A Tech Worker Calculates Specter/Kennedy H-1B Visa Scheme Means $3 Billion Net Annual Loss To Treasury

November 02, 2005

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A Wyoming Roman Catholic Reader Comments on his church

From [Name Withheld]

Re: Joe Guzzardi's Column "Bill Gates Strongarms Senate Into Selling Out American Tech Workers"

Joe Guzzardi's article concerning Congress' proposed sale of 30,000 more H1B visas missed an important point. The salary of a H1B visa holder is usually less than the salary of an American citizen who performs the same job, and a lower salary reduces the amount of income that can be taxed. The lost tax revenue dwarfs the fees charged for each visa.

It is against the law for employers to pay lower salaries to H1B visa holders than the prevailing US citizen wage, but this law is not enforced. The department that grants these visas can't count. In FY 2005, it issued thousands more visas than it was authorized to grant. I don't think they are capable of enforcing the law. I doubt if they are motivated to try.

To quote from a recent report, "... wages paid to H-1B workers in computer programming occupations had a mean salary of $52,312, while the [overall] mean was $67,700; a difference of $15,388."

Three separately collected sets of taxes must be added together to compute the loss of federal tax revenue.

  • Social security and Medicare taxes add up to 7.65% of an individual's salary, which is deducted directly from each paycheck under the label of "FICA". Social security taxes are only paid on the first $90,000 of an employee's salary. Most H1B jobs pay less than this, but a small percentage of them exceed this limit.

  • The employer must also pay an equal amount directly to the federal government, so the amount of money the US Treasury receives for FICA is equal to 15.3% of an employee's salary.

  • The federal income tax rate for single workers who earn between $29,701 and $71,950 is 25%. Both mean salaries fall within this range. Even with deductions, the difference in mean income is taxed at this rate for most H1B workers. This brings the total federal tax rate to 40.3%.

I will only calculate the federal loss of tax revenue to keep things simple, even though state and local governments may also tax income.

The difference between the two mean salaries (H1B and overall) for computer programmers is $15,388. The total federal tax rate is 40.3% of the salary of a worker, so the annual loss of tax revenue per H1B visa computer programmer job is calculated as about $6200.

Other jobs will produce different numbers, but the theme is the same.

The loss of tax revenue is only partially offset by the fees charged by the government. The current cost of a H1B visa is $3185 for a six-year visa. The new bill will raise this by $500, to $3685. The cost of administration for each visa is unknown, but this must be deducted from the fee to properly account for the net revenue collected for each visa that is issued.

At a rate of $6200 per year, the federal tax revenue loss over the six-year lifetime of the visa for each computer programmer job is $37,200. This is more than ten times the cost of the visa to the employer. The net loss to the US Treasury is $37,200 minus $3685, or $33,515.

This figure does not include the costs of administering the visa. It also does not include the loss of revenue by local and state governments that levy income taxes.

If this figure is assumed to be typical for a H1B visa holder, then the revenue loss to the US Treasury may be estimated as 30,000 times $33,515, or $1,005,450,000 over the six years that the visa is valid.

This is literally a billion-dollar per year blunder.

Congress has already authorized 65,000 visas per year at a cost of $3185 each. I estimate that this costs the US Treasury more than $2 billion per year. The new proposal would change this to a net estimated loss of over $3 billion per year.

The sponsors of this bill claim that "increasing the number [of visas] and the fees for them enabled the Judiciary Committee's proposal to reach savings of $300 million over five years mandated by this year's budget agreement." This is the opposite of the truth. By my rough estimate, this proposal would increase the national debt by about $5 billion over the next five years.

Congressional members who suggest that we should grant more visas to help balance the budget are either incredibly stupid or deliberately disingenuous.

If the budget rules allow this type of nonsensical manipulation, then the rules need to be changed before the entire country shares the same fate as Enron.