The EB-5 Visa ripoff of Americans

From the Washington Post:

They looked like any other family here in rural Michigan, but they are Dutch citizens. And they are faces of a fast-growing U.S. visa program in which foreigners can gain permanent residence by investing $500,000 in a U.S. project that creates at least 10 jobs. 

Through the program, known as EB-5, the Dekkers have a half-million-dollar stake in the Marriott Marquis Hotel rising in the District next to the Washington Convention Center. 

In return for their investment — and filing a foot-high stack of documents that includes bank and tax records, criminal background checks and even syphilis tests — they got five shiny new green cards in November. 

The cards, emblazoned with their photos and an image of the Statue of Liberty, give them temporary residency that will become permanent in two years — so long as the Marriott project succeeds. 

The Dekkers need it to keep their family together. Although they have lived on their farm off a country lane called Bad Axe Road since 2000, they had temporary visas that required their children to leave the country upon turning 21. Investing in the Marriott was their way to prevent that . 

“We love our life here,” said Judith Dekker, 48. “We have invested so much money because we want to live here in Michigan. And we don’t want to split up our family.” 

The EB-5 program is booming in popularity, driven largely by a struggling U.S. economy in which developers are searching for new sources of capital. It is also fueled by rising demand from foreigners looking for access to U.S. schools, safe investment in U.S. projects and — in the case of China, where most of the investors are from — greater freedom. 

The program has broad bipartisan support in Congress, and key senators who are negotiating an overhaul of the immigration system have said they are leaning toward expanding visa programs that provide an immediate boost to the economy. 

But others argue that the EB-5 program amounts to buying citizenship, and that it unfairly allows wealthy foreigners to cut the visa line ahead of others who have waited for years. ...

Nobody notices the most cogent objection that citizenship is being sold too cheaply. This is the direct analog of the huge violation of fiduciary duty when a corporate executive creates new stock in a publicly traded company and sells it too cheaply. But economists are largely impervious to grasping this analogy.

 Three-quarters of all those visas have been issued since 2008, when the recession hit and developers started having trouble finding capital. 

The program also provides cheap financing for U.S. developers. EB-5 investors are offered very small returns on their investment — usually about 1 to 3 percent — rather than the much higher rates developers would have to pay for traditional financing.

In other words, these foreigners didn't pay $500,000 to the U.S. Treasury to reduce our tax burden in return for diluting the scarcity value of U.S. residency. Instead, they invested $500,000 with Marriott, which they reasonably expect to get back, just with lower than market interest rate payouts. In other other words, under this plan, you and me are subsidizing Marriott's financing of its hotel by diluting the scarcity value of U.S. citizenship. 

What's the net benefit to current American citizens in general? Nobody seems to know, but it would appear that Marriott shareholders pocket the great bulk of the financial benefit. Excluding Marriott shareholders, the benefit to the general American citizenry of giving out five greencards is probably in the range of a few thousand dollars. Basically, this program consists of Marriott and foreigners conspiring to benefit each other at the general citizenry's expense.

Is that really the market price for green cards? Couldn't this program, with an annual limit of 10,000, be replaced with an auction that auctions off the same number of green cards per year, with the cash going directly to the U.S. Treasury? What would annual auction of 10,000 green cards net for the Treasury? Maybe a couple of orders of magnitude more benefit for the average American than this program.

Now, you could say that this program isn't as destructive as other immigration programs, but, as you learn in Econ 101, you are supposed to think in terms of opportunity cost. The forgone benefit to the average America taxpayer adds up to many billions per years. But, basic Econ 101 thinking like opportunity cost, supply and demand, and scarcity value is, for never explained reasons, verboten when thinking about the economics of immigration. Instead, you're supposed to just lie there and think about the Statue of Liberty.