Don't Mess With Taxes

It’s not unusual, especially here in Texas, for undocumented workers to be employed in industries that depend on manual labor, such as agriculture or construction. (Photo by Zohair Mirza on Unsplash)

“They’re eating the dogs” is now forever part of U.S. presidential campaign lore, for worse or worst since there’s no better take.

Following Donald J. Trump’s exclamation of a false social media rumor of pet deaths in Springfield, Ohio, during his Sept. 10 debate last week with Kamala Harris, the municipality about half an hour northeast of Dayton has encountered much unwanted attention. It has included bomb threats to schools and the local hospital, as well as increased activity by rightwing white supremist groups.

The city’s Haitian community is target of these threats. These residents are legal immigrants, and according to local reports have helped revive Springfield’s previously struggling economy.

Immigration policy point: But the damage has been done, and is continuing. As is his wont, Trump won’t let go of a topic that he’s embraced. Now he’s using the rumor to highlight his overall anti-immigration position.

Obviously, he is not alone. And even those with less strident views of immigrants agree the U.S. immigration policy needs to be reworked. A recent effort to do that was derailed during this last furious push to Nov. 5, when Trump successfully persuaded Republicans on Capitol Hill to kill a bipartisan Senate bill that would have bolstered security along the U.S.-Mexico border.

A major argument for immigration reform and against individuals who enter the United States without proper authorization is that providing them services costs the country billions in added services at all levels of government.

That cost, however, is offset somewhat by those same undocumented immigrants.

Paying their way in taxes: A recent report from the Institute on Taxation and Economic Policy (ITEP), a left-leaning think tank, shows that undocumented immigrants actually do pay at least part of their way.

A notable part, in fact.

Undocumented immigrant workers pay more than a quarter, about 26 percent, of their income in taxes. That’s about the same as the median U.S. taxpayer, according the ITEP report.

In dollars, that comes to $96.7 billion, or roughly $9,000 per person, that was collected in taxes from undocumented workers in 2022. Most of that nearly $98 billion, or $59.4 billion, was paid to the federal government. The remaining $37.3 billion was paid to state and local governments.

Those amounts come from undocumented immigrants’ payments of sales and excise taxes, property taxes paid directly or on taxes folded into rent payments, and payroll taxes collected through paycheck withholding or by the workers’ filing of income tax returns.

And yes, many immigrants who don’t have their official paperwork, do file taxes using an Individual Taxpayer Identification Number, or ITIN. These nine-digit number tax identifiers, issued by the Internal Revenue Service to eligible applicants who file Form W-7, are used by people who need to file a federal tax return, but who aren't eligible for a Social Security Number. This means, among others, undocumented workers.

Several tax professionals I know in South Texas work with undocumented taxpayers to help them meet their federal (since there's no state tax in Texas) tax obligations. These filers, say my tax pro pals, want to contribute to the place they now call home. Plus, their tax compliance also could help them attain legal status if/when immigration laws are changed.

And the IRS is fine with that. As the tax agency often points out, its job is not to verify immigration status, but to collect taxes. Whether the filers use Social Security numbers or ITINs makes no difference to Uncle Sam.

Millions of tax-paying undocumented residents: Nearly 11 million undocumented immigrants lived in the country as of the latest count in 2022.

Texas is one of the main states, along with California, Florida, and New York, where undocumented immigrants live, according to the ITEP report. Six states received more than $1 billion in tax revenue from their undocumented residents. The state and the taxes received are —

• California with $8.5 billion,
• Texas with $4.9 billion,
• New York with $3.1 billion,
• Florida with $1.8 billion,
• Illinois with $1.5 billion, and
• New Jersey with $1.3 billion.

The ITEP report also notes that in 40 states, undocumented immigrants pay higher state and local tax rates than the top 1 percent of households living within those borders.

That is due to, in part, the laws that require them to pay more than otherwise similarly situated U.S. citizens. Undocumented immigrants are often barred from receiving meaningful tax credits, such as the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC).

They also sometimes do not claim refunds they are owed due to lack of awareness, concern about their immigration status, or insufficient access to tax preparation assistance, notes ITEP.

Legal status would help immigrants and Treasury: If these workers had legal immigration status, says ITEP, in addition to easing their tax burden, the move also would increase their tax contributions.

First, income tax collections would increase because legal status would lessen barriers to complying with existing tax laws, according to ITEP.

“Second, the data demonstrate that immigrants with employment authorization earn higher wages than undocumented immigrants. Greater access to job opportunities and higher-level education would provide immigrants with the opportunity to earn substantially higher wages which would have the effect of raising taxable earnings, consumption, and property ownership,” adds ITEP.

In dollar speak, ITEP estimates that providing access to work authorization to the currently undocumented population would boost their overall tax contribution by $40.2 billion per year, going from the current $96.7 billion to $136.9 billion. Most of that increase, or $33.1 billion, would be due to higher federal tax payments. The other $7.1 billion would occur through higher tax payments to states and localities.

The full report and ITEP’s analysis has many more numbers, dollar and otherwise. But this weekend’s By the Numbers figure is the $96.7 billion collected in taxes from undocumented workers in 2022.

You also might find these items of interest:

• The truth, or not, about immigration
• Taxes paid by undocumented workers
• DREAMers, other undocumented workers make major tax contributions to Uncle Sam, state treasuries
• Tax identity theft solutions get complicated when Social Security, undocumented immigrant tax ID numbers meet

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