Imagine a country of 146 million workers, where a massive database maintained by hapless bureaucrats determines who can hold a job. It's a place where simple statistical error alone can annually deny work to half a million of these workers, and those lucky enough to appeal the error must wait months, even years, to reenter the labor pool. Such a system would ingrain and institutionalize identity theft, cause huge distortions in the labor market, and create a netherworld of illegal employment just like prohibition in the 1920s ingrained organized crime and created a subterranean economy based on illegal booze.

Sound far-fetched? Well, it's far closer to reality than you think.

Rep. Michael R. McNulty, D-N.Y., chairman of a House Ways and Means subcommittee on Social Security, held a hearing this week on the New Employee Verification Act of 2008 (HR 1515). The act would create just such a database, maintained in Washington by the strapped Social Security Administration (SSA) and another agency you've likely never heard of, the U.S. Citizenship and Immigration Services (USCIS).

Every small business owner in the nation would be forced to participate or face stiff penalties, criminal prosecution, or worse, loss of their business license.

The legislation is an offshoot of the Department of Homeland Security's (DHS) controversial effort to toughen and enforce the government's current "no match" regulations. These regulations require employers to verify the citizenship of people they hire to avoid employing illegal aliens. The information is reviewed in Washington and if it doesn't match government records, such as SSA numbers, employers are notified.

To date, the no-match program has been a bureaucratic mess and has only been informally enforced. Typically, employers leave it up to the employee to straighten out the problem, or ignore it because penalties are light and the rules rarely enforced. In my column last August, New Immigration Regulation Will Hurt Small Businesses, I wrote about the DHS's efforts to toughen the law and impose a huge new burden on small businesses. Small business groups and unions sued, and a judge granted an injunction, forcing the DHS to examine how the change would impact small businesses.

The draconian new DHS policy requires employers who receive a no-match letter to terminate the employee or risk civil or criminal penalties, unless the discrepancy can be resolved within 93 days. In March the DHS announced that it had studied the change, found no material impact on small businesses, and began moving ahead with its plan. That spawned the current round of legislation.

Supporters of the new employee verification bill, sponsored by Reps. Sam Johnson, R-Tex., and Rep. Gabrielle Giffords, R-Ariz., include the National Federation of Independent Business (NFIB). They envision creating a seamless, Internet-based system where an employer can simply go to a central Web site, enter the appropriate information, and receive a quick response from the database regarding a potential job candidate's background.

In a utopian world, the bill might well be an improvement on the DHS's no-match program. But reality is far different. A pilot program in five states has created its own nightmarish snafus. But according to testimony at the hearing from computer experts, SSA managers, the U.S. Chamber of Commerce, and small business owners who have been dealing with the "model" program, a nationwide program would be truly Orwellian.

The pilot Employer Enumeration Verification System (EEVS) was created in 1996 to allow employers with a large volume of new hires to check their status quickly. It was launched in five states - California, Illinois, Florida, New York, and Texas - and later expanded to Nebraska. Last year, the program was updated. Legislatures in five states - Arizona, Colorado, Georgia, Missouri, and Oklahoma - voted to make the new program, called "E-Verify," mandatory.

In Arizona, which has zealously imposed the program, all employers, regardless of size, are required to use E-Verify, said Arizona business owner Mitchell C. Laird, who testified on behalf of the U.S. Chamber at the congressional hearing. Under state law, if an employer "knowingly" employs two unauthorized aliens in a three-year period, the employer's business license is permanently revoked, a "death sentence" for small businesses, said Laird. Since his company intends to hire 900 new employees this year alone, two bad hires over three years would be better than a 99.9% successful hire rate, he noted.

Despite the harsh sanctions, only 15 percent of the 145,000 state employers (or 25,000) had registered for the program as of April 2008, said John Trasviña, president and general counsel of the Mexican American Legal Defense and Educational Fund, a nonprofit group based in Los Angeles. The bureaucratic snafus that have occurred have been both comical in their absurdity and, in some instances, devastating.

Trasviña related the case of Ken Nagel, a restaurant owner in Phoenix, who recently hired one of his daughters, processed her information with E-Verify, and received a reply that she was potentially an illegal alien. In another instance, a naturalized U.S. citizen switched jobs as a car salesman and was told a few days later by his new boss that the E-Verify system classified him as a possible illegal. He was told at a local SSA office it would take up to 10 months to process the DHS paperwork. In the meantime, he is unable to find work because of his E-Verify status.

Laird noted that in his business, which operates 24 Burger King restaurants, more than 14 percent of the initial responses are something other than "employment authorized," forcing the company to begin a burdensome administrative process to clear the application. "Since E-Verify became mandatory in Arizona, applications are down. It is not uncommon for restaurants to have permanent or semi-permanent 'now hiring' signs," he testified.

As bad as that seems, the dislocations caused by a national E-Verify system would be far worse. Eugene Spafford, a professor of computer science at Purdue University, testified that SSA numbers, which would form the basis of the system, have a statistical error rate that ranges from 4 percent to as high as 10 percent, depending on the ethnic group. If the system were expanded to include all 146 million working Americans, 500,000 to 1.5 million workers a year could come under suspicion based on the statistical margin for error alone.

But the system, no matter how well it works, won't be able to detect the real problem -- identity theft. Two years ago, DHS officers raided a Swift & Company meat packing plant in Nebraska and detained nearly 1,300 workers. Even though Swift was using the pilot program, most who were illegal had fraudulent IDs. "Simply stated, unauthorized workers are using stolen Social Security numbers, fake certificates, and fraudulently obtained but 'legitimate' photo IDs to bypass the system," said human resources executive Susan R. Meisinger, who spoke on behalf of the HR Initiative for a Legal Workforce, a group that represents HR managers.

That means if the program went nationwide, the market for stolen identities (the only way to beat the "system") would soar. "E-Verify does not verify the authenticity of the identity being presented for employment purposes, but rather only that the identity presented matches information in the Social Security and Department of Homeland Security databases," Meisninger explained.

In the most bizarre twist of all, the program would be dumped on the SSA, which is already overburdened and suffering from seven straight years of budget cuts. For example, a wounded veteran returning from Iraq now must wait, on average, 517 days to get a hearing on a disability claim appeal, said Greg Heineman, president of the National Council of Social Security Management Associations, which represents SSA managers.

The U.S. Government Accountability Office estimates that it would cost more than $1 billion to implement the program over four years and would require hiring nearly 1,000 new government employees. But even then the SSA would be overwhelmed. More than 80 million baby boomers are just beginning to enter its system.

If anything, the debate over the bill and the DHS's no-match regulations shows just how distorted and desperate the debate has become over immigration policy. The right to a job is fundamental to the nation's continued growth and prosperity. To put the fate of millions of legitimate workers in the hands of federal bureaucrats is a high price to pay, not only in the cost it would impose on all businesses, but in the cost to our fundamental liberties. There has to be a better way.