Illegal Immigrants and Federal Income Taxes

by labdhie | November 8, 2016 12:02 am

In the last presidential debate between Hillary Clinton and Donald Trump, Clinton said[1] that “half of all” illegal immigrants in the U.S. “actually pay federal income tax.” PolitiFact[2], a Pulitzer Prize-winning fact check organization, investigated Clinton’s claim and reported[3]: “While there is no official figure, experts estimate that about half of all undocumented workers pay federal income taxes, if not more.”

agresti[4]

In reality, the polar opposite is true. Federal government data shows that while roughly half of illegal immigrants file federal tax returns, the vast majority of them don’t pay any federal income taxes. Instead, they use these returns to claim refundable tax credits[5], which are a form of cash welfare. In other words, illegal immigrants mainly use the federal income tax code to collect money from U.S. citizens.

Reliable Data on Illegal Immigrants Is Scarce

Federal law generally prohibits[6] illegal immigrants from earning income in the U.S., but many of them do so by working for cash and by fraudulently using Social Security numbers. A 2013 report[7] by the Social Security Administration notes that illegal immigrants get Social Security numbers by using counterfeit birth certificates, usurping other people’s numbers, and reusing numbers that they received to work temporarily in the U.S.

Because illegal immigration is often covert, reliable data on it is scarce. In the words of the Congressional Budget Office[8], figures for the number of illegal immigrants in the U.S. “are subject to considerable uncertainty.” This applies to most data on illegal immigration, but various federal agencies have produced estimates that shed degrees of light on these issues.

Individual Taxpayer Identification Numbers

One of the most reliable sources of data concerning the federal income taxes of illegal immigrants comes from an IRS program[9] that gives them “Individual Taxpayer Identification Numbers” or ITINs. These numbers are “issued regardless of an individual’s immigration status,” and they allow illegal immigrants and foreign investors to file tax returns without a Social Security number.

Obtaining an ITIN also allows illegal immigrants to claim the federal Child Tax Credit[10], which can provide them with a cash benefit of up to $1,000 per child per year. According to the latest IRS data[11], 72% of all tax returns filed with ITINs in 2010 claimed child tax credits to receive cash payments from the federal government.

It is important to note that illegal immigrants likely received higher child tax credits in 2010 than in other years. This is because the American Recovery and Reinvestment Act (“the Obama stimulus”) enabled[12] more people to claim child tax credits or to claim greater amounts in 2010. Furthermore, the U.S. was still in the early stages of recovering from the Great Recession, and incomes were down[13]. Since child tax credits generally increase as income falls, these payments should have been higher in 2010 than most other years.

Nonetheless, the contrast between tax returns filed with and without ITINs in 2010 is enlightening. As documented above, 72% of ITIN filers paid no income tax and received cash payments through child tax credits. In comparison, only 14%[14] of people who filed regular tax returns (with a Social Security number instead of an ITIN) paid no income tax and received these payments.

The monetary totals[15] of ITIN returns are also instructive. In 2010, ITIN filers paid a total of $0.9 billion in income taxes and received cash payments of $4.9 billion. In other words, ITIN filers received 5.4 times more cash than they paid in income taxes. Most of this cash—$4.0 billion of it—came through child tax credits. Since these figures include foreign investors who are not eligible[16] for child tax credits, it is possible that little-to-none of the taxes paid came from illegal immigrants.

PolitiFact claimed that illegal immigrants use ITINs to “pay income taxes,” but the truth of the matter is that illegal immigrants mainly use ITINs to get cash from U.S. taxpayers. As explained by the IRS Taxpayer Advocate Service[17], the federal tax code has provisions “designed to assist low income populations,” and the “IRS no longer is just a revenue collection agency but is also a benefits administrator.”

In 2013[18] and 2015[19], a number of Republican congressman cosponsored bills that would restrict illegal immigrants from obtaining refundable child tax credits. However, Congress did not vote[20] on either of these bills.

Fraudulent Social Security Numbers

It is difficult to determine the income taxes of illegal immigrants who file tax returns by fraudulently using Social Security numbers. This is because their tax returns are indistinguishable from U.S. citizens and foreigners who legally work in the United States.

However, federal data on the incomes of non-citizen immigrants and the tax rates of people with different incomes suggest that few illegal immigrants pay federal income taxes.

A 2013 report[21] by the Congressional Budget Office estimated that the median cash income of male non-citizen immigrant workers was 43% below male workers who were born the USA. The comparable figure for females was 41%. This is significant, because people with low incomes generally pay negative federal income taxes[22], which is another way of saying that they receive welfare payments by filing tax returns.

One of the primary reasons why illegal immigrants have much lower incomes than U.S. citizens is that they have much lower levels of education, which is highly correlated[23] to earnings. In 2012[24], 7% of people aged 25 to 64 who were born in the U.S. did not have a high school diploma or GED. The comparable rate for U.S. residents born in other countries was 27%, and the rate for U.S. residents born in Mexico and Central America was 54%. In 2011[25], 73% of all illegal immigrants were from Mexico, El Salvador, Guatemala, or Honduras.

Each year, the Congressional Budget Office calculates the average incomes and federal tax rates of U.S. households by income group. According to the latest data[26], in 2013:

Given the above estimates on earnings, incomes, and federal income tax rates, most illegal immigrants who file a tax return with a Social Security number are probably paying no federal income taxes and receiving cash payments from the IRS.

In comparison to illegal immigrants who file taxes using ITINs, illegal immigrants who file with fraudulent Social Security numbers have more opportunity to earn income. This is because a Social Security number allows them to get jobs with employers who will not knowingly break the law by paying them under the table. Such added income would increase their taxes and reduce their eligibility for child tax credits. However, fraudulent Social Security numbers would also allow them to receive eight other[27] refundable tax credits. These tax credits would reduce their taxes and give them more cash welfare.

Another benefit that illegal immigrants obtain through fraudulent Social Security numbers is the ability to vote. This is because a Social Security number is a common requirement[28] for voter registration. A 2013 report[7] by the U.S. Social Security Administration estimated that 3.1 million illegal immigrants were working with fraudulent Social Security numbers in 2010. This lends credence to the hotly debated findings of a 2014 paper[29] in the journal Electoral Studies, which estimated that 1.2 million noncitizens voted in the 2008 federal elections.

Other Taxes and Benefits

Clinton raised the point about illegal immigrants and federal income taxes to draw a contrast with Trump. Due to a $916 million loss that Trump claimed on his 1995 tax return, it is likely[30] that he has paid little-to-no federal income taxes since then.

However, as Trump pointed out, he pays other types of federal taxes. The same is true of illegal immigrants. Beyond federal income taxes, most U.S. residents in all income groups[31] bear the burden of federal social insurance[32] taxes, federal excise taxes[33], and federal corporate income[34] taxes.

On a net basis, however, most low-income households pay much less[35] in federal taxes than they receive in government benefits. Although the law prohibits[36] illegal immigrants from receiving most federal benefits, there is no effective enforcement mechanism to prevent those who use fraudulent Social Security numbers from getting these benefits. Also, beyond child tax credits, illegal immigrants are legally eligible for:

PolitiFact’s Nonsense

Rough estimates in the federal reports cited above suggest that roughly half of illegal immigrants file federal tax returns. According to these reports, in 2010:

Adding 3.0 million to 3.1 million and dividing this by 11.6 million comes to about 50%. However, the federal government data above also shows that very few illegal immigrants “actually pay federal income tax,” as Clinton claimed. Instead, they file tax returns to obtain cash welfare payments.

PolitiFact’s failure to differentiate between filing federal tax returns and paying federal income taxes adds to its series of misleading reports[46] that support partisan political narratives.

James D. Agresti[47] is the president of Just Facts[48], a nonprofit institute dedicated to publishing verifiable facts about public policy.

Also see,

Deceitful Evidence of Job Market Discrimination

Endnotes:
  1. Clinton said: http://www.presidency.ucsb.edu/ws/index.php?pid=119039
  2. PolitiFact: http://www.justfactsdaily.com/?s=PolitiFact&submit=Search
  3. reported: http://www.politifact.com/truth-o-meter/statements/2016/oct/27/hillary-clinton/clinton-undocumented-workers-pay-more-trump-federa/
  4. [Image]: https://rightwingnews1.wpenginepowered.com/wp-content/uploads/2015/03/agresti.jpg
  5. refundable tax credits: http://www.justfacts.com/taxes.asp#compliance-refundable
  6. generally prohibits: http://www.treasury.gov/tigta/auditreports/2011reports/201141061fr.pdf
  7. 2013 report: https://www.ssa.gov/oact/NOTES/pdf_notes/note151.pdf
  8. Congressional Budget Office: https://www.cbo.gov/sites/default/files/112th-congress-2011-2012/reports/06-02-foreign-bornpopulation.pdf
  9. IRS program: http://www.treasury.gov/tigta/auditreports/2012reports/201242081fr.pdf
  10. Child Tax Credit: http://www.justfacts.com/taxes.asp#compliance-refundable
  11. latest IRS data: https://www.treasury.gov/tigta/auditreports/2011reports/201141061fr.pdf
  12. enabled: http://www.treasury.gov/tigta/auditreports/2011reports/201141061fr.pdf
  13. incomes were down: http://www.justfactsdaily.com/trump-media-middle-class-income/
  14. only 14%: https://www.treasury.gov/tigta/auditreports/2011reports/201141061fr.pdf
  15. monetary totals: https://www.treasury.gov/tigta/auditreports/2011reports/201141061fr.pdf
  16. not eligible: https://www.irs.gov/uac/ten-facts-about-the-child-tax-credit
  17. IRS Taxpayer Advocate Service: https://www.irs.gov/pub/tas/arcdedication_preface_toc.pdf
  18. 2013: https://www.congress.gov/bill/113th-congress/house-bill/556
  19. 2015: https://www.congress.gov/bill/114th-congress/house-bill/713/text
  20. did not vote: http://www.justfacts.com/taxes.asp#compliance-refundable
  21. 2013 report: https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/44134_Description_of_Immigrant_Population.pdf
  22. negative federal income taxes: http://www.justfacts.com/taxes.asp#distribution-media
  23. highly correlated: http://www.justfacts.com/education.asp#earnings
  24. In 2012: https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/44134_Description_of_Immigrant_Population.pdf
  25. In 2011: https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/44134_Description_of_Immigrant_Population.pdf
  26. latest data: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51361-HouseholdIncomeFedTaxes_OneCol.pdf
  27. eight other: https://www.fas.org/sgp/crs/misc/R44290.pdf
  28. common requirement: https://vote.gov/files/federal-voter-registration_1-25-16_english.pdf
  29. 2014 paper: http://www.sciencedirect.com/science/article/pii/S0261379414000973
  30. is likely: http://www.nytimes.com/2016/10/10/us/politics/donald-trump-taxes.html?_r=0
  31. all income groups: http://www.justfacts.com/taxes.asp#distribution-media
  32. social insurance: http://www.justfacts.com/taxes.asp#social
  33. excise taxes: http://www.justfacts.com/taxes.asp#excise
  34. corporate income: http://www.justfacts.com/taxes.asp#corporate
  35. much less: http://www.justfactsdaily.com/has-government-turned-us-into-a-nation-of-makers-and-takers/
  36. law prohibits: https://www.treasury.gov/tigta/auditreports/2011reports/201141061fr.pdf
  37. free: http://www.law.cornell.edu/supremecourt/text/457/202
  38. free: http://www.law.cornell.edu/uscode/text/8/1615
  39. free: http://www.justfacts.com/healthcare.asp#spending-government
  40. automatic citizenship: http://constitutioncenter.org/media/files/Monograph_BirthRights.pdf
  41. host of other: http://cis.org/sites/cis.org/files/richwine-welfare-cost_0.pdf
  42. Children’s Health Insurance Program: http://www.justfacts.com/healthcare.asp#government-chip
  43. 3.0 million: https://www.treasury.gov/tigta/auditreports/2011reports/201141061fr.pdf
  44. 3.1 million: https://www.ssa.gov/oact/NOTES/pdf_notes/note151.pdf
  45. 11.6 million: https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/44134_Description_of_Immigrant_Population.pdf
  46. misleading reports: http://www.justfactsdaily.com/?s=PolitiFact&submit=Search
  47. James D. Agresti: http://www.justfacts.com/james.d.agresti.asp
  48. Just Facts: http://www.justfacts.com/

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