Not the EITC, anything but the EITC

The New York Times has an article (“Trump Budget Takes Broad Aim at Undocumented Immigrants“) discussing/attacking Trump’s plans to limit illegal immigrants’ access to the Earned Income Tax Credit and child tax credit:

The proposal also calls for new steps to bar undocumented immigrants from receiving tax credits, including adding a new requirement that those claiming the child tax credit provide a verifiable Social Security Number valid for employment, and tightening current rules that mandate that a Social Security number be furnished to claim the earned-income tax credit. Mick Mulvaney, the White House budget director, said the change — which has long been sought by Republican immigration hard-liners in Congress — was in keeping with the administration’s determination to spare taxpayers from supporting people undeserving of federal help.

Mr. Mulvaney said he could “in good conscience” ask taxpayers to contribute some of their money to “this family who deserves” the two credits. “But I can’t do it to give the earned-income tax credit, which is designed to help folks who work, to give it to somebody who is in the country and working illegally. That’s just not fair.”

Immigrant advocacy groups argue that the proposal, like the rest of Mr. Trump’s budget, is less a considered attempt to promote security and safety than an effort to use every means at the president’s disposal to sow fear and create chaos for undocumented immigrants and their communities.

“If your single goal is to make life as miserable as possible for those who are here without status, then it’s about as effective as you can get,” said Angela Maria Kelley, a former Obama White House immigration official who is the senior strategic adviser for immigration at the Open Society Foundations.

My own belief is that the shift in welfare policy in the 1990s from Aid to Families with Dependent Children (which had fairly lax work requirements) to TANF and the Earned Income Tax Credit (which are designed to push single moms to work) has been quite successful, and is part of the reason for declining crime rates in poor neighborhoods and rising outcomes for black women, including poor single moms. But even if you think immigrants should get welfare (and even if you favor lowered immigration levels, there are decent if not wholly convincing reasons to think that), the EITC is probably the worst possible mode for giving welfare to immigrants.

The reason is that one of the biggest drawbacks of a large illegal immigrant population is that it creates a two tiered labor market. This is not only because illegal immigrants will accept lower wages than native born workers. It’s also because employers can systematically ignore labor law (as well as abuse workers) with little fear when the workers are afraid of deportation. This also creates strange political bedfellows- liberal judges who impose “implied contract” rulings or expansive interpretations of labor law that make it very difficult to fire workers in effect raise the premium on hiring an illegal immigrant who is easy to fire, especially for low-wage work. All of these issues mean that subsidizing illegal immigrants to be willing to work more at lower wages, as offering the EITC to them does, worsens the existing divisions in the market and makes the incentive to hire them over native workers stronger. As Jesse Rothstein observed in a very interesting 2009 paper, any form of the EITC will tend to subsidize employers, by increasing labor supply and causing a drop in the market wage:

el2012-08-1

Targeting the EITC to illegal immigrants would be popular with employers for this reason- they already benefit from the lax enforcement of labor law in the existing system, and the federal government paying illegal immigrants to work means that they don’t have to. But using wage subsidies to support illegal immigrant labor will unambiguously worsen the divisions in the labor market between native and illegal labor and the ability of employers to evade their legal responsibilities.

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