Donald Trump wants a certain kind of immigrant: the uber-rich
Summary
He is right that America’s current “golden visa” is under-priced
IN HIS LOVE of lucre Donald Trump can be crass. In their pursuit of efficiency, free marketeers can be, too. Consider the sale of citizenship. Most people dislike the idea of treating national belonging as a commodity. Yet about a dozen countries hawk passports and more than 60, including America, offer residency in exchange for an investment or donation. Its “golden-visa" scheme is cumbersome, under-priced and inefficient. On this point the president and the market agree.
Mr Trump intends to raise the going rate for a golden visa to $5m. Beyond price, details about his forthcoming “gold card" are hazy. Will the $5m be a donation or a recoupable investment? The commerce secretary, Howard Lutnick, says it will go towards paying down the debt, implying the former.
The visa will allow permanent residence with a route to citizenship. Incredibly, Mr Trump says recipients will not have to pay tax on income earned abroad—an exemption unavailable to citizens and green-card-holders. The Department of Government Efficiency is reportedly building software to administer it. When the card will arrive is anyone’s guess. For now it is talk: Mr Trump has signed no executive order to launch the scheme; lawyers suspect Congress would need to authorise it.
Setting aside whether the president can singlehandedly dispense the cards, his proposal raises questions. The Trump team says it can sell 1m, raising $5trn. That would be a colossal amount, enough to pay off about a seventh of America’s debt. Mr Lutnick says the target market is the 37m people who can afford the card globally. Is that for real?
Immigration lawyers contacted by The Economist say they have had lots of inquiries. Plenty of people will pay good money to live in America. The current golden visa, known as EB-5, is hugely over-subscribed. This suggests America is underpricing itself.
Like most such schemes elsewhere, EB-5 requires an investment, which starts at $800,000 and can be recouped. The programme caps visas at 10,000 a year. Demand is highest among Chinese and Indians. Since applicants queue by country and each country gets the same allocation, China and India have the biggest backlogs. Chinese people can wait ten years for a visa; Indians wait five.
America’s government could get a better deal from EB-5: it is a sop to the real-estate industry more than a boon to public finances. Investments are structured as low-interest property loans and each has to create ten jobs—a provision that helped make the scheme palatable to Congress. Investors accept paltry, below-market returns (typically between 0.5% and 1% on invested capital) as the cost of the visa, says Madeleine Sumption of the Migration Observatory at Oxford University. In America, it is a gravy train for developers and middlemen.
Mr Trump is right that some foreigners will pay more for speed and ease, and that donations to the Treasury would make a difference to public finances. Small island states (some Caribbean countries, Malta, Vanuatu) make a killing on passport sales. There they can represent a double-digit share of government revenue, notes Kristin Surak at the London School of Economics. The impact of the gold card in America would be smaller, but still substantial.
That said, the forecast of 1m sales looks as misjudged as a fur stole on a sweaty night at Mar-a-Lago. The immigration-investment industry’s rule of thumb is that clients should not tie up more than a tenth of their net worth in an investor visa. That means gold-card applicants would need to be sitting on at least $50m. There are only about 100,000 such highfliers globally and most are already in America, says Dominic Volek of Henley & Partners, an adviser to the footloose ultra-rich. To find the optimal visa price Mr Trump could run an auction, but he is not suggesting that.
The tax issue is a big unknown and it will be decisive. Mr Trump’s promise to exempt income that gold-card recipients earn elsewhere would be a huge draw. If not for the tax liability, demand for an EB-5 would be even higher. But a carve-out would prompt howls from everyone else. Congress would have to change the tax code. That seems unlikely. Not granting the tax exemption would temper demand.
All told it is hard to imagine tens, let alone hundreds, of thousands of millionaires each year paying a hefty sunk cost and high taxes just to skip the queue. Mr Volek expects just a couple thousand gold-card applicants a year at the price of $5m. There are cheaper ways for rich people to get to America: some can get an E-2 visa by investing in an American company; company owners can open a subsidiary and transfer on an L-1. And though Mr Trump says his gold card will replace EB-5, that is inscribed in law until 2027.
People in the industry say that demand for golden visas is rising from the other direction: from outbound Americans. This will probably pick up if Mr Trump fosters instability or tanks the economy, says Mona Shah, a British lawyer in New York. “Personally, I’m feeling it as well," she sighs. “I still miss Europe." As it happens, an EU passport courtesy of Malta goes for around €1m ($1.1m).
