Eroding Tax Base

The passport did not exist till the First World War, it was invented to ensure that spies could be kept out of one’s country.

Before the First World War, if you had to travel to another country, you would at most get a letter from a nobleman or a king vouching for your character and go hoping the others would sufficiently heed it.

Or as in the case of Christopher Columbus, one had to be quite certain that he would be the most bloodthirsty lout on any land that he arrived on.

After the 1980s this document that we call the passport began to be weaponised.

First some demographics

Once the boomer generation was done, the West started to see declining fertility.

Source: Data Commons

As I detailed in the article on globalisation, the US in particular started moving its production out in the 1970s to preserve its environment. The middle class was introduced to poverty — American Style. The kinds where your income becomes worthless slowly on the back of inflation. The result was a precipitous decline in fertility. There was no way that one could afford more than 2 children.

Since the replacement rate of fertility is 2.1, the country’s population has been in decline since 1972.

Except for immigration!

If you look at the age profile of the population of India and America, it shows. The number of people in the 0–20 age band is significantly narrowing in the case of America.

Indian Demographic Profile — Age Distribution

Source: Wikipedia

US Demographic Profile — Age Distribution

Source: Wikipedia

The narrow bottom is the problem. This implies that there will be fewer people of working age in the economy in the next 20–30 years. Those in the 30–40 age group today would have turned old and they would need pensions and healthcare. Not like America provides either, but just saying.

The country needs a tax base that can finance the country. But with a falling population, the tax base would keep contracting, how will they find the money?

As you can see the problem started more than 30 years ago.

In 1990, George W Bush had already invented the solution to this problem and it is called the H1B.

Who is eligible for the H1B?

The regulations define a specialty occupation as requiring theoretical and practical application of a body of highly specialized knowledge in a field of human endeavor, including but not limited to biotechnology, chemistry, computing, architecture, engineering, statistics, physical sciences, journalism, medicine, and health: doctor, dentists, nurses, physiotherapists, etc., economics, education, research, law, accounting, business specialties, technical writing, theology, and the arts, and requiring the attainment of a bachelor’s degree or its equivalent as a minimum (with the exception of fashion models, who must be “of distinguished merit and ability”). Likewise, the foreign worker must possess at least a bachelor’s degree or equivalent and state licensure, if required to practice in that field. H-1B work authorization is strictly limited to employment by the sponsoring employer.

Source: Wikipedia

Broadly those who would earn enough to pay taxes. In other words, the H1B is an insurance plan against a shrinking tax base. Without these people there will come a point in the future that America would not be able to address the interest payments that would arise out of the debt that the country keeps picking up.

For all the anti-immigrant rhetoric that comes out of the country, the country will not survive without the immigrants.

Thanks to the fact that billionaires run the government and lobbying (read corruption) is rampant in the country, inequality continues to rise and consequentially even if you are in the top 10% of earners having a second child makes no sense.

The population of the US grew 0.31% in 2021. Almost all of the growth can be attributed to immigration today.

The United States admitted an average 250,000 immigrants a year in the 1950s, 330,000 in the 1960s, 450,000 in the 1970s, 735,000 in the 1980s, and over 1 million a year since the 1990s.

Source: Population Registry Bureau

This stat does not include the people who are on visas and also illegal immigrants.

Source: Macrotrends

A little less than 2 million people are added to America each year and almost all of them seem to be migrants. Few if at all any of the migrants will be 1-year-olds. Hence while this adds to the middle of the distribution, it still does not solve the long-term problem brewing at the bottom of it.

While the H1B continues to serve as a band-aid to the diminishing tax base, the question is for how long? The demographic collapse that is unfolding is hard to run from. Historically Europe has been one of the biggest suppliers of immigrants to the US but their fertility is even worse.

America wants to play the role of ‘big brother’ and economies in Asia are pushing back on this.

Many of us who grew up in the 90s were fed shows that glorified America. This played no small role in propping up the demand for the H1B.

Thanks to the increasing polarization, neither is America able to project itself like that nor is the state of its politics rendering in any better light than the Asian economies.

America will soon have a choice to make, whether to preserve its image or its role.