Study Confirms that Undocumented Immigrants are NOT Freeloaders

A new study shows that undocumented immigrants paid $96 billion in federal, state and local tax revenue in 2022 while many are shut out of the programs their taxes fund. The findings run counter to anti-immigrant rhetoric that undocumented immigrants are “destroying” social programs.

In 40 states, undocumented immigrants paid higher tax rates than the top 1% of the income scale in those states, according to a study from the Institute on Taxation and Economic Policy, a left-leaning, nonprofit think tank.   Study authors also found that undocumented immigrants would contribute $40.2 billion more per year in federal, state and local taxes if all of the undocumented population had access to work authorizations. The Institute on Taxation and Economic Policy reasoned that this boost would come from higher wages associated with employment authorization and easier compliance with income tax laws.

The report also shed further light on the tax revenue provided by undocumented immigrants on the state and local level. Undocumented immigrants are paying 46% of their state and local tax payments through sales and excise taxes. Six states—New Jersey, New York, California, Florida, Texas, and Illinois—were able to raise more than $1 billion each in tax revenue from undocumented immigrants, the nonprofit said.

Undocumented immigrants pay property taxes and sales taxes, and federal payroll taxes taken from their wages, as well as income tax returns using Individual Taxpayer Identification numbers. Despite those payroll taxes funding Medicare, Social Security, and Unemployment Insurance, undocumented immigrants are not eligible to enroll in and receive regular benefits from these social programs. They can also face barriers to getting tax refunds, including getting scammed by unscrupulous tax preparers who target immigrant communities.

Alexis Tsoukalas, senior policy analyst at Florida Policy Institute, a nonprofit focused on economic mobility for Floridians, told reporters that she was struck by how much the state collected from undocumented immigrants in taxes compared to the wealthiest in the state. The current tax rate for undocumented immigrants in Florida is 8% compared to the top 1% of the state at 2.7%.

The study was released in the backdrop of a political climate where states have passed laws to arrest people who they suspect of entering the U.S. illegally, which encroaches on federal power.  Tax policy will be front and center for Congress and the White House next year as provisions of Trump’s tax law, passed in 2017, are set to expire.

Aside from the human cost of deportations on families, policy experts and researchers are making the case that undocumented immigrants are a boon to the economy, making it an economic cost as well. Immigration and economic experts who spoke about the report also highlighted the Congressional Budget Office’s July report on the rise in immigration and its effects on the economy and budget, which found that this increase in immigration would add $1.2 trillion in federal revenue from 2024 to 2034.

Carl Davis, research director at the Institute on Taxation and Economic Policy, said there are economic ripple effects to consider in the deportation of undocumented immigrants in the U.S. beyond taxes. If the children of undocumented immigrants go to school and they then go get jobs, that household is now giving more than it got because the parents came here, worked, paid into Social Security, Medicare, and didn’t get any benefits. The kid that went to school, got a job and then started earning enough money then became a net contributor.

Policy experts also pointed to a labor shortage—8.1 million job openings and 6.8 million unemployed workers—as a reason to embrace the economic contributions of undocumented immigrants. South Dakota, North Dakota, Maryland, Vermont, Maine, and South Carolina are some of the states facing the greatest labor shortages, according to a Washington Post analysis of Bureau of Labor Statistics data.