cross the border illegally must be set relatively lower than immigration tariffs from other countries. Thus, the United States may need to set lower tariffs for people from Mexico and Canada than for people from China and India. As a compensating feature, people from nearby countries are also likely to avail of a guest worker program and return to their homelands after earning enough money, so this may balance out. Also, people in nearby countries are likely to be more culturally similar and therefore less likely to be perceived as threats by the host country.

See also the blog post How can migrants afford huge smuggling fees? Three answers by Vipul Naik, Open Borders: The Case, December 10, 2014.

Incidentally, surtaxes offer an advantage over tariffs in this regard: by not requiring people to make huge upfront payments, it incentivizes them to enter legally.

How would an immigration tariff affect existing legal immigration and non-immigrant visas?

Some proponents of immigration tariffs suggest getting rid of many visa categories and other immigration channels and replacing them with the tariff. However, it is not necessary to do things this way, and it is probably not advisable to immediately get rid of existing visa categories.

The immigration tariff could be designed as an additional category and not interfere with existing immigration options and non-immigrant visas, at least in the beginning. It is likely, though, that many existing legal immigrants would prefer to pay the immigration tariff if this promises a longer duration, greater certainty, reduced lawyer fees and costs, and a greater range of options to live, work, and invest. For instance, potential immigrants to the United States who want to have greater freedom to change employers may prefer to pay an immigration tariff rather than get a H-1B visa, even if they are eligible for a H-1B visa.

Existing non-immigrant visas for students and exchange scholars (F/J in the US), and temporary business/pleasure visitors (B1/B2 in the US) could remain unaffected. However, those who choose to pay immigration tariffs would be able to enroll as students and exchange scholars as well, thus offering potential students two options: enroll for a student or exchange scholar visa (F/J in the US) at a low cost but with the existing restrictions that apply for those visas, OR pay the immigration tariff and enroll for the program of study with the full range of options for work and investment that are available to natives.

If it’s observed that people shift entirely away from certain visa categories, then these categories can be phased out gradually.

Should immigration tariffs be flat or based on country of origin, skill level, and other factors?

Different people have different opinions about the issue. A flat immigration tariff is simplest, but certain factors that can be easily taken into account could be factored in:

  • Age: This is important since it measures the number of years the person will be paying taxes and contributing to the fiscal coffers. Very old immigrants who are near retirement age may be required to pay a higher immigration tariff.
  • Skill level: Immigration tariffs could be set somewhat lower for highly skilled workers because of their greater contribution to the economy and society and their greater contribution to the fiscal coffers.
  • Country of origin: People from nearby countries, who have illegal immigration options, may be charged lower tariffs to create a stronger pressure against illegal immigration. Higher tariffs may be set for people from countries that have hostile relations or have contributed a disproportionate number of terrorists, to compensate for the higher risk and increased security costs of vetting the immigrants. Immigrants from countries that are linguistically and culturally similar may be charged lower tariffs.

The specific proposals above are controversial.

What should the government do with the money raised?

The government could use the money to:

  • reduce its debt, while making no other tax and spending changes
  • fund a tax cut for low-income natives, to compensate them for the slight suppression of their wages.
  • make direct payments to natives or native institutions (such as cash transfers).

Although not directly an answer to this question, the blog post Funding compensation for natives who lose out: through the economy at large, or through migrants? by Vipul Naik, Open Borders: The Case, January 2, 2014, is relevant.

Additional reading: policy proposals

The list below includes generally related reading. See also links within the page above for reading material directly connected with specific topics discussed in the page.

  • Don’t Restrict Immigration, Tax It (DRITI), a detailed proposal by Nathan Smith on how to use surtaxes and deposits to facilitate a more liberal migration regime. Smith’s proposal is written for the United States but most of its features are generally applicable.
  • The Challenge of Immigration: A Radical Solution by Gary Becker. The proposal is written for the United Kingdom.
  • Immigration-backed bonds by Hansjoerg Walther, Open Borders: The Case, August 12, 2013, discusses the general structure of a proposal.
  • Red Card, a proposal of the Krieble Foundation that was endorsed by 2012 US Republican Presidential primary candidate Newt Gingrich.

Additional reading: understanding the status quo

"The Efficient, Egalitarian, Libertarian, Utilitarian Way to Double World GDP" — Bryan Caplan