Unauthorized Tax Revenue

September 1, 2019

by Steve Stofka

This might be a sensitive subject for some – the amount of taxes that unauthorized immigrants pay. Homeland Security uses the term “unauthorized” (Note #1). Some people prefer the adjective “undocumented” but many immigrants have adequate documentation. Some prefer to use the adjective “illegal” but the only illegal act is being in the country without proper authorization. If someone is speeding but is obeying all other traffic laws, are they an illegal driver? In most cases, they are a legal driver committing an illegal act.

 Those who defend immigrants point out that they pay taxes, so they are contributing to our society. I was curious as to how much because I have not heard an immigrant advocate offer any data. I told my trusty hunting dog, Google, to go find them facts and bring them on back to me.

First the big picture. The total Federal, State and local taxes paid in 2016 was $5,300 billion, or $5.3 trillion (Note #3). What was the share that unauthorized immigrants paid? The Institute on Taxation and Tax Policy recently estimated that they paid almost $12 billion dollars in state and local taxes. The IRS says they paid $9 billion in payroll taxes (FICA) and almost $1 billion in income taxes (Note #4). The total is $22 billion.

How do they report? They get Federal ID numbers called ITINs. To encourage compliance with our tax laws, the IRS says they do not share this information with the immigration and naturalization folks in Homeland Security. I was amazed that unauthorized immigrants would file tax returns. They are not eligible for social security benefits or earned income credits available to low income families. They are not eligible for TANF – what most people call welfare. The only benefits they are entitled to are those directed toward children – free public education and school meals, child medical care and SNAP (food stamps).

So why file? If you follow that IRS link, you’ll find that an unauthorized immigrant who shows “good moral behavior” may have their deportation proceedings waived or be eligible to apply for citizenship after ten years of residence. What is one sign of good moral behavior? Paying taxes. What is a sign of bad moral behavior and might get someone deported? Not paying taxes. Good incentive to pay taxes.

Homeland Security estimated 12 million unauthorized immigrants in 2015. In the aftermath of the financial crisis, unauthorized immigration grew by a small 70,000 per year (Note #5). In the 2000s, the influx was almost 500,000 per year, and that was a decline from the record 1.4 million apprehended at the southern border in 2000. In 2019, the number of border apprehensions will approach one million (Note #6).

Numbers like these cause Americans to disagree strongly about policy choices related to immigration. In the 1980s, in the late 1990s and again in the 2000s, the numbers were high and we argued. This time is no different. These numbers don’t include visa overstays which make up 40 – 50% of the unauthorized immigrant population (Note #7). Let’s guesstimate the population at 15 million, about 4.6% of the population. That 4.6% is paying less than 1/2% of total taxes.

We can go look at unauthorized immigrants and say that they are leveraging their taxes – paying a small amount of tax to receive proportionately more in benefit. But that is the case for all low-income people, unauthorized or not. Low-income people buy less stuff, so they pay less in sales tax. They live in lower-valued properties, so they pay less property tax. They make less money, so they pay less income tax. Those are the three primary sources of tax revenue in the U.S.

When President Trump said he wanted higher quality immigrants, he meant that he is not anti-immigrant. He is anti-poor-immigrant. Like Trump, some say we don’t need more poor people; we already have too many poor people.  Some people anticipate that their taxes will go up to provide benefits for the growing number of poor people, documented or not. Few want higher taxes to pay for services to people who just arrived in the country.

When my grandfather came to this country more than a 100 years ago, there was no income tax, no social security tax and property taxes were relatively low. The only benefit for immigrant families was public education. There were no school lunches, no food stamps, no medical care for children. Despite that, anti-immigrant sentiment was strong enough to pass a bill in 1924 that cut off legal immigration for all except northern Europeans. Our grandparents and great-grandparents were far less tolerant of immigrants than we are today.

Let’s keep some perspective. People who are concerned that they will have to pay higher taxes for benefits are not evil or uncaring. Low-income people who are worried about competition for their jobs in the construction industry are not moral slugs. Whatever your occupation, imagine that the number of people available to do that kind of work doubled in your community. How would you feel? The more the merrier? Probably not. Those workers will compete for your job and that competition will hamper any future salary increases you can expect.

We all need to admit that immigration presents complicated moral, political and economic choices. History has taught us that we don’t know how to solve this problem in a way that satisfies most of us. Each time we have to choose which side of the rope tug we are on. Each side hurls insults and curses at the other side. This is not the new normal. This is the old normal. How about if we try the new normal, sit down and hash out the difficult details of a compromise?

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Notes:

  1. Homeland Security uses “unauthorized” to refer to those in the country without proper authorization
  2. Tax Policy Center calculation of total taxes paid to governments at all levels  
  3. Estimate of taxes paid by unauthorized immigrants – PDF
  4. IRS data on payroll and income tax paid by unauthorized immigrants- PDF
  5. Estimate of unauthorized immigrants – PDF
  6. Apprehensions at the border – CBP
  7. Visa overstays – Potitifact

One thought on “Unauthorized Tax Revenue

  1. Siobhan Stofka says:

    Thanks for posting about this Dad.

    One additional point I think is crucial in this discussion is automation and AI. Andrew Yang talks a lot about it in his campaign, and I think it’s vital we discuss the realities of it. Many low income white folks seem to think that immigrants are taking our jobs, but the real threat to jobs is automation.

    Have you watched his interview on Daily Show with Trevor? So good. I had only heard his little snippets in the debates but hearing more from him was fascinating and eye opening. He’s no joke.

    Xoxo Siobhan

    >

    Like

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