FAIR Debunks New Study on Illegal Alien Tax Contributions

FAIR Take | August 2024

A recent study published by a left-leaning organization claims that illegal aliens’ annual tax contributions stand at nearly $97 billion and that illegal aliens pay more taxes than the top 1 percent of earners. If this sounds far-fetched, that is because it is. The report, by the Institute on Taxation and Economic Policy (ITEP), presents a lionized picture of illegal alien economic contributions.

The first major flaw in ITEP’s study is that it overestimates the income of illegal aliens. ITEP claims their aggregate earnings are $373 billion, without providing convincing data, equations, or methodology as to how they do this. The authors mention that they take data from the American Community Survey (ACS) before applying “…certain adjustments to account for consistent underreporting of income (particularly self-employment income).” We are presumably meant to believe illegal aliens underreport income to the ACS, then turn around and accurately report to the IRS while paying full taxes on all of that underreported income. This also assumes illegal aliens answer the ACS in a representative way to begin with.

Not only does the study fail to provide convincing calculations, the estimate is highly implausible as the jobs in which illegal aliens disproportionately work are typically the lowest paid. ITEP states that 10.9 million illegal aliens are in the U.S., and they have a nationwide aggregate income of $373 billion a year, or $34,000 per alien. However, not all illegal aliens work due to being too young, too old, disabled etc., so the working population would be just a portion of their claimed 10.9 million.

Thus, the question is how many illegal aliens work and how much do those illegal aliens make in order to reach ITEP’s estimated $373 billion in aggregate earnings. The Bureau of Labor Statistics (BLS) estimates that 50 percent of the general U.S. population can work and 63 percent of the population actually does work. Similarly, we can determine the number of illegal aliens who work by estimating the percentage of working aliens compared to the total illegal alien population, which ITEP says is 10.9 million. The numbers of working aliens based on percentage of the total are as follows: 50 percent (5.54 million), 60 percent (6.54 million), 70 percent (7.63 million), 80 percent (8.72 million) and 90 percent (9.8 million.). We then divide $373 billion (gross income) by the number of working illegal aliens to determine the average annual income for each working illegal alien. For ITEP to be correct, illegal aliens would need to annually earn $68,000 at 50 percent working, $57,000 at 60 percent, $49,000 at 70 percent, $42,000 at 80 percent, and $38,000 at 90 percent. Even given the illegal alien population skews more towards working-age adults, it is still implausible there are enough working illegal aliens to account for ITEP’s estimated tax contributions.

Furthermore, illegal aliens disproportionately work in low-skill, low-wage jobs. Pew Research, an organization whose research ITEP cites, confirms this general profile of illegal aliens working as janitors, restaurant workers, cleaners and similar unskilled jobs. This is in part because 44 percent of them lack even a high-school education, and education pays. The BLS keeps data on these professions and their incomes, allowing us to estimate the true earnings. For example, in California, the state with the largest illegal alien population, the average wages for unskilled jobs are around $40,000 per year. This is significantly lower than the amounts that each working illegal alien would have to be making annually for ITEP to be correct. In other states, these wages can be even lower. Taking ITEP’s data at face value means that illegal aliens would have to be making much more than Americans in the same jobs.

ITEP also seriously undercounts the illegal alien population. It does this by excluding DACA recipients and aliens with Temporary Protected Status (TPS), both of which are illegal aliens. It also excludes aliens who take welfare. This helps bring their estimate of the illegal alien population down to 10.9 million, considerably lower than the FAIR’s estimate of at least 16.8 million.

As for ITEP’s claim that illegal aliens pay more tax than the top 1 percent of earners, this is not the case. The key findings of ITEP’s report state “[i]n a large majority of states (40), undocumented immigrants pay higher state and local tax rates than the top 1 percent of households living within their borders.” Despite the eye-catching claim, a deeper dive reveals their logic, and its obvious flaw. The report states “…40 states collect higher tax rates, relative to income, from undocumented immigrants than from the top 1 percent of households” [emphasis added]. There is a significant difference between paying more taxes and paying more taxes as a proportion of income.

Even if ITEP’s estimate of population, income and tax contributions were remotely accurate, ITEP does not estimate costs imposed by illegal aliens. One cost is tax credits, which ITEP incorrectly assumes illegal aliens cannot receive because most require a valid SSN. However, millions of illegal aliens have valid SSNs and can receive tax credits such as the Earned Income Tax Credit (EITC). Other tax credits like the Additional Child Tax Credit (ACTC) only require the child to have a valid SSN, convenient for illegal aliens who lack their own SSN. Some states like California allow illegal aliens who lack a SSN to use ITIN numbers to obtain state-level tax credits. This is before one even considers the fact illegal aliens can also simply fraudulently obtain SSNs.

The fact that ITEP incorrectly assumes illegal aliens do not have social security numbers and, therefore, do not get tax credits, automatically undermines their estimate of tax contributions. Many illegal aliens who file tax returns are, in fact, receiving money back from the government. The Congressional Budget Office (CBO) confirms this fact. It estimates that the lowest income tax filers receive more in credits than they pay in taxes: “[f]or the two lowest quintiles, average individual income tax rates were negative because of refundable tax credits.”

In contrast to ITEP’s paper, FAIR offers a much more realistic and convincing estimate of both illegal alien population sizes and their costs to the U.S. taxpayer. Our widely acclaimed paper on the costs of illegal aliens to the U.S. taxpayer was the centerpiece of a U.S. House hearing on the costs of illegal immigration in May 2024.