Undocumented Immigrants' State & Local Tax Contributions | Earned Income Tax Credit | Immigration

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Here is the full report released March 2, 2017 from the Institute on Taxation and Economic Policy.
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    THE INSTITUTE ON TAXATION AND ECONOMIC POLICY (ITEP) 1616 P. Street NW, Suite 200   Washington, DC 20036   202.299.1066  www.itep.org Undocumented Immigrants’ State & Local Tax Contributions Institute on Taxation & Economic Policy Updated March 2017 Lisa Christensen Gee Matthew Gardner Misha E. Hill Meg Wiehe About The Institute on Taxation & Economic Policy The Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan 501 (c) 3 organization that produces timely, accessible, and sound analyses on federal, state, and local tax policy issues. ITEP's research helps inform policy makers, advocates, the media and general public about the fairness, adequacy, and sustainability of existing tax structures and how proposed tax changes would impact revenues and taxpayers across the income spectrum. Acknowledgments ITEP extends special thanks to David Dyssegaard Kallick at the Fiscal Policy Institute, Michael Leachman at the Center on Budget and Policy Priorities, Jeanne Batalova at the Migration Policy Institute, and Tanya Broder and Kamal Essaheb at the National Immigration Law Center for their guidance on this report.    Institute on Taxation and Economic Policy 2 Public debates over federal immigration reform, specifically around undocumented immigrants, often suffer from insufficient and inaccurate information about the tax contributions of undocumented immigrants, particularly at the state level. The truth is that undocumented immigrants living in the United States pay billions of dollars each year in state and local taxes. Further, these tax contributions would increase significantly if all undocumented immigrants currently living in the United States were granted a pathway to citizenship as part of a comprehensive immigration reform. Or put in the reverse, if undocumented immigrants are deported in high numbers, state and local revenues could take a substantial hit. Accurate information about the tax contributions of undocumented immigrants is needed now more than ever. Divisive and objectionable rhetoric has not tempered in the early months of the Trump administration. Policies adopted and supported by the new administration are haphazard in design and impact; they characterize undocumented families as criminals and encourage indiscriminate deportations. Good policy is informed policy. Just like the horrendous impact of breaking up families should not be ignored, neither should the lost tax contributions from isolating or deporting undocumented immigrants. To better inform the ongoing debates on immigration policy reform, this report provides state-by-state and national estimates on the current state and local tax contributions of the 11 million undocumented immigrants living in the United States as of 2014, and the increase in contributions if all these taxpayers were granted legal status as part of comprehensive reform.  1   Key Findings: ♦   Undocumented immigrants contribute significantly to state and local taxes, collectively paying an estimated $11.74 billion  a year. 2  Contributions range from just over $550,000 in Montana with an estimated undocumented populat ion of 1,000 to more than $3.1 billion in California, home to more than 3 million undocumented immigrants. ♦   Undocumented immigrants nationwide pay on average an estimated 8 percent of their incomes in state and local taxes (this is their effective state and local tax rate). To put this in perspective, the top 1 percent of taxpayers pay an average nationwide effective tax rate of just 5.4 percent. 3   ♦   Granting legal status to all undocumented immigrants in the United States as part of a comprehensive immigration reform and allowing them to work legally would increase their state and local tax contributions by an estimated $2.18   billion  a year. Their nationwide effective state and local tax rate would increase to 8.6 percent. Who Are Undocumented Immigrants? Undocumented Immigrants are:    Diverse —Not all undocumented immigrants are from Mexico.  While most are from the Americas, many parts of the U.S. are home to immigrants from Asia and the Pacific Islands, Africa, and Europe.    Families —Most families have mixed legal status, such as one parent  with legal immigration status, one parent without documentation, and a child with U.S. citizenship.    Concentrated —Although there are undocumented populations in each state, 1 in 6 live in just 20 metro areas. California, Florida, New  Jersey, New York, and Texas are the states with the largest populations.    Contributing to our Communities —Over 60% have lived in the U.S. for more than a decade. Labor force participation is high and crime rates are lower than that of U.S. born residents.    Not Stealing Jobs —Undocumented immigrants largely work in the positions that an aging and more educated U.S. workforce is unable to fill.    DREAMers —Many undocumented immigrants were brought to the U.S. as children. DREAMers must meet education requirements and pass an extensive background screening. They were raised in the U.S., and represent the potential of the next generation.    Institute on Taxation and Economic Policy 3 Undocumented Immigrants Pay State and Local Taxes: Current Contributions Like other people living and working in the United States, undocumented immigrants pay state and local taxes. They pay sales and excise taxes when they purchase goods and services (for example, on utilities, clothing and gasoline). They pay property taxes directly on their homes or indirectly as renters. Many undocumented immigrants also pay state income taxes. 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 paychecks. 4  Collectively, undocumented immigrants in the United States pay an estimated total of $11.74 billion in state and local taxes a year (see Table 1 for state-by-state estimates). This includes more than $7 billion in sales and excise taxes, $3.6 billion in property taxes, and $1.1 billion in personal income taxes. Another way to measure the state and local taxes that undocumented immigrants pay is through their effective tax rate, which is the share of total income paid in taxes. The effective tax rate is useful for more accurate state-to-state comparisons because it accounts for differences between states’ tax structures and population size. Undocumented immigrants’ nationwide average effective tax rate is an estimated 8 percent. To put this in perspective, the top 1 percent of taxpayers pay an average nationwide effective tax rate of just 5.4 percent. 5  Table 1: Undocumented Immigrants' State and Local Tax Contributions Current vs. Full Legal Status for All Undocumented Immigrants StateCurrent State and Local TaxesState and Local Taxes if Granted Full Legal StatusTax ChangeStateCurrent State and Local TaxesState and Local Taxes if Granted Full Legal StatusTax ChangeAlabama  $62,312,000 $80,061,000  +$17,749,000 Montana  $548,000 $762,000  +$213,000 Alaska  $4,043,000 $4,448,000  +$404,000 Nebraska  $39,800,000 $48,177,000  +$8,376,000 Arizona  $213,574,000 $252,958,000  +$39,384,000 Nevada  $86,101,000 $94,712,000  +$8,610,000 Arkansas  $62,767,000 $77,166,000  +$14,399,000 New Hampshire  $7,236,000 $8,005,000  +$770,000 California  $3,199,394,000 $3,653,985,000  +$454,591,000 New Jersey  $587,415,000 $661,130,000  +$73,716,000 Colorado  $139,524,000 $172,250,000  +$32,726,000 New Mexico  $67,743,000 $75,756,000  +$8,013,000 Connecticut  $124,701,000 $145,284,000  +$20,583,000 New York  $1,102,323,000 $1,349,476,000  +$247,153,000 Delaware  $13,532,000 $19,694,000  +$6,162,000 North Carolina  $277,402,000 $370,780,000  +$93,378,000 Dist. of Col.  $31,765,000 $38,731,000  +$6,966,000 North Dakota  $2,844,000 $3,263,000  +$419,000 Florida  $598,678,000 $658,546,000  +$59,868,000 Ohio  $83,247,000 $108,786,000  +$25,538,000 Georgia  $351,718,000 $455,581,000  +$103,863,000 Oklahoma  $84,765,000 $104,648,000  +$19,884,000 Hawaii  $32,343,000 $42,750,000  +$10,408,000 Oregon  $80,775,000 $119,365,000  +$38,590,000 Idaho  $28,613,000 $34,557,000  +$5,944,000 Pennsylvania  $134,872,000 $186,244,000  +$51,372,000 Illinois  $758,881,000 $917,370,000  +$158,490,000 Rhode Island  $31,154,000 $37,564,000  +$6,410,000 Indiana  $92,200,000 $120,900,000  +$28,701,000 South Carolina  $67,753,000 $86,195,000  +$18,442,000 Iowa  $36,728,000 $45,570,000  +$8,842,000 South Dakota  $5,338,000 $5,872,000  +$534,000 Kansas  $67,843,000 $78,897,000  +$11,054,000 Tennessee  $107,465,000 $118,251,000  +$10,786,000 Kentucky  $36,629,000 $52,702,000  +$16,073,000 Texas  $1,560,896,000 $1,716,985,000  +$156,090,000 Louisiana  $67,991,000 $83,188,000  +$15,197,000 Utah  $69,770,000 $91,255,000  +$21,485,000 Maine  $4,367,000 $5,525,000  +$1,158,000 Vermont  $2,936,000 $3,411,000  +$475,000 Maryland  $332,248,000 $425,779,000  +$93,531,000 Virginia  $255,965,000 $355,924,000  +$99,959,000 Massachusetts  $184,605,000 $240,773,000  +$56,168,000 Washington  $316,624,000 $348,287,000  +$31,662,000 Michigan  $86,692,000 $113,910,000  +$27,217,000 West Virginia  $5,112,000 $6,811,000  +$1,699,000 Minnesota  $83,192,000 $102,646,000  +$19,453,000 Wisconsin  $71,792,000 $91,691,000  +$19,899,000 Mississippi  $22,684,000 $28,028,000  +$5,344,000 Wyoming  $4,165,000 $4,582,000  +$417,000 Missouri  $48,897,000 $63,435,000  +$14,538,000 All States$11,739,961,000$13,912,665,000  +$2,172,703,000    Institute on Taxation and Economic Policy 4 Granting Legal Status to All Undocumented Immigrants Would Boost Their State and Local Tax Contributions Creating a pathway to citizenship for the 11 million undocumented immigrants living in the United States and allowing them to work here legally would boost their current state and local tax contributions by more than $2.18 billion a year (see Table 1). Personal income tax collections would increase by $1.1 billion a year. Sales and excise taxes would increase by $702 million, and property taxes would grow by $362 million. As a result, the overall state and local taxes paid by undocumented immigrants as a share of their income would increase from 8 percent to 8.6 percent. The most significant revenue gain would come f rom the personal income tax, due to both increased earnings and full compliance with the tax code. 6  Multiple studies have shown that legal immigrants have higher wages than undocumented immigrants, t hus gaining legal status could lead to a boost in wages. The wage boost is in part due to better job opportunities that would be made available to workers with legal status and also in part to an increased access to higher-level skills and better training. Most comprehensive reform measures to date have included strong incentives or requirements for undocumented immigrants granted legal status to fully comply with tax law. Conclusion Undocumented immigrants make considerable tax contributions. Like other immigrants and U.S. citizens they purchase goods and services, work, and live across the country. Proposals to remove immigrants ignore their many contributions. In a time when most states are facing revenue shortages, the potential budgetary impacts of mass deportation merits careful consideration. States could lose an estimated $11.74 billion in revenue if all undocumented immigrants were removed. In addition to the many humanitarian, public health, and moral arguments for a pathway to legal citizenship and against mass deportations, there is also a state fiscal component that should not be ignored. See Appendix 1 for state-by-state estimates of the current and post-reform state and local tax contributions of the total undocumented immigrant population. The appendix includes effective tax rates and totals for sales and excise, personal income, and property taxes. Methodology While the spending and income behavior of undocumented immigrant families is not as well documented as that of US citizens, the estimates in this report represent a best approximation of the taxes families headed by undocumented immigrants likely pay. The ITEP methodology used to calculate the current and potential tax contribution of undocumented immigrants uses five main data points: 1.   Estimated undocumented immigrant population in each state 2.   Average size of undocumented immigrant families/taxpaying units 3.   Range of annual undocumented immigrant family/taxpayer income in each state
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