Demand-Side Immigration Reform

In the initial debate over the Bush-Kennedy immigration deal, attention has focused on how this complex bill will impact immigration-law-breaking workers — the supply side of the unskilled labor market.

A simpler approach that could greatly clarify the national discussion over immigration would narrowly, but remorselessly, target immigration-law-breaking employers — the demand side.

Let me give you some perspective on who these scofflaws are.

There is an Illinois employer that over five years filed 131,991 inaccurate documents with the Internal Revenue Service. That’s right: 131,991.

Now, you might think law enforcement would be swarming all over this employer. You would be wrong, however.

You see, the 131,991 false documents were W-2 forms reporting taxes paid on behalf of workers whose names and Social Security Numbers (SSNs) did not match. The Social Security Administration (SSA) inspector general has told Congress that illegal-alien workers are “the primary cause” cause for this type of “non-match” W-2.

According to an October 2004 report by the SSA inspector general (“Employers With the Most Suspended Wage Items in the 5-Year Period 1997 Through 2001”), the Illinois employer with 131,991 “non-match” W-2s was the national champion for that period. But there were other employers in the same league.

A Texas employer, for example, filed 108,302 “non-match” W-2s in that period — when a man named George Bush happened to be Texas governor. Indeed, according the inspector general, 15 employers in Gov. Bush’s Texas ranked among the Top 100 for filing “non-match” W-2s. From 1997 to 2001, these Texas employers sent the IRS a combined 401,167 “non-match” W-2s, reporting $1.7 billion in wages paid to workers using someone else’s — or a phony — SSN.

Hiring illegal aliens was not a small business when George Bush governed Texas. It was big business.

So, why didn’t the IRS do anything about it? The 1986 immigration amnesty bill empowered the IRS to fine employers for filing inaccurate W-2s. A 1989 amendment increased the fines, allowing the IRS to assess up to $50 for every bad W-2, with total annual fines capped at $100,000 for small businesses and $250,000 for larger businesses.
In 2004, however, the Government Accountability Office (GAO) discovered that the IRS had never enforced this law. “IRS does not have any information documenting that any employer has ever been assessed such a penalty,” said GAO.

Ever? Yep.

In effect, the IRS has already granted amnesty to those on the demand side of the illegal-alien labor market. Illegal aliens are sometimes caught and deported. But the IRS never — never! — enforces the law that prohibits employers from filing inaccurate W-2 forms on their behalf.

So, why doesn’t Homeland Security inspect the worksites of these employers? Each year, SSA compiles for its own purposes a list of every employer that filed 100 or more “non-match” W-2s the previous year. This list could be a roadmap for worksite immigration enforcement. But it is never used.

SSA claims the Internal Revenue Code prevents it from identifying to the public — or even to other government agencies such as Homeland Security — the name of any employer filing bad W-2s. (This is why the Illinois and Texas employers mentioned above are unnamed.) SSA won’t even identify to Homeland Security a state-government agency that ended up in the SSA inspector general’s October 2004 list of the Top 100 employers for filing “non-match” W-2s in 1997-2001.

Could this state-government agency have been in Gov. Bush’s Texas? We may never know.

In 2005, I asked the SSA inspector general’s office why it would not release the name of this state agency, or at least the state in which it was located, to either me or Homeland Security. “The state location and name of the state agency is protected under Section 6103 of the Internal Revenue Code,” the IG responded. “With the exception of an ongoing criminal investigation, the same disclosure restrictions under Section 6103 of the Internal Revenue Code apply to sharing this information with outside parties, such as DHS.”

In written congressional testimony published on Feb. 16, Barbara Boybjerg of the GAO explained why Homeland Security officials believe they could use SSA data on employers who file large numbers of “non-match” W-2s. “They told us,” she said, “that these employers may knowingly hire unauthorized workers with no SSN or fraudulent SSNs, and that employers who are knowingly reporting incorrect information about their workers might also be involved in illegal activities involving unauthorized workers.”

Here’s a humble suggestion: Before Congress votes on an extraordinarily complex immigration reform largely aimed at the supply side of the unskilled labor market, it should enact a streamlined reform aimed at the demand side.

This bill should say: Notwithstanding any provision of the Internal Revenue Code, SSA shall immediately hand over to Homeland Security a list of the 50 employers who filed the largest number of “non-match” W-2s for 2006. It shall also hand over a list of all state-government agencies that filed 100 or more “non-match” W-2s. Over the next 90 days, Homeland Security shall inspect the worksites of these employers, enforcing all immigration laws, and making all appropriate referrals to the Justice Department and Internal Revenue Service.

By September, Americans would have a solid factual basis for determining who stands to gain and who stands to lose from the backroom deal President Bush cut with Sen. Teddy Kennedy.