How Much of a Mixed Bag Is It That States Are Eliminating Their Grocery Taxes?

Governments have a knack for taxing everything, from property, alcohol, and millionaires to carbon, soft drinks, and recycling. Yet there is an exception I recently came across: the grocery tax. Fewer and fewer states are enacting a consumption tax on their groceries. Oklahoma Governor Kevin Stitt signed off on abolishing Oklahoma's 4.5 percent grocery tax. Earlier this month, Illinois Governor J.J. Pritzker announced eliminating Illinois' 1 percent grocery tax in his budget. If Pritzker is successful, that would mean that there would be 11 states that have a state grocery tax. It makes me wonder why a majority of states no longer have grocery taxes and what the costs of grocery taxes are.

One aspect is related to the impact of taxes generally. Taxes on the whole have two main outcomes: to collect revenue for the government and to discourage the consumption or production of what is being taxed. Since groceries are an essential for people to survive, it could discourage eating. A study from the U.S. Department of Agriculture (USDA) found that a one percentage increase leads to 0.7 percent decrease of food-at-home spending for SNAP-eligible non-participants (Stewart and Dong, 2021). SNAP benefits were not found to be affected, although that might not say much considering SNAP participants have worse health outcomes than low-income non-participants. 

That segues us into the second issue of grocery taxes: it discourages healthy eating. One study from Health Economics Review (Wang and Zheng, 2021) showed that "a one percentage point increase in grocery taxes increases obesity and diabetes rates by 0.588 and 0.215 percentage points, respectively." 

To quote the Left-leaning Center on Budget and Policy Priorities (CBPP), "Reducing or eliminating grocery taxes offers states a way to help families put more food on the table and afford basic needs." In 2020, CBPP illustrated how households in the lowest quintile spend up to eight times their income on sales tax than the top one percent. The disparate impact makes sense given that lower-income households spend more of their income on food than high-income households (ibid.), which causes greater food insecurity (Zheng et al., 2021).

At first glance, you would think I would be thrilled to see a tax cut. A tax cut seems like a win-win because it means less tax revenue, which in theory should mean less government (although it could also mean more spending with a smaller tax base). This also would help households when inflation has caused such harm, especially to low-income households. As I brought up with a Kansas tax cut in 2017, tax policy is more than "tax cuts = good." 

The problem is assuming that exempting groceries from the sales tax helps low-income households. It actually does the opposite. According to the Tax Foundation and its research on the grocery tax, "the poorest decile of households experience 9 percent more sales tax liability with a grocery tax exemption than they would if groceries were taxed and the general rate were reduced commensurately." In part, this happens as a combination of the substitution effects of unprepared foods for prepared foods and the already-existing exemptions for SNAP and WIC beneficiaries. It also happens because to compensate for the exemption, the overall sales tax has to be increased elsewhere. 

Exempting groceries from the sales tax also makes tax revenue more volatile. Another appealing aspect of the grocery tax is that it provides a constant source of revenue. Why? Everyone has to eat. Relying on other forms of consumption, especially during an economic downturn, increases revenue volatility. Plus, it erodes the tax base because having a broad sales tax base minimizes economic distortions and administrative and compliance burdens. The burden on low-income households is less, given that groceries make up a smaller portion of overall revenue. They have decreased from 14 percent of disposable income in 1960 from approximately 5 percent in 2022 (U.S. Department of Agriculture), thereby diminishing an argument of burden on low-income households. 

The reality is that we are not going to live in a world without government. Yes, I would like for government to be significantly smaller than it is, but a government in either case needs a revenue base. I have asked these questions about which sorts of taxes are preferable, not whether taxes should exist. I have no love for the wealth tax. I find the corporate tax problematic enough that I would prefer a capital gains tax over a corporate tax. 

As for the consumption tax, I worry about how states could respond if they exempt groceries. In addition to raising the sales tax, I also have concerns that they could raise income taxes instead. The problem is that consumption taxes are more efficient than income taxes. To quote the Tax Foundation:

"Income taxes impose steeper economic costs, and often steeper administrative and compliance costs, than consumption taxes. They place a higher tax burden on saving and investment. They also impose significant administrative and compliance costs that undermine the large anti-poverty programs for families and children administered through the tax code."

I am not looking at this as a matter of a utopia with zero government or zero taxes. I am looking at whether having a grocery tax beats the alternative. Based on the data we have, the answer is "no." It is better to have a grocery tax with a lower overall sales tax rate than it is having a grocery tax exemption. It is not only preferable for tax revenue purposes, but also for the purpose of helping out lower-income households. As counterintuitive as it seems for a libertarian, I am against a grocery sales tax exemption.

Argentina's First Budget Surplus in Over a Decade Showing Merits of Economic Austerity

For me, austerity is a term I remember coming across frequently during the Great Recession and subsequent years. It is reminiscent of the economic malaise from last decade. Whether it was the Netherlands, Greece, or Great Britain, the neo-Keynsians were disparaging of any attempt of cutting government spending by labeling it as "austerity." Austerity refers to strict economic policy to rein in growing public debt, typically in the form of lower taxes, lower government spending, or a combination. Regardless of how the tax rates or government spending rates pan out, the idea is to implement these measures to improve economic health. 

Fast-forward to December 2023 when Javier Gerardo Milei became president of Argentina. While Trump and Milei both have exuberant and flamboyant delivery styles, that is where their similarities end. Unlike Trump and his tariff-loving populism, Milei is a right-wing libertarian and a component of free markets. Milei promised to take a chainsaw to the country's crippled economy with a laissez-faire approach. Milei consolidated eighteen governmental ministries into nine ministries. This also included eliminating the National Institute Against Discrimination, Xenophobia, and Racism (INADI), about which Milei said "[INADI] no sirve para nada," or loosely translated, "it does not do squat." He let go of 7,000 government employees, as well as devalue the Argentinean peso by about half so that Argentinean goods can be more competitive in the global markets. As I brought up last month, Milei also brought up a series of ways to deregulate the government. 

The reason why Milei is taking this approach is because the Argentinean economy is in trouble. When I asked in December 2023 whether Argentina should dollarize, I pointed out that Argentina's economy is plagued with unemployment, devaluation, inflation, and poverty. The reason why Argentina elected a libertarian to the office of President was in part because decades of government largesse and irresponsible monetary policy was not serving the Argentinean people. These austere measures are needed because Argentina is economically in hot water. 

Although Milei has only been in power for a couple of months, we are already seeing positive results. For the first time in twelve years, Argentina's government has produced a budgetary surplus (see government data here). The importance and gravitas cannot be stated enough. Milei took what was projected to be a budget deficit of 5.2 percent of GDP and turned it into a surplus of $580 million USD in less than three months. To translate that into the U.S. federal budget, that would be like taking Congress' $1.2 billion deficit and turning that into a $400 million surplus. That is more impressive considering the United States has not had a budgetary surplus in over two decades. Even U.S. Secretary of State Antony Blinken praised Milei for his economic efforts. 

It has only been a little over two months and Milei has plenty of political opposition that could hinder what he is looking to accomplish. At the same time, this is a great start to helping Argentina become the economic powerhouse it once was. It is not only Milei's political career or the Argentinean economy that hang in the balance. The stakes are higher than that. If Milei succeeds, he will show other countries that freer markets and less government intervention lead to greater economic prosperity. It will serve as an inspiration to other countries to get their profligate government spending under wraps. 

After all, it is why the United States experienced another downgrading of its credit rating last year. Last year, I compared the United States' fiscal deterioration to that of Argentina and rightly so. Argentina serves as a fine example of what economic misery comes when government spending runs wild. Hopefully, Milei can be successful in his efforts and show us what happens when economies abandon socialistic tendencies for more capitalistic ones. By embracing capitalism can we hope to improve the quality of life for citizens across the globe. 

¡Viva la libertad, carajo!

Trump's Proposed 60 Percent China Tariff Would Be a Repeat of Economic Foolishness

Since I criticized Biden's "shrinkflation" public service announcement earlier this week, I only thought it would be fair that if I criticized President Trump today and his role in increasing consumer prices. Trump has been obsessed with tariffs to the point of earning the nickname "Tariff Man." During his first term, he quadrupled U.S. tariffs on China, from 3 percent to 12 percent. Now he is looking to outdo himself. Earlier this month, Trump proposed a 60 percent tariff on China, although he said it could very well be higher. 

We should first ask how well the tariffs fared under Trump's first term. I asked this question when I criticized Trump's proposal for a 10 percent tariff on all countries last year. Answer: not well. Tariff proponents think that tariffs hurt the other country, which in this case would be China. Trump's tariffs really didn't stick it to China. The truth is that a U.S. tariff on China is an import tax that U.S. consumers and producers paid, as this report from the United States International Trade Commission shows. During his first term, the annual net costs of Trump's tariffs were a reduction of GDP by 0.21 percent, a reduction of wages by 0.14 percent, and 166,000 fewer full-time equivalent (FTE) jobs. As one research paper from the Federal Reserve concluded, "the impact from the traditional import protection channel is completely offset in the short-run by reduced competitiveness from retaliation and higher costs in downstream industries." 

What effects would quintupling the current tax rate have? The Tax Foundation calculated that such a tax would cost $200 billion per annum. The National Taxpayers Union estimates that figure at an even higher $495.7 billion, which would amount to an average tax of $3,942 per household. That is even worse considering that the New York Federal Reserve found that Trump's previous China tariffs cost the average household $831 per annum. As the Tax Foundation correctly points out, such a tariff would not be created with the primary goal of tax revenue collection, but discouraging trade:

Imports from China would depress significantly. Supply chains would fragment, investment plans would be disrupted, and trade would be diverted to third countries. A prohibitive tariff would create a void in trading opportunities with China that other countries would fill, leaving the U.S. excluded. In sum, it is not a thoughtful approach to the U.S.-China economic relationship. 

Repeating a failed policy and expecting a different outcome is not sound economic strategy Trump's tariffs were unquestionable ineffective and economically damaging. Instead of reassessing his approach, he is proposing to quintuple the tariff rate on Chinese goods. Rather than strengthen the U.S.' position in global trade, Trump's China tariffs would set the U.S. economy further back.  

Although Congress has historically been responsible for tariffs, that responsibility has shifted more to the executive branch in the past century. There are ways to repeal those provisions that allow for executive abuse, as this report from the Competitive Enterprise Institute illustrates. Congress needs to take back its constitutional role of determining tariff rates. Otherwise, if Trump wins a second term, we will likely see even higher consumer prices than we already have while harming U.S. consumers, farmers, and manufacturers along the way.

Biden Blaming Businesses for "Shrinkflation" Hides How He Contributed to Inflation

Super Bowl Sunday is a time where millions in the United States gather with friends and family to watch football and eat a lot of food. A little over a week ago, not only was there the Super Bowl, but one of the Super Bowl commercials was a public service announcement (PSA) by President Biden. What did the President speak about in his PSA? How soft drinks are smaller and how bags of chips have fewer chips than they used to have. The phenomenon that the President addressed was "shrinkflation", which is the practice of reducing the size or quantity of a product while maintaining its sticker price. 

The business practice of "shrinkflation" is a form of stealth inflation in so that customers are less likely to notice the smaller quantity than they would be of a price increase. Businesses partake in "shrinkflation" because they understand a certain aspect of human psychology related to the elasticity of demand. What shows up in academic research is that consumers are more sensitive to price increases than they are to package downsizing (Çakir et al., 2021; Yao et al., 2020; Wilkins et al., 2016; Çakir and Balagtas, 2014). As such, businesses partake in "shrinkflation" to improve their profit margin. 

At first glance, I can understand how consumers would be annoyed. They are paying more for less, but doing so in a way that comes off as deceptive. Senator Elizabeth Warren portrays the practice of "shrinkflation" as corporate greed. This is hardly the first time the Senator has pushed her "greedflation" theory. I can tell you her "greedflation" theory is bunk. I wrote in October 2022 how corporate greed was not the main cause of the persistent inflation and how the theory does not withstand scrutiny.

There are already federal laws mandating the quantity or weight of each product. As the St. Louis Federal Reserve Bank brings up, it is the consumer's responsibility to compare weights against prices, but I digress. Warren et al. think that cracking down on the practice of shrinkflation would solve the problem. It would not. Businesses would simply increase their sticker prices, which would make consumers even more irate than they already are with the persistent inflation that Americans have been dealing with in recent years. If anything, Biden should be thankful for shrinkflation because it is masking and obfuscating inflation during an election year to which Biden contributed. 

Am I saying that Biden is solely responsible for the inflation? Nope. Go back to the piece I wrote in November 2022 on the inflation that continues to this day. I threw plenty of blame at the Federal Reserve for expanding money supply. But guess what? Biden is also to blame because he signed the American Rescue Plan (ARP) Act, which greatly contributed to inflation. As a recent paper from the Economic Policy Innovation Center (EPIC) shows, large amounts of deficit spending during the COVID pandemic played a major role in this inflation (Beach, 2024). 

While Trump was responsible for some of that deficit spending, Biden continued to amp up the deficit spending, even after the pandemic crisis was averted. If it were not for Biden's expansionary fiscal policy, businesses would not have to use "shrinkflation" practices in the first place. Biden wants us to ignore his vital role in increasing inflation and making goods and services much more expensive now than they were five years ago. That erodes the consumer's purchasing power, which means it is harder to enjoy life. As a consumer, you have a right to be angry. But don't be angry at businesses for "shrinkflation." Businesses have been trying to adapt to supply chain issues and increasing producer prices with "shrinkflation." Be angry at the government who flooded the economy with money and drove up consumer prices in the first place. 

Social Conservatives' War on Porn Shows the Far Right Can Be As Puritanical as the Woke Left (Part II)

Disclaimer: This blog entry does not contain any pornographic images or links to pornographic websites. This blog entry functions as a criticism of pornography bans. 

It would not be American politics if the culture wars ceased to exist. Last week, I wrote about how social conservatives are reigniting the war on pornography. First, I went in how one defines pornography and obscenity. Second, I pointed out how pornography does not increase sexual assault. Third, I listed studies that show neutral or positive effects of watching pornography, which undermines the public health argument against pornography. Now I continue with other arguments as to why a ban on pornography is not wise. 

4) Whether someone views pornography is no one else's business. There can be a myriad of decisions that other individuals make that you find disagreeable: voting for a candidate of an opposing political party, practicing a religion that is not yours, owning a gun, having different political beliefs, having children before getting married, burning a Quran or the U.S. flag, having sex with or marrying someone of the same sex, not getting a COVID vaccine, or how a business owner manages their business. There are other life decisions that are unhealthy, such as smoking cigarettes, drinking too much alcohol, eating foods with a ton of sugar and trans fats, not getting enough exercise, or spending too much time on social media. 

Part of living in a free society means being surrounded by people who think, believe, and act differently than you do. As long as adults are not directly harming others, it does not matter what decisions they make, even if it causes self-harm. An adult who decides to view pornography in the privacy of his or her own home is not harming anyone else. A ban would turn viewing pornography into a victimless crime, which comes with its own costs.  

5) Enforcement would be messy, not to mention a violation of the Constitution. Forget for a moment that pornography has First Amendment protection. First, you would need to shut down the production of pornography. Then you would need to stop millions of smartphone users from creating amateur pornography and distributing it anonymously. That is on the production end. To stop people from consuming pornography, the government would need to have unfettered access to monitor citizens' computers. This would mean violating the privacy rights of all internet users and undermining data encryption tools. 

6) Underground market. Pornography is popular because the vast majority of human beings are sexual creatures and pornography is more accessible than ever since the advent of the internet. 91.5 percent of men and 60.2 percent of women have used pornography in the past month. Banning pornography is not going to make those sexual desires dissipate. Banning pornography would create a black market in pornographic goods. 

As I brought up last year when discussing a potential TikTok ban, a blanket ban comes with a litany of negative unintended consequences. Likely outcomes of forcing pornography production underground is less safe working conditions, mistreatment of workers, and financial exploitation. As for consumers, those who are looking for porn will either find print publications or go to the dark web, both of which can expose consumers to even more illicit and problematic activities. These consequences are parallel to the unintended consequences of a similar policy alternative: a partial prostitution ban. 

Conclusion: Let's recap the effects of a pornography ban. It would be expensive to enforce while violating privacy rights. Law enforcement would be punishing something that a vast majority of Americans do in the privacy of their homes. Given the intractable nature of such a ban, it would mean that enforcement would be arbitrary at best and discriminatory at worst. It would make conditions worse for the porn industry and open consumers to the black market. Meanwhile, pornography does not increase sex crimes while having mixed effects on personal health. All of this headache would be endured for a victimless crime.  

This is not an isolated incident of the U.S. political Right. There was a time in recent years where the Right was starting to become a beacon of freedom since the woke Left was being ridiculously puritanical.  However, the American Right has become increasingly enthused about banning or imposing severe limitations, whether that is immigration, restricting free trade, surrogacy, contraception, or marijuana. The woke Left's puritanical impulses do not exclude social conservatives from attempting to thrust its authoritarian desires on the rest of us. Regardless of the side of the political aisle, we should remember that puritanism is not a winning political strategy. If the political Right wants to have lasting, positive change, it will acknowledge this reality and harness it into political change moving forward.

UNRWA Is an Ineffectual, Anti-Semitic Organization That Exists to Perpetuate Victimhood and Conflict

As if there were not enough twists and turns in the Israel-Hamas War, this development has to do with the United Nations Relief and Works Agency for Palestinian Refugees in the Near East (UNRWA). UNRWA was founded in 1949 to provide humanitarian relief to Arab refugees as a result of the Arab-Israeli War of 1948. Remember this is the same war that the Arab nations started after the United Nations proposed a plan (UN Resolution 181) that would have allowed for an Israeli state and Palestinian state to live side-by-side.

The latest UNRWA controversy has to do with the October 7 attack, which was the single largest attack and murder of Jews since the Holocaust. Forget the report from UN Watch that shows a Telegram group of 3,000 UNRWA teachers celebrating the October 7 attack. According to Israeli intelligence, 12 UNRWA employees were involved in the October 7 attack (WSJ). Not only that, but 190 UNRWA employees are also Islamic jihadists. If that were not enough, 10 percent of the UNRWA employees in Gaza have ties to Islamic terrorist groups. Secretary of State Anthony Blinken found the sources to be "highly, highly credible." Apparently, it has been credible enough where several major donor countries, including the United States, Germany, Canada, Sweden, and France, have temporarily suspended funding to UNRWA. 

UNRWA replied by stating that if its funding does not resume, it could be forced to close down its doors by the end of February. The pro-Palestine side laments this, to be sure. From this vantage point, UNRWA is an "omnipresent municipal service provider." For UNRWA proponents, the humanitarian work of UNRWA should not be eclipsed by a few bad apples in the organization, even if those bad apples are alleged pogromists that participated in the worst slaughter of Jews since the Holocaust. 

Funny how the woke crowd thinks that we should give UNRWA more funding, but is the same Far Left that called for "defund the police" after a few bad apples and that we should eradicate racism (which apparently does not include Jew-hatred), but I digress on their intellectual inconsistency. I would contend that the rot in UNRWA goes beyond a few bad apples, especially since the pro-Palestine Al Jazeera reported on the abuse of power of UNRWA leaders. This includes Pierre Krähenbühl, the ex-UNRWA leader who was accused of nepotism, sexual misconduct, abuse of power, and bullying. 

Aside from corrupt leadership, UNRWA has supported terrorism and anti-Semitism for many years. This rot predates the numerous UNRWA employees who reacted positively to the October 7 attack. The European Parliament recognizes that Palestinian textbooks teach Jew-hatred, which is illustrated by the Georg Eckert Institute's report on Palestinian textbooks. This trend is confirmed by a November 2023 report from the Institute for Monitoring Peace and Cultural Tolerance in School Education (Impact-SE), as well as a report from UN Watch in March 2023 illustrating how UNRWA teachers incite Jew-hatred. These Palestinian textbooks have been so riddled with anti-Semitism that the United Nations admitted in 2019 that the anti-Semitism in these textbooks exists to "fuel hatred and may incite violence."

If the systemic anti-Semitism at UNRWA is not enough to convince you about how UNRWA contributes to the perpetuation of conflict in the Middle East, let us examine the nature of the organization itself. But first, some information on the role of the United Nations and helping refugees. The United Nations operates two organizations to the cause. The first is the United Nations Human Rights Commission (UNHCR), which is dedicated to the plight of refugees globally. The second is UNRWA, which is focused on Palestinian refugees. Here are some figures about UNHCR in comparison to UNRWA:

• UNHCR has 18,879 staff (as of 12-31-2022) to help 29.4 million refugees under UNHCR's mandate. UNRWA, on the other hand, has 30,000 staff that cover 5.9 million individuals under its mandate. This means that UNRWA has over 11,000 more staff to help out over 23 million fewer people than UNHCR. 
• This, of course, does not include the 70-plus million refugees and asylum seekers not covered under either organization. 
• In terms of funding, that is for $10.80 billion for UNHCR and $1.47 billion for UNRWA in the year 2023. 
• That would make the funding-per-refugee ratio $367 for UNHCR and $249 for UNRWA. 

As fun as it is to look through these data points, they beg the question as to why the Palestinians have their own separate refugee agency. Are their lives more important than the 2.5 million Sudanese that were displaced last year? That segues into how UNRWA treats refugees. With UNHCR, resettlement of refugees is one of the main goals of its mandate. For UNRWA, not so much. In UNRWA's own words, "UNRWA does not have a mandate to seek durable solutions for Palestinian refugees." 

The reason why UNRWA does not want to resettle Palestinians has to do with how UNRWA defines refugees. By UNHRC's definition, a refugee is "someone who has been forced to flee his or her country because of persecution, war, or violence." This lines up with how refugee was defined for Arabs displaced as a result of the Arab-Israeli War of 1948. However, that definition changed over time and has since applied to more people than the original 700,000 who were directly affected by displacement in 1948. In 1965, UNRWA's eligibility requirements extended to third-generation descendants of refugees. In 1982, that applied was expanded further to any descendant, regardless of whether they had been granted citizenship elsewhere. 

Under the 1951 U.N. Convention, specifically Article I(c)(3), a person is no longer a refugee if he or she "has acquired a new nationality, and enjoys the protection of the country of his new nationality." Not so with UNRWA. If the standard definition under international law were used, the vast majority of the 5.9 million that are covered under UNRWA's mandate would not be defined as refugees because they are not among those who left the modern state of Israel in 1948. Under UNRWA's definition, refugee status can be inherited over generations, regardless of where one lives or has citizenship. This helps ensure that its refugee rolls expand every year, which also provides a perverse financial incentive to ask for more funding instead of helping resettle Palestinians. 

This begs another question: How did other groups of refugees throughout history respond to displacement? During the Kashmir dispute, Pakistanis and Indians alike resettled. Germans after World War II resettled. Even Ukrainians who have been displaced in its current war with Russia are in the process of resettling. 

In response to Israel becoming a nation-state, the Arab nations ejected about 850,000 Jews from their lands. Talking about ethnic cleansing! Instead of claiming permanent refugee status, Israel and other Western nations absorbed those refugees. Israel also absorbed Arab refugees, which explains the Arab Israeli population of 1.7 million. Israel did so in spite of the series of wars that the Arab nations started in the hopes to wipe out the Jews. 

Every other refugee in history who has to leave their home for one reason or another finds a new home and resettles. Only the Palestinian "refugee" crisis has been perpetuated over the decades. UNRWA has been in existence for 75 years. You want to know how I know that UNRWA has failed in its mission? Because no other group of refugees has taken three-quarters of a century to get settled elsewhere. 

Even pro-Palestinian activist and blogger Ahmed Fouad Alkhatib acknowledged that UNRWA's presence [inadvertently] meant enabling Hamas to be reliant on UNRWA for governance. This, of course, means avoiding the inconvenient truths that Israel unilaterally withdrew from Gaza in 2005 and has been run by Hamas since 2007. 

If UNRWA were successful at helping refugees, UNRWA would have been dissolved years ago. The fact that it is still around only confirms that UNRWA exists to bolster Palestinian victimhood into perpetuity while being encouraged to blame Israel. By perpetuating and enlarging the "refugee" crisis, what UNRWA has done is keep the peace process more elusive while preventing Palestinians from living normal lives. As such, UNRWA should be abolished. If you want an organization to help the Palestinians, UNHCR or the World Food Programme (WFP) have a better track record than UNRWA. I will end with a quote from Spiked since they summarize the malaise so well: 

"In truth, UNRWA has helped to institutionalize a Palestinian politics of grievance, increase both local and global hatred for Israel, and provide spaces in which Gazan Islamists have been able to indoctrinate a new generation with the Jew hate that masquerades as 'Palestinian liberation.' Liberating Gaza from UNRWA ought to be at least a medium-term goal of everyone who cares about Israelis and Palestinians." 

The U.S. Needs to Grant More Green Cards to Immigrants with Advanced STEM Degrees

As we advance in the 21st century, there is a growth in technological advancement and societal change. Having current and future workers trained in various fields to help towards a better and brighter future are integral. This is especially true for the field of STEM: science, technology, engineering, and mathematics. These four disciplines will drive new innovations to help solve major challenges that we face. Whether countries have the adequate STEM workforce to move forward is a debate. 

The labor shortage that the United States is facing is going to have implications if not addressed. This is especially true in the STEM field. If a report from the National Science Foundation entitled The State of U.S. Science and Engineering 2022 is indicative of anything, it is that the United States is starting to fall behind in STEM. The United States is getting outpaced by China in terms of research papers published, patents produced, and graduating natural sciences PhD candidates. The issue with the STEM skills gap is not solely a problem in the United States. If there is indeed a shortage, then there has to a concerted effort to make sure that the gap shrinks over time. Why? An economy having enough STEM workers will be a major factor in whether a country can be a major player in the global economy this century. 

One surefire way to help close the gap, especially in the short-term, is to increase immigration of STEM workers. This is not merely based in economic theory. As I pointed out in 2017, hiring STEM workers with the H1-B visa program increases patent production, economic growth, and helps increase employment of native workers. A 2021 policy brief from the Mercatus Center shows how restricting STEM visas results either in offshoring for large companies or increases costs for small businesses that do not incentivize them to hire native workers.

There is another advantage for allowing more STEM workers into the United States: it will help the federal budget. I have sounded the alarm on the rising federal debt, most recently when the United States had yet another credit downgrade this past summer due to profligate spending. The Wharton School of Business, the premier business school, brings good news from a budgetary estimate it released last month. Exempting immigrants with advanced STEM degrees would reduce deficits by $129 billion from 2025 to 2034.

Between 2035 and 2044, it would be an even higher $634 billion. Why should we care? That sounds like the government's problem, not ours. Here is the thing. An increasing debt-to-GDP ratio means that the government has to pay more on interest payments for the debt. Per a 2023 report from the Congressional Budget Office, that would likely result in "slow economic growth, push up interest payments to foreign holders of U.S. debt, heighten the risk of a financial crisis and make the U.S. fiscal position more vulnerable to an increase in interest rates." Improving budgetary prospects means fewer debt interest payments and more economic prosperity for the American people. 

Lowering the debt-to-GDP ratio is yet another benefit of increasing immigration of STEM workers to the United States. As I brought up in December, more immigration improves macroeconomic growth, especially when this country is in the midst of a labor shortage both in the STEM field and the macroeconomy more generally. Contrary to the naysaying of nativists and other anti-immigration individuals, immigrants are not a drain on the economy. They are a net boon. The United States should not maintain restrictions on immigrants with advanced STEM degrees because it does so at its own peril.