Blasé Capital H-1B : GAINS vs PAINS

Both the pains and gains of H-1B visas, which allow foreign skilled workers to enter the US are well-documented. We know the pitfalls and benefits, and we can believe in either depending on whether we believe in ‘America First,’ or ‘Economy First.’ However, a recent study figures out the financial gains to the federal and states’ kitty from H-1B households, even as it seems to advocate stricter rules that are, or will be imposed, by the US policy-makers. It calculates how much such families contribute to the public finances on a net basis. The research was conducted by a duo that includes an economist, and a Texas senator, who was a former judge. The overriding conclusion is that the H-1B households contribute “significantly more” to public finances compared to an average American family across states. Thus, it is in America’s interests to keep encouraging immigration inflows.

On an average, an H-1B household adds a net fiscal contribution of just over $30,000 at the federal level. This is 2.6x higher than the figure for an average American family, which is $11.500. At the state and local levels, say the researchers, the H-1B contribution is more than $5,000 per household, and the figure is positive in 49 states in the US. According to a media report, “H-1B households were found to generate positive fiscal balances in almost every state. Even lower-income states, like Mississippi, see substantial gains, with an average net contribution of $4,600 per household, which is higher than that of 21 other states.” Hene, the fiscal benefits are not limited to the higher-income states. Obviously, the figures should not be compared, or may be comparable because it may be a case of matching apples with oranges.

In the case of H-1Bs, a high-skilled foreign employee with a higher-then-average salary, who logically pays higher taxes, is being compared to an average American family, which includes the poor, who either pay zero or minimal taxes. In addition, the spouse of an H-1B visa holder, is generally educated, can find decent employment if allowed, and earn a higher-than-average salary. The latter may pay higher taxes. A better research approach may be to compare the contributions by H-1Bs may be to compare H-1B families with skilled middle-class American homes, where the collective household salaries are similar, and maybe the tax outgoes too. In the case of India, the comparison in the research may be akin to comparing the salaries of expats who work in India with the average working salaries. It is obvious that the former, if she pays taxes in India, will contribute more than the latter.

What is pertinent is that the two researchers do not use the conclusions related to financial implications with an advocacy to encourage H-1Bs, as is logical to assume. Instead, they contend that the new restrictive changes in the earlier visa regime, and the inclusion of potential policy changes in the future, may further increase the contributions. From March 2026, according to experts, instead of the random lottery system, H-1B applicants will be selected due to salaries. The higher the pay of an applicant the better her chance of getting a visa. “Allowing all H-1B spouses to work, and changing the lottery to a wage-based system could increase the federal tax benefit to over $65,000 per household, and may raise the average state benefit to more than $10,500,” stated a media report. In effect, the cumulative will go up from $35,000 per family to more than $75,000, or an increase by more than 2x or 100 per cent.

One cannot discount the fact that an increase in visa fee to $1,00,000, if it remains, and the shift to salary-based entry may reduce the inflows. Firms that routinely apply for the visas, especially Indian software ones, may reduce the dependence on them. This has begun to happen, not over the past few months but over the past 1-2 years. The new changes will further propel the firms not to send employees to the US because wage arbitrage is the biggest incentive for H-1Bs. If the firms need to send higher-paid employees, or senior executives, the economic purpose for them to use the visa regime vanishes or reduces. In addition, the new policies may bring back the illegal and semi-legal practices of the past, when Indian applicants paid money to the brokers and middlemen to get the visas, and hoped that the higher salaries they earned in the US would aid them to save, and make up for the initial expenses. For example, Indian firms may insist that an applicant indirectly cough up the $1,00,000 visa fee if she wishes to go to the US.

According to media reports, the new research “builds on previous research, and focuses on the 3-6-year period of H-1B visas rather than lifetime contributions.” As the study notes, “Existing research… tends to focus on immigrants’ lifetime contributions. The report, conversely, shows how H-1Bs contribute during their three-to-six-year visa periods.” What the researchers possibly imply is that looking at the shorter span, which is the visa period, enhances the average contribution. Hence, it argues for the new policies, where the possibility to further enhance the financial contributions exist.