Congress created tax laws not just to raise funds, but also to promote various policy goals. Ideally, these laws shouldn’t discriminate against American citizens. However, there’s a noticeable tendency to favor hiring immigrants over eligible U.S. citizens and residents when it comes to employment.
How does this dynamic work? Generally, U.S. citizens and residents face a substantial chunk of their salaries being deducted for employment taxes that support Social Security and Medicare. Employers also shoulder these tax responsibilities, alongside federal unemployment taxes as well.
This tax burden isn’t trivial; it significantly cuts into take-home pay, while simultaneously squeezing business profits.
Surprisingly, this scenario differs quite a bit for foreign students coming to the U.S. The Tax Act offers exemptions from employment taxes for workers on student visas, making them less costly for employers.
Historically, the financial implications tied to these student visa exemptions were minimal. The number of international students was quite low, with many likely to head back to their home countries after their studies.
Today, however, there’s been a considerable uptick in the number of international students enrolling in U.S. universities, driven by the global demand for American education and work experience. This shift is something Congress may not fully grasp, leading to billions in lost tax revenue.
How does this bias actually play out in workplaces? Picture a U.S. citizen making a salary of $100,000. This individual would pay around $7,650 in Social Security and Medicare taxes, with the employer covering a matching tax plus $420 in federal unemployment tax. In stark contrast, if the same individual were on a student visa, neither they nor their employer would face the employment tax burden.
When given the choice between two similarly qualified candidates—one a U.S. citizen and the other a foreign national—the latter is often more appealing to employers, simply because of these tax advantages.
This effect can be even more pronounced in entry-level roles, where candidates often have similar qualifications, such as recent university graduates.
There’s a historical rationale behind these tax exemptions. Typically, foreign students don’t qualify for the benefits funded by these taxes since they may return home after graduation.
However, the landscape has changed. A good number of those students might eventually pursue citizenship or residency in the U.S. It raises the question of whether tax laws should really favor foreign candidates over citizens and residents in such a fiercely competitive job market.
Congress has a few options for reform. They could eliminate these exemptions altogether, or perhaps adjust them to lessen the employer’s tax burden. Another route could be to limit the exemptions for students until they complete their degrees.
At its core, tax laws shouldn’t create a disadvantage for American citizens. As we look at tax and immigration policies, it’s crucial to scrutinize how they interact, the incentives they provide, and the potential adverse effects they may have.
Congress needs to reflect on this pressing issue and determine whether the current situation aligns with national interests or whether reforms are needed.
