Spanish Lessons: Tax Breaks For Rich Foreigners
To understand how ass-backwards the immigration debate is in this Land of Immigrants, consider what Spain has been doing as our Congressional leaders have been sitting on their derrière refusing to expand—let alone eliminate—the annual cap on H1-B visas for highly skilled immigrants that forces thousands of foreign graduate students to return home after obtaining advanced degrees in American universities.
In 2005, Spain realized that it was having trouble attracting star soccer players and passed something called the Beckham Law. The law— named after (who else?) David Beckham who had joined Real Madrid, a professional soccer club in Madrid—gave athletes the choice of either paying resident or non-resident taxes. Residents pay 24 percent on a certain portion of their income rising to 43 percent subsequently, but are allowed personal allowances (or tax deductions). Non-residents, on the other hand, pay a flat 24 percent tax on their entire income but without any deductions. Also, residents are taxed on their worldwide income whereas non-residents only have to pay taxes on their income in Spain.
Beckham, no fool, did the math and opted for the non-resident tax as did a number of other athletes. The law was subsequently expanded to include other foreign workers. But the spectacle of super-wealthy foreigners paying a lower tax rate than many low-income Spaniards raised the ire of the nation's socialists who managed, last year, to suspend this option for any foreigner making over 600,000 Euros. However, skilled foreigners—athletes and non-athletes—who make under that amount can still avail of the non-resident rates.
That might be something of a setback, but what's clear is that, unlike in the U.S., Spain is at least trying to push the debate in the direction of how best to attract foreign executive and technical talent in order to make Spanish companies more globally competitive. Spain's government might be spending itself into oblivion, but at least it is trying to get its immigration policy right—which is more than one can say about Uncle Sam.
A tiny sliver of silver lining in the GOP's otherwise sordid debate on immigration actually is Mitt Romney. He has been demagoguing poor Rick Perry for signing a totally sensible (and, at the time, completely uncontroversial) law letting children of taxpaying (illegal) immigrants in Texas pay in-state tuition to attend college, as Matt Welch pointed out this morning. However, when it comes to highly skilled immigrants, Romney has been making some of the right noises, including calling for raising the H1-B cap.
But even he wouldn't dare call for giving tax breaks to skilled foreigners which is why, as I wrote here, America's immigration problem going forward is not going to be how to stop smart immigrants from flocking to our shores, but how to prevent foreign competitors from wooing even the existing ones away.