New H1B Scandal – Tax Evasion!

Letter from Brenda Walker

After languishing all year, the H1B temporary worker/indentured servant bill will reportedly be voted on imminently – barely a month before the election.

Almost as if Congress has been holding it hostage to extort as many campaign contributions out of Silicon Valley as possible.

Funny thing.

Silicon Valley likes H1B workers because they beat down wages; and because they are less able than those uppity, old-fashioned Americans to tell exploitative employers to Take This Job And Shove It.

But there`s another, little-known, reason. H1B workers often don`t pay federal income tax. In effect, Congress is subsidizing Silicon Valley not merely at the expense of American workers, who are displaced, but also at the expense of the American taxpayer, who must shoulder the tax burden that H1B workers are able to avoid.

Oddly, this curious situation has been exposed by two muckraking liberal journalists, Donald L. Barlett and James B. Steele, in their latest paean of praise to interventionist government, The Great American Tax Dodge: How Spiraling Fraud and Avoidance Are Killing Fairness, Destroying the Income Tax, and Costing You http://www.amazon.com/exec/obidos/ASIN/0316811351/vdare. They write (pages 37-40):

“Visit most any large American company and you will find two people working on the same computer project. One is a permanent company employee who pays taxes through withholding. The other a temporary employee who enjoys the kind of payday that more than 100 million American workers can only dream about – a full paycheck with zero deductions.

“Because they are employed by the consulting firm that recruited them, many of these foreign workers are paid either in cash or by check – and no money is withheld for U.S. income tax, Social Security, Medicare, state, or local taxes… Still others receive a paycheck that is banked in India, and, while they`re living and working in this country, they`re paid an `allowance` that is also free of all U.S. taxes.”

Barlett and Steele report that this practice first came to light in a lawsuit filed in 1990 by Tata Consultancy Services against Syntel Inc., accusing it of poaching employees. Not every Syntel programmer was paid this way, they say. Some eventually got on the payroll and had taxes withheld. “But court records show that for many, such is not the case. In this, Syntel is not alone.” And they cite other examples.

Barlett and Steele add:

Where, you might ask, is the IRS in all of this? The answer is: Nowhere. “Immigration is a big problem for IRS,” confided a former high-level Treasury Department official. “It doesn`t know how to track foreign workers.”

VDARE asks:

* Forget the IRS – where are the libertarians? (With the distinguished exception of the von Mises Institute http://mises.org/default.asp)

Barlett and Steele`s discovery is a classic example of government regulation, of the employment of labor, having unintended consequences – creating a black market opportunity for tax-free workers. Americans, whom the IRS does know how to track, need not apply.

In the immigration area, comments Norm Matloff, UC-Davis computer scientist and one-man army against the H1B legislation http://heather.cs.ucdavis.edu/itaa.html, “there are many other related dodges. Did you know that universities don`t have to put taxes on [withhold] their teaching/research assistants from China, due to a tax treaty?”

Similarly, the American economy`s apparent demand for illegal immigration, much touted by immigration enthusiasts, is in large measure the black market shadow of American government.

“It`s just obvious that you can`t have free immigration and a welfare state,” Nobel Laureate Milton Friedman told me in an interview in 1998 http://www-hoover.stanford.edu/publications/digest/982/friedman3.html. But we do have a welfare/ regulatory/ interventionist state. Welfare/ regulation/ intervention has consequences. They have to be watched.

Don`t bet anyone will be watching on Tuesday.

September 24, 2000