Post Pandemic, Congress must Phase out H1-B Work Visas

Studies show that almost 2 million H-1B visas have been distributed between 2000 and 2019. 

The H-1B visa program allows employers to hire foreigners to work in jobs that require highly specialized knowledge and a bachelor's degree or higher. The current annual cap, as set by Congress, is 85,000. Though it's a temporary non-immigrant visa (valid up to 6 years), tens of thousands have been allowed to adjust to permanent status with green cards.  

How to Reduce Dependence on H-1B – A 5-Point Solution...

1. Provide corporations significant Tax Benefits to hire local STEM graduates. Instead of incentivizing US corporations to hire more H-1B workers, the federal government should allow them considerable tax incentives to engage the local STEM (Science, Technology, Engineering, and Math) graduates at the prevailing rate. This particular tax incentive should last, say, up to five years (or the employee's longevity, whichever comes first), thus vastly negating the incentive to hire foreign workers at a reduced rate. This tax incentive will also encourage future STEM students, foreseeing a fast-leveling playing field. Without this assurance, it would be challenging to entice local students to venture into the STEM field. Today, the qualified American workers are training their far-less skilled foreign counterparts to take their jobs. 

2. Introduce higher educational qualifications for H-1B applicants. According to the Congressional mandate, 65,000 H-1B applicants need only bachelor's degrees while another 20,000 require master's or higher. Unfortunately, a bachelor's degree in SE Asia (which accounts for 80%+ applicants) is not equivalent to a US bachelor's. To effectively meet the US standard, Congress should consider transposing the degree requirements, meaning 65,000 applicants with master's + and 20,000 with bachelors. It makes no sense to displace a truly qualified American degree-holder with a much less capable foreign degree-holder. That is why the replacement wages tend to be much lesser for foreign workers. Since H-1B is meant for the highly skilled foreign workers, Congress should gradually move to an all master's + requirement, at least leveling the playing field.

3. Until Higher Educational Requirements are established, Congress must insist on degree evaluation by the ETS (and other entities). While Congress debates on upping the ante on degree requirements, it must require that the foreign degrees are adequately vetted and evaluated. The well-known education evaluation organizations like the Educational Testing Service (ETS) should perform the necessary vetting, forcing the sponsoring organizations to prove that their candidates satisfy the US educational requirements. This independent yet straightforward step will surgically (identify and) disqualify many applicants from the export-oriented private schools as they will not meet the US degree requirements. Ideally, Congress must additionally require all applicants to pass a US-administered standardized test (good for three years), along the lines of Foreign Medical Graduates Exam (FMGE). 

4. The Sponsoring Companies must be incentivized to recruit Foreign Students Graduating from major US Universities first. International students graduating from the major US Colleges and Universities are more valuable candidates for these unfilled jobs than their all-foreign counterparts. There are other advantages to this hiring approach too:

(a) No need for the equivalency assessment;

(b) Since the vast majority of them undergo internship or practical training in the US, they are already used to the requirements of the American workplace and work ethics;

(c) Graduates from the major US schools are at least as good as the best and brightest from foreign nations;

(d) They will command the prevailing wages, negating the arbitrage described above that many sponsors have been trading on;

(g) Better English proficiency (both verbal and written) and so forth.

5. Let the Annual H-1B Quotas steadily decline as we promote STEM Education. If we switch to merit-based immigration, H-1B will be a thing of the past. Whether that comes to pass or not, the rapid and aggressive promotion of STEM education will steadily lower the quotas. Hopefully, the current 85,000 level would decline by 20,000 annually, leading to a total phase-out in 5 years. If we can promote STEM education in keeping with the labor force's needs, this phase-out could take place even sooner. Of course, the promotion (of the positives) of STEM education must start early in high school so that students are always in the know of the unrestricted domain of opportunity the STEM universe offers. 

Stay safe!

-Sid Som

homequant@gmail.com

Post Pandemic, Student Loans must be Labor-force Friendly

According to the recent PISA scores, which measure the necessary skills (reading, math, and science) of 15-year-olds, the US ranked 30th in Math among the 38 OECD countries – nothing to write home about, right? We need a sea change in the way our colleges work. In doing so, we need to rethink and reinvent the qualification criteria for student loans. Here are some suggestions: 

1. Interest Rates on Student Loans must be tied to SAT Scores and APs. Obtaining student loans should be no different than securing home loans. Let's face it: Two prospective homebuyers (mortgage applicants) with 600 and 800 FICO scores, respectively, will be offered vastly different mortgage interest rates, down payment requirements, and origination fees (points) by the same bank. Similarly, interest rates on student loans should be a function of the SAT and AP scores (these are comparative metrics while the general academic records aren't). Those scoring 1,580 (out of 1,600) on the SAT and complete six APs with all 5's must be eligible for a much lower interest rate than their counterparts scoring 1,300 on the SAT completes three APs with all 3's. This merit-based system will incentivize everyone to do well academically from the get-go, making the loan program a student loan scholarship program.

2. Sallie Mae must publish SAT/AP-based Student Loan Rates to provide Transparency. Sallie Mae, the largest student loan provider, and other large providers like Citi, Nelnet, Wells, etc. must develop and publish SAT/AP-based rates to educate students regarding high scores' advantages. If the high school students (starting in sophomore) are taught that high score equals low rates, they would be working harder, thus gradually bumping up the curve, making the system globally more competitive. Of course, unlike mortgage rates that change daily, the proposed SAT/AP-based student loan rates would be revised annually based on the new data trends (i.e., improving scores). Hopefully, the rate chart would be prominently displayed in all high school cafeterias as a constant reminder that a little extra push would go a long way. 

3. Interest Rates on Student Loans must be Significantly Higher for Lateral education (education for the sake of education). When students stay back in schools and continue to take unrelated courses aimlessly (e.g., 2nd/3rd major or 2nd Master's, etc.), lenders must discourage such loans by charging significantly higher interest rates related to those credits. If students plan on co-concentrating (e.g., finance and applied math), they must declare their intention right at the outset while applying for loans, thus locking in their preferred rates throughout the period, as well as to avoid having to pay a significantly higher rate down the road for the "co" in the form of a second major. Frequently, meaningful co-concentrations help job-seekers narrow down the competition. Likewise, many employers prefer those graduates as they bring in genuinely complementary knowledge.

4. Interest-free Student Loans must be provided to All STEM Candidates. Instead of enticing foreign STEM graduates with visa adjustments, we must learn to nurture our own. And, it must start with an awareness movement in the middle and high school. At the core of this movement lies the marketing of the female students' awareness in that they have "equal access" to this career domain. Until and unless our young ladies are convinced of equal access, we will have no choice but to depend on the foreign employees. In promoting STEM education, teachers and counselors must also explain to the students that 10's of thousands of STEM jobs remain unfilled and, as a result, our "volume" employers are forced to hire foreign employees to fill in those slots. Interest-free student loans could be a big incentive to entice more students to look into this colossal career domain. 

   

5. Ideally, a moratorium on student loans is needed for business and humanities majors. Due to the easy access to student loans, far too many students – relative to the aggregate market demand – continue to major in business and humanities, resulting in significant disguised unemployment all across the country, arguably reaching a point of moral hazard. To reduce the incidence of such disguised unemployment, we need a moratorium on such student loans for some time, at least 5 to 7 years, thus allowing enough time to get the excess market supply meaningfully absorbed while the wage level rises back up to the point of equilibrium. Absent student loans for business and humanities, only a small percentage of the future student population –- mostly from the well-to-do families and foreigners –- will opt for these majors. 

Last but not least, STEM Students in State Schools must qualify for Financial Aid ahead of all others. In addition to interest-free student loans, STEM students must receive financial aid ahead of their counterparts. Given the urgent need for STEM graduates in our economy, it does not make much sense to treat all economic needs equally. At this point, college education must be compared with and treated like government services, meaning essential education (like essential government services) must always receive higher weights and protections than the not-so-essential education (like non-essential government services). 

Simply put, STEM education must be declared, protected, and promoted as "essential" education. Ceteris paribus, the qualified STEM student population, must get the first shot at the pool of financial aid, and the residual will then be distributed to the other disciplines depending on the needs of the labor force. 

Again, it's high time that we make our student loan programs more labor-force friendly. Our students deserve better.

Stay safe!

-Sid Som

homequant@gmail.com 

Coronavirus Pandemic – Second Wave in Europe Elevates Death Tolls

On the heels of a massive second wave, the original hardest-hit European countries -- Belgium, France, Germany, Italy, Spain, and the UK -- have been facing rapidly-rising death tolls too.

(Click on the image to enlarge)

The above graph shows the death toll in Belgium was virtually non-existent in August. The average daily death toll in August was 6, rising to 37 in October, which is an astounding sixfold jump in two months. Worse yet, in the last seven days, the average has rocketed to 78.

(Click on the image to enlarge)

The trend in France has been very similar to Belgium. In August, the daily death toll averaged 14, tripling to 45 in September, and further tripling to 137 in October. The average in the last seven days has been a whopping 248. The 7-day moving average confirms spectacular growth. 

(Click on the image to enlarge)

Though Germany has been experiencing the same second wave, the death toll thus far has not been as dire as its counterparts. The fact that the upper limit of the Y-axis here is 90, compared to France's 300, shows its lack of comparative severity. Still, the daily average went from a mere 5 in August to 27 in October. Unfortunately, in the last seven days, the average escalated to 52, pointing to a rougher period ahead.

(Click on the image to enlarge)

The Italian trend has been as awful as that of France; for example, the daily average rocketed twelvefold, from a mere 6 in August to 72 in October, speaks volumes. Again, the average in the last seven days has been a horrible 152, with the previous two days registering over 200 apiece. Even the 3-day moving average slope not only confirms this skyrocketing trend, but its exponential tilt at the outer end makes public health officials wonder if they would return to the horror days of March and April. 

(Click on the image to enlarge)

Spain's scatter plot shows that the recent death trend is not just a passing show -- it's a renewed horror, or at least in the offing. August's daily average of 32 has grown to 132 in September and rising further to 174 in October. Since Spain doesn't report the weekend figures, the data points are somewhat asymmetric.

(Click on the image to enlarge)

The outbreak in the UK is very similar to Italy. After an extended pause, the new wave emerged, and within a short period, it took over like wildfire. The August daily average of 10 has grown to 126 in October, and in the last seven days, it has soared to 217, triggering new worries for the public health officials.

(Click on the image to enlarge)

The regression between the two most contrasting outbreaks and resulting deaths already has a linear relationship in the making, as evidenced by the moderately high r-squared value of 0.673. 

Despite the existence of the social mitigation measures and minimal cross-country air travel, these countries face rising deaths, causing more uncertainty of the winter months ahead. 

Data Source: https://en.wikipedia.org/wiki/COVID-19_pandemic_in_France

Stay safe!

-Sid Som

homequant@gmail.com

Post Pandemic, Congress should Replace Income Tax with Middle-class Friendly Progressive Consumption Tax

Under the existing income tax system, the top 1% pays 40% of all federal taxes. According to the Tax Policy Center, 44% of Americans will not pay any income taxes this year. On the other hand, Warren Buffett claims he has a lower tax rate than his secretary does. While much buzz was created about the carried interest, nothing has been done yet, and as a result, hedge fund billionaires continue to enjoy one of the lowest tax rates. According to Fortune, "Amazon will pay a whopping $0 in federal taxes on $11.2 billion profits." 

These different scenarios demonstrate how irrational the US Income Tax system has become. Therefore, it's high time that we replace the personal income taxes with a set of middle-class friendly progressive consumption taxes.

Of course, the one-size-fits-all consumption tax – which was proposed before and was justly unsuccessful – is inherently regressive, as poor and middle-class folks tend to spend a much higher percentage of their incomes than the rich people. 

Yet, the consumption tax could be an ideal replacement for the current income tax, as long as it is progressive. How? Quite simple – all non-food goods and services must be broken down into three progressive tax categories: Basic, Luxury, and Ultra-luxury. While the basic type will have the lowest tax rates, luxury and ultra-luxury will carry progressively higher rates. For example, the national sales tax rate (atop the state and local sales taxes as it replaces the federal income tax) for basic, durable goods (e.g., appliance) could be 2 to 3%. In contrast, luxury and ultra-luxury could carry 5% and 10% rates, respectively. 

The lower rates for the basic category will advantage the middle class. Simultaneously, the rich will be happier to pay higher national sales taxes in place of their disproportionately higher share of the federal income taxes (case in point: the top 1% pays 40% of all federal taxes). 

While a host of progressive consumption taxes could be thought of and implemented, here are some basic ones:

1. National Sales Tax on Basic and Luxury Durable Goods – To save, say $5K to $5M on annual income taxes, taxpayers would be amenable to an additional national sales tax – obviously atop the current state and municipal sales taxes – on durable goods. Unlike income taxes, consumption taxes are more humane, meaning families can budget or plan for these expenditures. Since the basic, durable goods impact the poor and middle class, the rate must be lower, say 2% to 3%, followed by progressively higher rates on luxury durable and ultra-luxury durable goods generally demanded by the rich. For instance, all appliances under $10K could be the basic, $10K to $20K being the luxury while over $20K being the ultra-luxury category, with progressively higher rates. 

2. National Sales Taxes on Million dollar-plus Home Sales – Since the rich and ultra-rich owning the upscale and expensive homes will be big beneficiaries of the phase-out (followed by no income taxes), the million-dollar-plus home sales must be subjected to the additional progressive national sales taxes. It must not be a one-size-fits-all blanket rate. Instead, it must be progressive, for example, sale price $1M to $2M @5.00%, $2M to $3M @5.25%, $3M to $5M @5.75%, $5M to $10M @6.00% and $10M+ @6.25%, etc. At the individual level, unlike the income taxes, these sales will impact them once in a while, thus a far preferable option than the high annual income taxes they have been paying. 

3. National Sales Tax on Luxury Hotels (4 and 5-Star) – These hotels are primarily for the corporate executives and rich folks, so an additional 5-6% national sales tax will not harm the hotel industry. These hotels might even use this sales tax as a promo ("We Will Pay Your National Sales Tax") to compete for the traffic during off-peak seasons. A vast majority of these hotels have medium-to-large convention centers – seasonal to round-the-year – so convention center sales surtax could be an ancillary surtax. The hotels that are run as resorts must be subjected to an additional resort sales surtax. Similarly, all private golf courses must have additional surtaxes. 

4. National Sales Tax on all Luxury Air Travels, Amtrak, Vacation Cruises, and Car Rentals – Business and first-class air travel, both domestic and international, is primarily for the corporate executives and rich folks, so an additional 5-6% national sales tax will not harm the airline industry. Similarly, those who spend thousands more on luxury and ultra-luxury vacation cruise suites can afford an additional 5-6% national sales tax, and it won't harm the cruise industry either. International cruises coming to the US shores may be subjected to additional port charges. Luxury cars, charter flights, and private jet rentals must carry sizable luxury and ultra-luxury national sales taxes. 

5. National Sales Tax on Unhealthy (processed) Foods and Beverages – It's about time that the health-conscious folks are not forced to subsidize those who live off junk foods and high-calorie beverages. This is a (preventive) health issue, and, hopefully, this national sales tax will save citizens billions in health insurance premiums down the road. The parallel case is equally compelling: Today, smokers pay a hefty price for their lifestyle (significantly higher taxes on their lifestyle products and higher premiums on life and health insurance, etc.). While we must not take smokers' choices away, the rest of us must not finance their lifestyles either. 

While progressive consumption tax is poor and middle-class friendly, the rich would also welcome the idea of considering the trade-off. Of course, well-studied tax rates will be needed to make the switch revenue-neutral, even revenue positive.

It's about time we return control to taxpayers!

-Sid Som

homequant@gmail.com

Post Pandemic, Congress should Introduce Medicare at 62

There is no denying that the pandemic will bring about significant changes in many aspects of our lifestyle, including the decision to opt for early retirement. Unfortunately, while the first qualification age to trigger Social Security benefits is 62, the qualifying age for Medicare is 65 (with certain exceptions), thus forcing millions of willing retirees to wait until the Medicare kicks in at 65 to avoid having to walk into the expensive COBRA/health insurance trap. Therefore, Congress should seriously consider lowering the Medicare age to 62 for all Social Security-eligible employees to allow and incentivize early retirement. So, what are the potential advantages? Let's consider these:

1. The Simultaneous Trigger of Social Security and Medicare at 62 will allow Willing Employees to Retire from "Full-time" Workforce at 62 – This will free up millions of jobs. Again, to qualify for the proposed "Medicare at 62," one must simultaneously trigger the Social Security benefits at 62, thereby ensuring permanent retirement from the "full-time" workforce. Of course, if one decides to return to the full-time workforce later, one must return all of the benefits earned (in line with the current Social Security law). Should the new retirees, from time to time, need to supplement social security incomes, they will have access to many of the part-time jobs the recent graduates would leave behind, leading to a very healthy and complementary continuum. 

2. The Simultaneous Trigger will Open up Millions of Jobs for New Graduates – Since most people retire from "long-held" jobs, those jobs tend to be "career" jobs. Most companies try to fill the long-term career jobs with new graduates, via their 1-to-3 year training programs (e.g., engineer trainee, management trainee, analyst, and research trainee, marketing trainee, etc.). Also, in today's fast-changing technological environment (as AI and Robotics have already taken over), the new engineering graduates are far more critical for the labor force than their senior counterparts, most of whom need extensive retraining. Therefore, the simultaneous trigger will allow senior employees, unwilling to be retrained, to take the early retirement and move on.

3. The Lower Replacement Wage will help Hire More New Graduates – By sheer longevity, the retirees usually command some of the industry's highest salaries. Since the new graduates would be hired at significantly lower wage levels, the replacement ratio might be higher, perhaps three new hires for every two persons retiring. Even if a small percentage of this group, say 20%, is enticed to retire at 62 every year, an unprecedented job boom would be in the offing. Now, add the higher replacement ratio to it, and it's an unparalleled boom plus!

4. The New Generation of Early Retirees will significantly Boost Leisure, and Recreational (Adult Lifestyle) Industries – The creation of this new generation of early retirees with significant disposable income will provide a big boost to the leisure/travel and recreation industries as a whole. From vacation homes to new cars to hospitality to airlines to Amtrak to cruise-lines to recreation vehicles (RVs), etc. will all benefit from this new-found economic class. The arrival of early retirees might help smooth out off-peaks leading to year-long consistent and predictable traffic patterns.

5. The Job Boom among Millennial and early-Gen Y will provide a Gigantic Boost to their Lifestyle Industries – While the early retirees will bolster spending in Leisure, the counter-story could be as exciting as well. Considering the millennial generation and early-Gen Y (born between 1995 and 1999) will fill in the vacancies to be left behind by their senior counterparts, their enhanced spending power will be a big boon to the (trendy) lifestyle industries like techs and gadgets, fashion and professional garments, alternative health and beauty, etc. The housing industry will see the beginning of a new replacement cycle.

Fast-growing mid-range companies do not necessarily compete for the top talents as they are generally competed away by the large-cap companies. This new job boom, resulting from the departure of early retirees, will see massive growth in high-paying career jobs, potentially trickling down to mid-to-smaller companies over time, making them more competitive in the global marketplace. 

The higher replacement ratio -- three new entrants for every two retirees -- will most probably make the program revenue-neutral, if not revenue positive, but cost-sharing could help manage any temporary shortfall. Early retirees would be responsible for part of the additional Medicare costs as cost-sharing; for example, 15% pass-through at 62, 10% at 63 and 5% at 64, etc.. Even if it comes down to some cost-sharing, it would still be a far better option than the COBRA or individual insurances. On the positive side, in a cost-sharing event, the participating HMOs (most likely) might offer to pick up the tab to shore up their enrollments. 

Again, since the pandemic is expected to reshape our lifestyle, especially the 60+ population in this country, Congress should seriously consider lowering the Medicare Age to 62. It's a no-brainer!

#MedicareAt62

-Sid Som

homequant@gmail.com

Post Pandemic, Congress should Introduce Universal Basic Income (UBI)

Under a Universal Basic Income (UBI) plan, the federal government will pay a monthly stipend to each adult citizen irrespective of their needs or circumstances. The growth of Artificial Intelligence and Robotics has prompted many Silicon Valley leaders and other celebrities to raise UBI's issue as a countermeasure to this emerging threat to the American labor force. Former presidential candidate Andrew Yang even made the UBI the centerpiece of his campaign, labeling it a 'Freedom Dividend.' Here are some of the apparent reasons why Congress should seriously look into it:

1. The UBI plan will incentivize early Retirement – Though the eligible people can activate Social Security at age 62 and retire, the vast majority of them are unwilling to do so due to the reduced qualifying income. Since the UBI plan will not interfere with the social security income, those willing-to-retire-early folks would welcome this supplemental income and seriously consider the move. 

2. The UBI plan will Create a new generation of young Entrepreneurs – Millions of young people, especially college students, have forward-looking business ideas. Still, they generally go nowhere with their brilliant ideas as they lack the start-up capital. The UBI plan will empower them to move forward with their ideas, knowing that this is not a one-off stimulus. The perennial monthly UBI (could be higher over time with adjustments for CLI) would allow them to allocate a portion of their business income while taking on fewer student loans, reducing the usual mental and financial stress. 

3. The UBI plan will turn Stay-at-home moms into a new generation of Home-based Entrepreneurs – Stay-at-home moms would be one of the program's big beneficiaries. Most of them have the time but not the capital to invest in bringing their entrepreneurial dreams to reality. Now, with the new-found capital, their lives would be financially lifted to the next level. Since women tend to be better money managers, they would better allocate the money between family and business, adding a whole new dimension to the economy.   

4. The UBI plan will do yeoman's service to Inner City Youths – The inner-city youths in America are severely deprived of essential economic opportunities, resulting in higher drop-outs from high schools. The UBI plan would entice them to stay in schools, opt for college education, and compete more effectively. Minority youths, especially African-American youths, would see the leveling of the playing field. In no time, the enterprising youths would pool their resources together and take the entrepreneurial plunge, pulling their neighborhoods and communities out of poverty. 

5. The UBI plan will immensely help seniors currently living off Social Security incomes only – Today, millions of seniors live off social security incomes only, which sometimes are below the national poverty level, despite having worked and paid taxes all their working lives. It would be the saving grace for those seniors living month-to-month off the social security incomes. Using a typical proposal of $1,000/mo., the additional $2,000/mo. (for two seniors) would lift them out of the poverty threshold. 

The new $10K SALT cap has been hurting the rich folks in high tax states. Therefore, the government should offer a deal whereby those rich folks would give up the monthly UBI in exchange for a correspondingly higher SALT cap. Right now, the cap has been severely impacting specific housing markets, making them very illiquid. The higher SALT cap could make those housing markets a bit more liquid.

Again, the UBI is a plan to fend off poverty and unprecedented calamities. The merits are numerous and multi-faceted. It helps the poor. It helps the middle class. It even helps the rich in specific scenarios. Last but not least, it would be growth-financed without having to tax and spend.

Stay safe!

-Sid Som

homequant@gmail.com