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Citizenship for Sale

eye on the news

Citizenship for Sale

Trump extends a program that’s dangerous to American values and growth. May 11, 2017
Politics and law

President Trump gave corruption watchers reason to shudder last Friday when he signed a law continuing a cash-for-visa program—only to see his son-in-law’s sister fly to China immediately afterward to drum up customers for her family’s real-estate business. But there are other reasons to worry about the renewal of a program that was a bad idea when it started 27 years ago—and which is even worse in today’s hyperglobalized economy.

In November 1990, as the American economy was in the middle of an eight-month recession, President George H.W. Bush signed into law an immigration-reform act, a major goal of which was to create jobs by encouraging investment in the U.S. The law “will promote the initiation of new business in rural areas and the investment of foreign capital in our economy,” said the then-president. To that end, Congress created a new program called EB-5, expanding our “employment preference” categories of visas to five. The law allows 10,000 people from around the world annually to apply for green cards—and thus eventual citizenship—for themselves, their spouses, and their children, provided they invest $500,000 in projects that create 10 jobs in struggling parts of America.

A big problem with EB-5 is philosophical: the program is contrary to American values. The other four “employment preference” categories of visa all favor educated or skilled laborers. America thrives when it is open to people from around the world who can make a contribution not just to our economy but to our civic life; the EB-5 program is based entirely on money. Let’s call this what it is: hawking American citizenship. This type of program puts our country on a par with Grenada and Cyprus, which openly sell passports.

And though immigration officials are supposed to vet applicants carefully to ensure that they earned their money legally, the program has been plagued from the start with fraud and abuse. The latest example is a California couple who managed to get the U.S. government to certify them as phony EB-5 intermediaries and took money from foreigners for nonexistent projects. Several of those foreigners obtained green cards despite making no investments in American jobs. In general, Homeland Security officials said last year, “petitioners may have strong incentives to report inaccurate information about the sources of their funds . . . or use fraudulent documents in instances when the funds come from illicit sources.”

Another problem is economic. Elected officials, on a bipartisan basis, believe that money creates jobs. If the government can just conjure up some cash, people will find work. This concept is false. Ideas—and the demand for goods and services created by these ideas—create jobs. In the EB-5 program, investors do not have to be entrepreneurs or actively develop or manage the businesses they supposedly help create. In fact, the government reported earlier this year that 75 percent of EB-5 investments go into the most passive sector of all: real estate. Foreigners who have no other way of obtaining American citizenship are simply making big investments in developers’ existing projects.

But aren’t these investors creating jobs anyway? As Congressman John Conyers of Michigan said at a hearing last year, “the EB-5 program suffers from the absence of good data.” In addition, “investors can account for the 10 jobs by counting direct, indirect, and induced jobs.” In other words, an economic model counts a construction worker as creating part of another job—because he goes out and buys goods and services with his salary. But a skilled worker could get a different job, if this one hadn’t materialized—and spend money from that different employer. That’s especially true because despite Congress’ stated intent, as Conyers points out, “the vast majority of EB-5 investment funds are going to projects in some of America’s most affluent areas that qualify as [struggling] only because of gerrymandering” of borders under the program.

Moreover, if a project makes economic sense, institutions and people will put money into it. A foreign investor seeking the highest return for the lowest risk, for example, would put his money into an American real-estate project without the enticement of a visa. EB-5, thus, promotes and effectively subsidizes projects that don’t otherwise make economic sense. Consider the projects that Trump’s son-in-law’s family wants to fund with these visas: the Kushners and their partners want to spend $821 million to build 1,476 apartments in Jersey City, near a PATH station to New York. Maybe this is a good idea, and maybe it isn’t; New York City itself has tens of thousands of rental apartments coming online. Whether the project stands to be profitable or not is up to investors to determine—without the artificial enticement of citizenship thrown in.

In encouraging massive investment in real estate, the EB-5 program perpetuates distortions of the American economy that are harming our long-term prospects for healthy growth. Consider who, exactly, is purchasing these visas. Last year, immigration from mainland China accounted for 7,516 of the 9,947 visas approved under the 10,000 annual cap on the EB-5 program; the year before, the figure was 7,616 out of 8,773. In 2000, only 25 Chinese investors participated. Indeed, since the 2008 financial crisis, Chinese investors have swamped the program, creating massive backlogs. “Processing times . . . continue to exceed a year and have not improved,” the Department of Homeland Security officials said last year.

Rather than acting to correct a dangerous economic imbalance, the government, then, is exacerbating it. In the aftermath of the financial crisis, with global interest rates at record lows, the state-connected Chinese investors who had helped amass a $268 billion annual trade surplus with the U.S. needed something to do with their cash. Chinese companies and individuals have sought refuge for at least $300 billion of their money abroad, purchasing everything from New York’s Waldorf-Astoria hotel to a major movie-theater chain. As the New York Times reported this week, one supposedly private company, HNA, is purchasing American real estate, including a New York office tower, with the help of $60 billion in credit backed indirectly by Beijing.

These purchases—and their prices—have no real basis in free-market supply and demand. People who have made themselves wealthy in a state-controlled economy naturally want to remove some of that money from that state—and China, too, doesn’t want government investments to remain dependent on conditions at home. This demand has helped push real-estate prices to record levels in places like New York and San Francisco and made it even harder for middle-class and even upper-middle-class people to find homes. The U.S. government may not be able to fix this problem—at least, it hasn’t tried very hard so far—but under EB-5, our government is making it worse.

Nicole Gelinas is a City Journal contributing editor, a senior fellow at the Manhattan Institute, and the author of After the Fall: Saving Capitalism from Wall Street—and Washington.

Photo by Justin Sullivan/GettyImages

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