Legalize Aliens to Collect More Taxes?

The Sun Sentinel in Florida had a story on a new report by the Institute on Taxation and Economic Policy that found that tax revenues would increase if illegal aliens were granted amnesty. The study estimated that the current tax compliance rate for illegal aliens was 7.3 percent of income and it would increase to 10 percent if amnesty were adopted.

ITEP has worked with amnesty proponents for several years providing studies touting the estimated economic benefit and tax contributions of illegal alien workers at the state level. This new study is another effort to gain support for an amnesty. Logically, legal status would lessen the ability of unscrupulous employers to pay workers off the books. That suggests that more income taxes would be collected through employer withholding. However, that would result in an increase in collection only if the worker were earning enough to have a tax liability, and it could result in a negative tax collection if amnestied workers were able to draw on the Earned Income Tax Credit.

The major fallacy with the ITEP finding is that the supposed tax benefit would occur as well if the illegal alien worker were deported and replaced by a legal worker. Further, if the deportation of the illegal alien worker resulted in a tighter job market, it is likely that the wages of the legal worker would rise, and that would increase tax collection even further.

In FAIR’s previous analysis of the findings of ITEP, we have faulted the assumptions that the Institute has used to estimate tax collections – mostly sales taxes – from illegal aliens. That analysis applies as well to the current starting point estimate of a tax compliance rate of 7.3 percent.