Illegal Immigrants, Our Low-Income Taxpayers

Article created by the The Century Foundation.

One of the flash points of today’s hostility toward immigrants is the notion that illegal immigrants are free-riders on the tax dollars of honest Americans. Ironically, if eventually the 11 million illegal resident of this country are required to correct past tax-paying errors, it is likely that the undocumented workers will end up receiving rather than paying the Treasury money.

We cannot know for sure—workers with false papers are by definition impossible to track—but experts all agree that the great majority of illegal immigrants are low-skilled. They are working as cleaners, cooks, busboys, gardeners, and laborers. With limited language skills and no bargaining power, their earnings are likely to be heavily concentrated at the bottom of the income distribution.

In 2005, foreign born men sampled by the Bureau of Labor Statistics had an average income of $523 per week, 69% of the average of native-born workers. Since most illegal workers earn less than other immigrants, and since they avoid surveys, we can be virtually certain that illegal immigrants earned less than $24,000 per year, on average, probably much less. Workers who earn so little pay very little income tax. We can be confident that a majority of illegal immigrants fall below the income threshold at which income taxes become significantly positive. (See John Maggs “The Vanishing Taxpayer,” National Journal, April 22, 2006)

Not that illegal workers pay no taxes. They all pay sales taxes and through rent, property taxes. Those whose jobs are “on the books,” using false Social Security numbers, also have income tax and payroll taxes withheld from every paycheck. Researchers estimate that 55%–60% of illegal immigrants are paid on the books. The proportion is higher in factories and service industries, lower in agriculture. Even the anti-immigration Center for Immigration Studies uses the figure 55% in its work.

Illegal immigrants do not file tax returns, so we do not know what their income tax liabilities would be or who among the non-filers are illegal immigrants. But we do know something about their Social Security contributions, which, unlike the progressive income tax liabilities, are deducted at a flat rate from the very first dollar earned.

In fact, about $6 billion in annual payroll taxes are allocated to non-existent Social Security accounts. Experts attribute these payments to the forged documents that illegal immigrants purchase in order to find work. This $6 billion is collected each year with no future benefit-rights assigned. This sum is certainly more than any income taxes that would be owed on the earnings involved. (We know that the bottom half of wage earners pay much more in payroll taxes than in income taxes.) In any case, it is probable that the income taxes withheld from the wages of illegal immigrants also would in large measure be refunded because of the low earnings of these workers.

So when the discussion calms down enough to figure out how to integrate the illegal with the legal workforce, illegal workers are likely to receive non-trivial back-dated credits toward Social Security, while their back-dated income tax obligations are trivial.

Illegal immigration is likely to be a crime that delivers net economic benefits to its average “victim,” even in tax revenue. Moral outrage is understandable when laws are not enforced, but let us not confuse hypocrisy with an economic burden.