How Much Do Undocumented Immigrants Pay in State and Local Taxes?

Written by on April 21, 2015 in Economics, Tax Contributions with 9 Comments

8265180385_84e11fbc87_kUndocumented immigrants contribute to the U.S. economy in many ways. They fill essential jobs, they sustain U.S. businesses through their purchase of goods and services, and they pay taxes to federal, state, and local governments. Their contributions would be even greater if they had a chance to earn legal status and didn’t have the danger of deportation constantly hanging over their heads. With legal status, they’d be able to change jobs more easily and—as they found better jobs and their wages increased—their economic clout as consumers and taxpayers would rise as well. This is a win-win scenario for both the immigrants themselves and the native-born population.

In a recent report titled Undocumented Immigrants’ State & Local Tax Contributions, the Institute on Taxation and Economic Policy (ITEP) explores in depth not only the present tax contributions of undocumented immigrants, but how much those contributions would increase under two different scenarios. The first is the temporary reprieve from deportation and the renewable three-year work authorization that the Obama administration would grant to some undocumented immigrants via executive action. The other is the legalization—that is, the granting of legal permanent resident (LPR) status—to all undocumented immigrants. Not surprisingly, when the threat of deportation is removed, undocumented immigrants pay more in taxes than those without a reprieve, while legalized immigrants pay the most.

Undocumented immigrants, like everyone else in the United States, pay sales taxes. And they also pay property taxes—even if they rent. Plus, as ITEP points out, “the best evidence suggests that at least 50 percent of undocumented immigrant households currently file income tax returns using Individual Tax Identification Numbers (ITINs) and many who do not file income tax returns still have taxes deducted from their paycheck.” In sum, according to ITEP, “the 11.4 million undocumented immigrants living in the United States pay billions of dollars in local, state and federal taxes, and their tax contributions would increase under immigration policy reform.”

ITEP’s estimates zero in on the current and possible future tax contributions of undocumented immigrants at the state and local level:

  • Current contributions: Undocumented immigrants paid $11.8 billion in state and local taxes 2012. This ranged from roughly $3.2 million in Montana (home to only 6,000 undocumented immigrants) to $3.2 billion in California (with an undocumented population numbering 3.1 million). The average effective state and local tax rate of undocumented immigrants in 2012 was 8 percent (compared to 5.4 percent for the top 1 percent of all taxpayers).
  • Executive Action: The Obama administration’s executive actions would grant a reprieve to 5.2 million undocumented immigrants. The state and local tax contributions of this group of immigrants would increase by $845 million per year once the actions were fully in place. This would raise the effective state and local tax rate of this group from 8.1 percent to 8.7 percent.
  • Legalization: Granting LPR status to all 11.4 million undocumented immigrants would increase their state and local tax contributions by $2.2 billion per year. Their average effective state and local tax rate would rise to 8.7 percent—roughly the same as other, documented taxpayers in similar economic situations.

These estimates should be kept in mind as commentators and Members of Congress continue the endless debate over “what to do” with the 11 million undocumented immigrants now live in the United States. In spite of their undocumented status, these immigrants—and their family members—are adding value to the U.S. economy; not only as taxpayers, but as workers, consumers, and entrepreneurs as well. If they had legal status, they would contribute even more. On the other hand, the only alternative—deportation—would be costly and destructive. Common sense should dictate which route to take.

Photo Courtesy of Stock Monkeys.

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  • Jessi

    I know I’m gonna catch a bunch of crap for the following statement, and please understand I am sympathetic to anybody wanting be in the US, but, I quote: “Their contributions would be even greater if they had a chance to earn legal status and didn’t have the danger of deportation constantly hanging over their heads. With legal status, they’d be able to change jobs more easily…” Ok, same here! AND I am legal AND I pay federal taxes, but I don’t hear a word about all these legal, federal tax paying immigrants on visas that cannot simply change their jobs or have to worry about going home if they would lose their job! So is it me or does that seem just a bit unfair?

  • kickermom

    In CA $3.1 billion dollars in total taxes divided by 3.1 million undocumented
    immigrant equals $1000.00 per person. Just on education, CA spends approximately $10,000 per student per year. The majority of the undocumented are uneducated and basically unskilled. The author is dreaming to think that simply legalizing them would enable them to be that much more productive. The magnitude of the number would overwhelm our social services, not to mention Medicare and Socia Security.

    • ReadyReader2000

      The people who qualify for the proposed programs don’t generally qualify for federal social services. The minor children are probably already in school. There is likely no additional burden. Only additional income.

      • Nora Salgado

        I believe Kickermon’s scenario refers to legalized immigrants, if they’re “legalized” or permanent residents, then they would be eligible for those programs.

        • ReadyReader2000

          This article is about undocumented workers. Lawful permanent residents don’t qualify for most benefits until they have 5 years with status, by which time they are eligible to become citizens.

  • RetiredINS

    When Congress passed employer sanctions the provision should really have been called “the immigration counterfeiters’ full employment act.” Until then counterfeit documents were primarily used to try to get into the country without sneaking through the desert. After employer sanctions took affect, millions of illegals bought counterfeit documents to show to an employer. Aliens who were once paid in cash (under the table) were now paid with checks and taxes, social security, and other payroll deductions were subtracted from the pay of illegal aliens. Many illegal aliens failed to file a tax return for fear of being found out. That means the money deducted for taxes went to the states and the federal government.

    The estimates in this article are just that, estimates. The size of the illegal alien presence in the United States is not known, but estimates vary by millions, depending upon who is doing the estimate and what their hidden agenda is. To justify amnesty to raise revenue is stupid. Our immigration laws should be changed for practical reasons. I believe in the Dream Act and legal jobs for farm workers. Unfortunately, both republicans and democrats are more interested in destroying each other than they are in solving the problem.

  • M.C.gingerfanman

    If it’s illegal to hire illegals how do they get paycheck and recieve w-2’s? How are fed taxes deducted from them? Property taxes are paid by property owners not tenants. Sales tax is the only tax they do pay. Look, if all paid state and fed taxes, why raise taxes on everyone else over the past years? Shouldnt there have been a surplus? How do they get ITIN’s anyhow (if true)

    • Ben K.

      It’s not illegal to get paid under the table, that’s why we have state minimum wages for those on a workers permit.

    • Lilian Acosta

      Becuase they don’t get hired as illegals…obviously. They have fake papers, you know…just how teenagers get fake ID’s to drink.