Category: Income Taxes

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How Immigration Affects the U.S. Economy – 11 Myths to Dispel


 
Immigration has long been a controversial subject for Americans, despite the country’s reputation as the world’s melting pot. In times of economic uncertainty, emotions run especially high, and partisans on both sides of the political divide use immigration controversy for their own gain.
 
Knowing what’s fact and what’s fiction is particularly tricky in the unregulated, anonymous world of social media. In order to separate the truth from our fears, it’s important to know the facts behind the issues. Here’s how immigration affects several aspects of the U.S. economy.

Immigration Myths

According to the Migration Policy Institute (MPI), there are approximately 45 million immigrants in the United States today, making up about 13.5% of the population. Immigrant children born in the country almost double the figures to 87 million and 27%, respectively. Over 80% of immigrants have lived in the country for more than five years, and almost one in three owns a home.
 
Yet while immigrants are a part of our neighborhoods, schools, and workplaces, misconceptions about them abound. Here are some of the most common.

Myth #1: Most Immigrants Come From Latin America

Many Americans believe that immigrants predominately come from Latin America by sneaking over the border. While Latin Americans accounted for 37.2% of immigrants in 2016, the composition of immigrants has changed significantly in the past half-century. In 1960, the largest immigrant groups were from Italy, Germany, the U.K., and Canada, according to the MPI. European countries accounted for almost one-half (48.5%) of the total, and the Soviet Union (7.1%) had a higher share than Mexico (5.9%).
 
In 2016, most immigrants came from Mexico (26.5%), India (5.6%), and China (4.9%). Mexico and Central American countries, including Cuba, accounted for the largest proportion of legal and illegal immigrants, but not the majority. Asia represented slightly more than 20%, with the rest of the world comprising 42.5%.

Myth #2: Most Immigrants Are Illegal

Some Americans believe most foreigners are in the United States illegally. That is not true. Illegal immigrants account for about 24.5% of the immigrant population but a meager 3.4% of the U.S. population in total, according to Pew Research.

Myth #3: Immigrants Are Unskilled & Uneducated

Some Americans assume immigrants are uneducated, unskilled, low-wage workers. However, the MPI found that one-half of immigrants have a high school diploma or higher education. Two-thirds of immigrants over the age of 16 are employed, with almost a third (31.6%) in management, business, science, and the arts, compared to 38.8% of native-born citizens.
 
It’s true that a higher proportion of immigrants (24.1%) are engaged in low-wage service jobs than native-born citizens (16.8%). However, the libertarian-leaning Cato Institute, citing statistics from the U.S. Office of Homeland Security and others, states that immigrants are “generally much better educated than U.S.-born Americans are … [and] 62 percent more likely than U.S.-born natives to have graduated college.”
 
Foreigners who work in the United States with H-1B visas have bachelor’s degrees or higher and work in specialized fields such as IT, engineering, mathematics, and science. President Trump and others have complained that H-1B visa holders compete with Americans for high-paying jobs. However, the visa program was created to allow companies to hire foreign workers to work for three years or more in specialty occupations for which there are not enough skilled Americans to fill the positions.
 
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Should the U.S. Adopt a V.A.T.?

Many Americans do not understand how an American VAT might affect them, or its possible economic consequences on GDP and the national debt. Congress is currently exploring tax reform in order to spur economic growth and protect American businesses. Their proposal includes a controversial Border Adjustment Tax that some claim is a VAT in disguise.
 
What will be its effects if adopted?

What Is a Value-Added Tax?

In a 2010 interview with the Atlantic Magazine, William Gale, Co-Director of the Brookings Tax Policy Center, proposed a federal Value-Added Tax (VAT) as a way to raise government revenues, eliminate deficits, and pay down the national debt without harming economic growth.
 
While Gale was speaking during the early recovery of the Great Recession (2007-2009), some tax and economic experts proposed that tax reform should include an American version of the VAT. Columbia Law Professor Michael Graetz, in a 2016 article in the Wall Street Journal, claims that a VAT would:
 
1. free more than 150 million Americans from ever having to file tax returns or deal with the Internal Revenue Service;
 
2. cut our corporate income-tax rate to compete with the lowest in the world without shifting the burden away from those who can most afford to pay;
 
3. spur economic growth, increasing U.S. GDP by as much as 5% in the long run; and
 
4. stimulate jobs and investments and induce companies to base their headquarters in the U.S. rather than abroad.
 
In many ways, a value-added tax is similar to a national sales tax. Ultimately, both are based on the consumption of a product and add to the final cost to the consumer. The primary difference between a sales tax and a VAT is that the former is collected on the final sale to the consumer, while the latter is paid during each stage of the supply chain. In other words, the latter is a combination of direct and indirect taxes.

What Is Sales Tax?

Sales tax is added to the purchase price when the consumer purchases the goods. The retailer selling the product collects the tax and remits the proceeds to the taxing authority. The buyer is aware of the extra cost since it applies to the purchase price of the product. For example, a product selling for $100 subject to a 10% tax costs the consumer $110 – $10 in tax plus $100 to the retailer.
 
Currently, the U.S. does not have a federal sales tax, but 45 states now employ them as a revenue source. In addition to the state sales tax, many counties and cities tack on additional sales tax to the state charge. According to the Tax Foundation, combined sale tax rates range from a low of 1.76% in Alaska to 9.45% in Tennessee. JustFacts calculated that sales tax collections in the United States are about one-third of the taxes (over $600 billion) collected by state and local governments.
 
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is the U.S. Tax System Fair?

“Congress, Congress! Don’t tax me, tax that fellow behind the tree.” This 1930s ditty reflects the sentiments of most Americans today as Congress once again tries to simplify and reform the 74,608-page Federal Tax Code and Federal taxes. Their task is particularly challenging since about 40% of citizens feel that they pay more than their fair share, according to Pew Research. The groups that don’t pay enough include corporations (80% agree), wealthy people (78% agree), and poor people (40% agree).
 
Overall, 56% of Americans feel that the existing system is either not too fair or not fair at all. But how exactly does the Federal tax system work? Is it truly unfair?

Here’s Everything You Need to Know About Taxes and Fairness

To answer the question “Is the U.S. tax system fair?” we must first explore:

  1. The Necessity of Taxes. The American colonists’ complaint of “no taxation without representation” was misleading. According to historian Richard T. Ely, “One of the things against which our forefathers in England and the American colonies contended was not against oppressive taxation, but against the payment of taxes at all.” For decades, the American government relied on excise taxes, tariffs, customs duties, and public land sales. Are income taxes necessary?

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  2. Our Current Tax System. What taxes do Americans pay? According to one blog, Americans pay 97 different taxes each year. We pay taxes on the income we earn, the property we own, and the goods and services we buy. The government taxes gifts we make to others, assets we leave to our families, bad habits in which we indulge, and ill-gotten criminal gains. Who are the winners and losers of America’s existing tax system?

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  3. The Difference Between Statutory and Effective Tax Rates. Misperceptions complicate understanding and agreement – especially those surrounding the Federal tax system. A 2017 poll found about a third of Americans claim to understand a “fair” or a “great deal” about U.S. tax policies but are unable to reach agreement on basic facts, such as whether the average Federal income tax rate is higher or lower than other Western democracies. This lack of understanding fosters disagreement about policy and complicates reform efforts.

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  4. The Definition of Fairness. John Stuart Mill, in his “Principles of Political Economy,” wrote, “If anyone bears less than his fair share of the burden, some other person must suffer more than his share, and the alleviation to the one is not, on the average, so great a good to him as the increased pressure upon the other is an evil. Equality of taxation, therefore, as a maxim of politics, means equality of sacrifice.” Should taxes be proportional or progressive? Are they solely a revenue source or a method of social justice and income redistribution?

 
The complexity of the tax code, the machinations of those with special interests, and the sheer scope of administering, paying, and collecting taxes promotes misunderstandings, myths, and even malevolence about the role of taxes in society and the character of those charged with their administration.
 
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Understanding Tax Benefits of Real Estate Investment Properities

Renting versus buying can be a difficult choice. Still, according to The Wall Street Journal, almost two-thirds of American households own homes. Many more own rental properties or second vacation homes. By contrast, a Gallup Poll found that only one-half of Americans own stocks.
 
Home equity is the foundation of personal wealth in the United States, representing about two-thirds of net worth for most American households, per Bloomberg. The expansion of home ownership has been stimulated by government programs and tax advantages to incentivize the purchase of houses. According to a study in Social Forces, home ownership leads to “a stronger economy, better schools, and an invested, proactive citizenry.” Homeowners have higher voting rates and are more involved in civic organizations.
 
Owning real estate has some unique financial advantages. For example, homeowners can deduct their mortgage interest, mortgage insurance premiums, and property taxes from ordinary income. Also, proceeds from the sale of a house are treated as capital gains for taxes – up to $250,000 of the gain can be excluded from income for a single taxpayer or $500,000 for a couple filing a joint return.
 
Owning a home or investment real estate offers huge advantages to both society and you individually. Here’s how to get the most out of your investment.

Real Estate as an Investment

Owning an investment property is significantly different than owning the property in which one lives. While investors share many common risks – illiquidity, lack of transparency, political and economic uncertainty – each investment property is unique, varying by use, location, improvement, and permanence. Each investment can be subject to a bewildering collection of tax rules, all of which affect the net return on investment.
Andy Heller, co-author of “Buy Even Lower: The Regular People’s Guide to Real Estate Riches,” notes that most people pay too much for their properties: “The profit is locked in immediately once the investor buys the property. Due to mistakes in analysis, the investor pays too much and then is surprised when he doesn’t make any money.”
 
Heller advises that success in real estate investing requires:
 
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