John Vogel is an adjunct professor at Dartmouth's Tuck School of Business.
According to a recent story in the New York Times, "about six million people who have followed the rules and have been approved are waiting for green cards to be issued." Most Mexicans, the article goes on, "must wait at least 16 years to receive their green cards after they are approved."
However, if you are from a wealthy family and have $500,000 to invest, you can skip to the head of the line. At a time when Congress seems unable to agree about anything, this program, known as EB-5, was reauthorized in September 2012 in the House of Representatives by a vote of 412-3.
In its current form, the Immigrant Investor program or EB-5 essentially allows wealthy foreigners to purchase green cards, which enable them to live and work in the United States and, after a period of time, become U.S. citizens. Both the EB-5 program and the process by which it evolved raise at least four troubling questions.
Question No. 1: Is the United States actually selling green cards? The EB-5 visa for Immigrant Investors was created by the I990 Immigration Act. To obtain this visa an individual had to create a new commercial enterprise, invest $1 million (or $500,000 in a high unemployment or rural area), and create 10 new jobs. However, under the Pilot Program in its current form, a foreign national can invest through a third party "Regional Center", which then assumes responsibility for creating the jobs. In other words, for a $500,000 investment, you become eligible for a green card for yourself, your spouse, and your minor children. A jobs requirement still exists, but as the website for America's Center for Foreign Investment makes clear, not only are the jobs the responsibility of the third party Regional Center but they need not be real jobs. To quote America's Center for Foreign Investment:
When an Investor invests in a Regional Center, the new commercial enterprise does not have to directly create 10 new jobs. It is sufficient to show that 10 or more jobs will be created directly or indirectly, using economically or statistically valid forecasting devices, as a result of the investment.
In its original form, one could argue that the primary purpose of EB-5 was to encourage individuals and companies to create jobs in the United States. In its current form, we are selling green cards and the opportunity to become a U.S. citizen. What is surprising is that such a controversial idea has not sparked significant debate.
Question No. 2: Is it in the best interest of the United States to give priority to wealthy foreigners? Let us assume there are three young people who would like to immigrate to the United States. One is from a wealthy family and can invest $500,000. The second is a recently minted MBA from a leading university. The third is an 18 year old who was brought to the United States by a relative when she was two years old, has lived in the United States all of her life, and plans to go to college. Which one should get a green card? Under current policy, the U.S. government has decided it is the young person from a wealthy family.
From the perspective of creating jobs over the long term, one might question whether it is better to bet on the person from a wealthy family or the MBA. With respect to the 18-year-old college hopeful, we all know that there are advantages to being wealthy, but are we comfortable creating laws that explicitly favor those born to wealthy families over those born to poor families?
Question No. 3: Are these prudent investments? Between 2002 and 2012 the amount of money going into private equity investments quadrupled. According to some of the leading private equity investors there is currently a glut of private equity money and a dearth of good investment opportunities. Into this highly competitive, oversupplied market, we are asking a group of amateurs, the EB-5 investors, to compete against sophisticated professionals with extensive deal sourcing networks and years of experience. We further handicap the EB-5 investors by adding nonfinancial layers like job requirements and extensive regulatory paperwork that makes their money even less attractive to entrepreneurs. Given this setup, there is a high probability that EB-5 investments will generate poor returns, and there is considerable risk that the $500,000 will be lost.
Question No. 4: Are there good alternative uses for the EB-5 money? One of the oddities about the EB-5 program is that the U.S. government is giving out the green cards, but the entrepreneur who puts together the investment gets the money. This scheme seems inefficient and open to corruption. If our government really believes that it is a good idea to sell green cards, maybe we should drop the pretense that this is a job creation program. It might be more efficient to have the money go directly to the U.S. Treasury and reduce the deficit by billions of dollars a year. In fact, the U.S. government could auction off these green cards and perhaps raise even more money.
Despite the flaws in the EB-5 program, there have been some successes. In Vermont, the owners of Jay Peak ski resort have deployed millions of dollars of EB-5 money in upgrading their facility. This expansion and upgrading has been a catalyst in bringing other businesses and hundreds of jobs to this economically depressed area. Stephen P. Marsh, president and CEO of Community National Bank in Derby, Vermont, points out that "EB-5 money is one of the only sources of long-term, patient equity that small business owners, like the owners of Jay Peak, can access these days from the capital markets."
To me, however, the most important question is not whether there are benefits from the EB-5 program or even whether the program makes economic sense based on a cost-benefit analysis. The question is: Should we be selling green cards and a path to citizenship to wealthy foreigners? Here is the view of an immigration attorney I consulted:
At a time when parents and spouses of U.S. citizens are being deported at record rates, spouses and children of lawful permanent residents are required to wait years before being allowed to lawfully reside in the U.S. with their family members, refugees are spending years in inadequate camps, and nearly every area of our immigration system is incredibly backlogged. At a time like this should we allow wealthy investors to jump to the front of the line?
With President Obama's State of the Union address, immigration reform has once again become a hot issue. In my view, creating a fair and responsible immigration policy is extremely difficult, but important. I hope that Congress can come up with a comprehensive policy that is just and fixes our current system. To get there, we need to confront difficult questions directly such as the equitable awarding of green cards. These critical policy decisions should not be slipped in through the back door.
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