Federal Revenue Without a Tax Increase: A Suggestion

The United States does have a product that the rest of the world wants. It is called a “U.S Passport”.  What if the United States auctions off 2 million passports this year?  I would guess that the price will be $250,000 each.   If this experiment works, we can do it again in the near future.

I will leave it to the RBC to explain the costs of this idea so permit me to focus on the benefits;

1. It will generate $500 billion in new revenue each time we hold this auction.

2. The winners of the lottery will need a place to live in the U.S and this increase in housing demand will raise home prices and this will reduce foreclosure rates and could stimulate some new housing construction. 

3. High tech firms facing tight labor markets in technical subfields will have new talent to hire from.

4.   Younger people (who have more adult years to live here) will be most likely to acquire these new passports.   Such an influx of younger workers could help to stabilize the challenging future demographics we face with Social Security’s current financing.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

41 thoughts on “Federal Revenue Without a Tax Increase: A Suggestion”

  1. I think the overall concept is plausible but I question the assumptions behind points #3 and #4. Your description sounds like a version of H1-B but for profit. I suspect that this program would actually work quite differently. Even among Americans there are few young workers who could pay $250,000 without access to large loans. If we also assume that this price must be paid for the entire family ($1 million for four people) it would not be affordable for most of the skilled young workers you envision. It seems more likely that the applicants would either come from wealthy families or would already be far into a successful careers. These people may still be desirable on their own merits but wouldn’t closely match points #3 or #4.

  2. If they can afford to pay 250k for a passport, many of them will not be “workers”, regardless the ones who are not will be “spenders”.

  3. It seems to me more effective to allocate citizenship to foreigners who are likeliest to generate the greatest ongoing wealth (and tax revenue) over the course of their whole lives rather than focusing on a lump sum at the front end. The ability to pay a hefty fee up front may be too weak a proxy for this (and if you went the route you suggest why not auction the citizenship rather than fixing a flat fee? Wouldn’t that better maximize revenue?) For those who are likely to create significant economic benefits for society as a whole, an up-front entry fee is likely to be trivial compared to the benefits we could obtain from them over the course of their lives. I don’t know enough about current immigration policy to know how much expected wealth generation is used to determine who can become a U.S. citizen, but I think there is a strong argument for making this the predominant criterion.

    Carnap

  4. It would be an interesting experiment. Another would be to give free citizenship to 2,000,000 of the world’s most creative artists, scientists and philosophers, because a lack of money isn’t this country’s biggest problem.

    Also, are you quite sure that you could get 2,000,000 people to pay $250,000 to for U.S. citizenship? I immigrated to this country a long long time ago, when it was considerably more attractive, and although I’ve never regretted it, I’m not sure I would do so again were I young and foreign. America is currently a very sick country.

  5. Wait… so we reward the rich in other countries just so we can reward the rich here? How about we make them pay their fair share and all the parasitic, ungrateful leeches can move to a political system more agreeable to their particular brand of misanthropic self-interest, such as Somalia.

    (I understand that to many, that second sentence will sound bass-ackward. But the degree to which it sounds non-common-sensical testifies to the level of debasement our economic morality has sunk.)

  6. Really interesting. A few questions. can you defend that $.25MM number, with regards to order of magnitude (though it sounds reasonable to me)? Is the assumption that the vast majority of these passports would be backed by tech companies to bring in talent? Would the tech companies be willing to pay more if they had the option to revoke these passports with in 12 months of purchase?

  7. #4 is out to lunch as a matter of economics. Young folk have more human capital than old folk, but they don’t have more cold, hard cash–which is the coin of the auction.

    I make no further comments on the economics, morality or practicability of this proposal.

  8. I think the key here would be to set up some kind of payment system where promising young people would be allowed to win a passport in return for $5,000 a year payments for the next 25 years. Obviously there will be a certain amount of default but that seems to be a better way to get the rest of the benefits of young, smart, educated, ambitious workers and it would result in more regular income for the federal government.

  9. Regardless of the merits of this idea, Matthew seems to completely miss the point: The Republican party wants to destroy the federal government because it wants to destroy the federal government. (I can’t explain it any better than that — we’re not dealing with rationality here.) The goal is not to AVOID bankruptcy, the goal is to hasten it, and so bring on the Rapture of the Randites.

    Gimmicks that avoid this goal are not going to appeal to them, even apart from the fact that it will let in the despised foreigners, darkies, non-christians, and “cosmopolitans”.

  10. “passport in return for $5,000 a year payments for the next 25 years”

    Isn’t that already what taxes are?

  11. You nailed it, Maynard. We’ve all been lying and you’ve finally figured us out. It’s been so exhausting continually claiming that we want to improve conditions all this time when — as you obviously know — we really want nothing but to worsen them. And bonus points for the gratuitous accusations of racism and other bigotry. Your posting wouldn’t have seemed complete without them.

  12. Gives new meaning to the ‘price of citizenship’. Bring me your tired, huddled & cash-engorged masses.

    On a more serious note, I think folks who can pay that much for club membership are going to be more inclined to a sense of entitlement than a desire to contribute. Last time I checked, we were over-stocked with entitled wealthy leaches.

    Not to mention the unintended consequences this would have on the normal “naturalization” route to citizenship.

  13. An influx of 2 million new workers sure would help solve the unemployment problem, wouldn’t it?

  14. @Swift Loris: All those extra workers would boost labor’s bargaining power and we’d see big jumps in income all around.

    Also, why not lower the quality of life by increasing population density, instead of dealing with the real issue of – among other things – not paying for that excellent war to rid Iraq of WMD.

  15. <a href="http://en.wikipedia.org/wiki/EB-5_visa&quot;?This already exists, more or less, you do realize? Or do you enjoy posting these things without stopping to Google them?

    In a program that my recollection says was created in part as a mechanism to try to attract some of the many wealthy, educated, and determined people who didn’t fancy remaining in Hong Kong after Beijing took control, Canada, the US, and Britain all created programs whereby wealthy people could invest a large minimum sum in their country and be rewarded with the right of residence. Britain, who in any case had long issued these people documents claiming to be British passports, was the last to create such a program, with the largest price tag, and the investment had to be made in the form of purchasing British government bonds; the other two specified some mechanisms of investment and said a minimum number of citizens must be employed.

    The EB5 visa isn’t identical to your proposal: the sum stated is higher ($1 million, half that if you’re willing to invest it in certain areas, including such notable non-hellholes as Hawai’i and the Napa Valley of California), ownership of that sum is retained rather than it being a payment made, and a green card is considerably less useful than a US passport (a green card is only useful is for travel into and residence within the US, while a US passport offers a globe of visa-free travel). But the EB5 visa is not all that dissimilar from your proposal, considering that you explicitly consider the US passport you describe as being a way to remain within the US.

    The number of visas available each year rather puts the lie to your plan. You propose selling 2 million green cards (OK, passports) at $250,000 a pop; the US offers 10,000 green cards each year for people willing to commit $500,000 to certain sorts of investments, and can’t find 10,000 takers. In other words, your dreams of windfall revenues are laughable, and a quick search really could have saved you some embarrassment.

    While I’m on that last subject, your bullet points are no better, as repeated comments in this thread have noted. The US doesn’t especially lack for young professionals; those we do need, we offer expeditied visas under the H1B visa program, among others, and Congress has traitionally been very willing to expand the H1B programs as needed (and even to reform it to make recipients better able to switch employers). Additionally, the US has traditionally been the premier educational center for the whole world, with our cultural stamp impressed upon the next generation of the world’s young professionals and with many of the more promising among them remaining in our country after their education is complete. Though that status is slipping markedly as other countries invest in higher education and we largely have ceased to do so, and because we’re less willing to offer student visas than we once were. So you offer a solution to a problem that doesn’t exist – and moreover, a solution that smacks of indentured labor, which I think we’re supposed to have a Constitutional prohibition against (there have been recent problems with visa recipients serving as indentured labor – but those were not educated workers, and not H1B recipients).


    @ eb

    Another would be to give free citizenship to 2,000,000 of the world’s most creative artists, scientists and philosophers, because a lack of money isn’t this country’s biggest problem.

    Intriguing, but unlikely to happen, if only because of the historical precedent: the countries I can recall doing this were places like Revolutionary France (cf Thomas Paine, who was given not only citizenship but a seat in the legislature) and the early Soviet Union. Also, the proposal is a bit moot because people who fall in these categories and possess world renown already would have no trouble getting visas and getting fast-tracked for a green card. If you are an extraordinary scientist, writer, or artist, and you are willing to work for a major university (something of a given for the first category, perhaps less so for the second and still less for the third), that institution will have no trouble procuring you a visa, and over time will assist you in getting a green card and later a passport. Now, that’s weighted in a way that may be inconsistent with your intent: you don’t need to be nearly so extraordinary a scientist to get such status as you need to be as an artist – but that’s another question.

  16. Gives new meaning to the term vendepatria. I think there may be something to Tim’s point about unintended consequences.

  17. @Carnap,

    There were some ambiguities in your post, allow me the privilege of spelling them out, as this is what you’re actually supporting, whether you realize it or not:

    “It’s been so exhausting continually claiming that we want to improve conditions [for rich people and incumbent large corporations] all this time when — as you obviously know — we really want nothing but to worsen them [for non-rich people and small businesses, especially those who might eventually encroach on the turf of the incumbent large corporations].”

    Yes we do know this. Surely you do too? It would be amusing if you do not.

  18. You’re off on the wrong foot straight away: The United States does have a product that the rest of the world wants. It is called a “U.S Passport”. REALLY?

    What makes you think that “the world” wants this from a country so screwed and on the brink of collapse? Any data to back it up or just your opinion? The days of the U.S. being seen as the “greatest nation in world” are truly over, no?

  19. You’re off on the wrong foot straight away: The United States does have a product that the rest of the world wants. It is called a “U.S Passport”. REALLY?

    What makes you think that “the world” wants this from a country so screwed and on the brink of collapse? Any data to back it up or just your opinion? The days of the U.S. being seen as the “greatest nation in world” are truly over, no?

  20. Russell, thanks for the message. This is fascinating. I was starting to think that Maynard was an exception, but perhaps he’s more representative of the thinking here than I had realized. It would be interesting to hear how many others in the RBC believe that conservatives are actually lying about what they say they believe the effects of their policies will be. Not that you think they are WRONG on the merits, that they favor policies that you think will help the rich and the corporations at the expense of others, etc., etc. But rather that, as you and Maynard both expressly state, we secretly agree with you about these consequences of the policies we prefer and that we are lying when we make statements to the contrary. We’re only up to two on record for this view so far, but I think we can do better. Others?

    Carnap

  21. Carnap,
    If you aren’t lying, or stupid, then you have some data that supports your policy preferences. There are no data that supports your preferences. Wish it weren’t so, bro, because you seem like a decent enough chap. But I’ll repeat again, there are no data that supports your preferences. Otherwise, please provide it, and I’ll admit that you aren’t lying or stupid, and in fact I committed a gross analytical error.

    Russell

  22. Oh, and Carnap,
    Do note that there are several dozen people on this RBC that have a deep understanding of the policies we currently have and how we arrived at them over the last several centuries. Banal supply side rhetoric isn’t going to cut it.

    That said, I’m deeply curious what data on the policies available to us that you have that demonstrate that Republicans aren’t out simply to enrich the rich and incumbent (large) corporations, with a side helping of raping the poor, good and hard.

    Thanks,
    Russell

  23. Well, ladies & gentlemen, looks like we’re about to settle Left-Right dilemma right here on the RBC! Guys, this is really boring. Wouldn’t you be happier sparring on some right-wing blog (or any other place that needs the world neatly divided into Good & Evil)?

  24. This is a bad idea because:

    1. The revenue problem in the US is political, so the money raised will be returned to the wealthy in the form of tax breaks.

    2. Housing prices in the US are falling because people cannot afford them without rising value and refinancing. We should be lowering the cost of housing, not raising it.

    3. Great! Lets bring in foreign workers to depress wages in one of the few sectors in the US that still pays well. Might as well have direct class warfare (rich v poor, as usual) when promoting policies to benefit the rich.

    4. The people that will win the auction are the rich. They do not want US passports to come here and work and spend, they want US passports to be able to access their contacts in the FIRE sector directly.

    5. If we are going to give out US citizenship we should do it to the people who are already here and already productive, but hey, that might not benefit the rich as much, so lets sell the passports! Dollar might makes right!

    I guess it is good you came here to use the RBC as a sounding board, otherwise you might have been embarrassed for speaking such an awful idea aloud. What is good for business is not always good for America. In fact, sometimes (like when there is a horrible demand shortage) what business claims is bad for itself, is exactly what is right for America: raise tax rates, spend on infrastructure and send out checks to those most likely to spend immediately (the poorest).

  25. Tim, obviously I’m not looking to settle the left-right dilemma, or address Russell’s challenge to produce “data” supporting presumably every one of the conservative policy positions in a blog comment. (Although it’s quite interesting in itself that Russell thinks that there are “no [such] data,” presumably for any conservative policy views at all.) I’m just interested in the psychological question how many others share Russell’s view that conservatives secretly agree with progressives that their preferred policies will have these deleterious effects and are consciously lying in claiming to believe otherwise. I wouldn’t argue over the question, because with respect I find it pathological, but I’d be curious to get a clearer sense how widespread that view is. We have Russell’s view on this, which is essentially the Richard Dawkins argument adapted to politics; the only possibilities are stupidity, ignorance, or conscious mendacity, and, reversing Dawkins, Russell presumes mendacity from among the three. It must be quite a large conspiracy we’ve got going to prevent leaks of our true beliefs. Do you guys envision some sort of enforcement arm of the conspiracy to make sure that none of us spill the beans about our collective deceit?

    Carnap

  26. Not sure how many takers Matt’s offer would find; clearly, a financing mechanism would generate more interest than having put put up $250k in cash, and much more than having to put up $500k or $1m in cash (and wanting to start up a business rather than to hold a job, as required by the EB5 program.

    But note the distributional implications: it would tend to force down the price of high-skilled labor by increasing competition, while increasing the price of low-skilled labor by expanding the supply of a complement.

  27. Warren Terra:

    The number of visas available each year rather puts the lie to your plan. You propose selling 2 million green cards (OK, passports) at $250,000 a pop; the US offers 10,000 green cards each year for people willing to commit $500,000 to certain sorts of investments, and can’t find 10,000 takers. In other words, your dreams of windfall revenues are laughable…

    Matt, has Tom Friedman called asking to interview you?
    This sounds like something he could write enthusiastically about.
    Might even make a nice plank in this third party…

  28. “Such an influx of younger workers could help to stabilize the challenging future demographics we face with Social Security’s current financing.”

    Incoherent. Utter crap.

  29. Carnap writes:

    ” … stupidity, ignorance, or conscious mendacity, and, reversing Dawkins, Russell presumes mendacity from among the three”

    Just to be clear, any of the three, or a mixture of the three, are all quite possible. Since Carnap, you have no grasp of economics, and economic history, I’m beginning to discount the importance of the third, in your case.

  30. Mark,

    a financing mechanism would generate more interest than having put put up $250k in cash,

    I don’t see how a viable financing mechanism can come into being. Would you make the passport transferable? If not, what happens when the borrower doesn’t pay?

    I guess if the lender is the government the passport can be revoked and the borrower deported. But even if that’s practical, it puts the government in the business of lending to the high bidders, and then not getting the revenue if things don’t work out. and it’s likely things won’t work out in a fair number of cases. Surely, since it’s an auction, the winner’s curse will come into play.

    And if you expect private lenders to step up, how will they enforce their claims? Indentured servitude? The borrowers who don’t pay will be precisely those for whom the deal didn’t work – the ones who don’t have any money.

    Maybe you have something in mind, but it’s not at all clear to me that this can be financed.

  31. Well, it’s probably a mistake for me to prolong this exchange, but what the heck. I’ll bite. Russell, please set out your grounds for charging that I “have no grasp of economics, and economic history.” Feel free to use anything I’ve ever said, either individually or in combination, that led you to this conclusion. Remember, a single mistake, even a serious one, is not enough — you need to support your contention that my ignorance is so profound that I have “no grasp” of these subjects. Please be sure to cover economic history as well as economics, since you set that out as a separate allegation. I make this request both for my own benefit (as I’d certainly want the opportunity to correct the specific errors you have identified in my beliefs) and also as a matter of fairness, since I’m sure you wouldn’t make that serious charge against someone without having both (a) a solid basis to support it, and (b) a willingness to take the time to explain that basis on request. I sincerely look forward to reviewing your demonstration.

    Thanks, and best wishes.

    Carnap

  32. Ah. I remove entirely the possibility that mendacity is an important contributor to Carnap’s destructive prescriptions.

    Broken brains, childish narcissism, I cannot believe what the Republican party has devolved to. Thirty years ago I had such a faith in the ability of the historical ideas of conservatism to constructively inform the future. Alas, it’s all corruption, all the way down.

  33. I realize that as an outsider to this community, it’s not my place to to get all high-horse, but . . .

    Carnap, Russell, I’m at this site and reading these comments because I want to learn something – if not about “reality”, then at least about how people perceive it. I am not here to watch the verbal equivalent of a slap fight. If you’re going to trade blows, at least weight your punches with some facts.

    Russell has made a reasonable, if rather broad, request for Carnap to support his reasoning. Carnap has dodged or ignored the request a couple of times by focusing on the insults. Russell has added additional insults (without adding additional facts), ensuring that his original request will continue to be ignored.

    Neither one of you is trying to educate. Neither one of you is trying to learn. (And both of you are off-topic, yes?) There could have been a meaningful discussion here, but you’ve both opted for a content-free slap fight instead. Unless I’ve misread the intent of this community: Grow up or take it where Tim suggested.

  34. @Interloper, you are a concern troll, but leave that aside.

    Acceptable United States political discussion has now “evolved” to the point that anything stated by a paid advocate of either political party must be considered as “true”.

    History, data, all that is ignored. There is no feasible situation where Carnap is going to deviate from his political party. For him, that is truth. I’m ok with that, now that we know it.

    I don’t have a political party. I started off here nine years ago wondering how people like our esteemed host Mark Kleiman, otherwise sane and remarkably perceptive in many areas of human social failing, could support the Iraq War.

    And the answer is, well, we all do it, one way or another.

    So now I tend to just get satisfaction through luring naive beasts like Carnap, who believe themselves to be independent thinkers, to admit, by their own words, at least, that they are just tribal animals, blowing in the wind.

    That’s all that’s left.

    Everyone who has read enough history sees that this is all the same stuff, repeated. We’ve learned nothing, over 5000 years.

    With this, I’m signing off. The US is a sick country. Technological change has given us magnificent gifts, but also the same old chains, in a glittery new dress. It’s all too stupid to spend any more time over.

  35. Russell, maybe you’ve got some prior experience of Interloper that causes you to say that of him, or maybe you’re just being aggressive – but they’re not wrong in their comment in this thread. A full third of this thread (12 of 36 comments) is you and Carnap, and that’s almost entirely the two of you calling each other names, and not at all relevant to the topic of the thread.

  36. I disagree with the premise. A lot of other rich countries are currently more appealing to immigrants than the United States. Charge $250K for citizenship and the appeal of the USA drops further. But it would be interesting to auction off two million citizenship spots with a secret (but notarized, locked in a safe, and known to, say, the President and the head of the immigration service) reserve price so that the government could back out if the bids weren’t high enough.

  37. The proposal assumes as its basic premise that these value-adding, job-creating, education-rich, desirable Americans cannot be produced here — and as such, hews to the worst assumptions of the smokestack-chasing form of “economic development”.

    Of course, that would make it go quite well with banana Republicanism — except that banana Republicans hate the brown people that might take up this offer (the fair-skinned people already mostly living, of course, in countries that score much better than the USA on a wide variety of social measures, educational indicators, economic opportunity, and quality of life).

  38. St Kitts & Nevis already has an economic citizenship program like this – for folks who want to purchase a second citizenship. It involves investing about $250k in certain real estate programs, and another approximately $40k-50k for the citizenship. There are still a few other countries that do something similar, but it is a tiny niche market.

    I do not believe you could find 2 million participants wanting a US citizenship that much and willing to pay that much. It would be interesting to see, though.

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