Do Illegal Aliens Contribute a Fair Share of Taxes to the Economy?

The Institute on Taxation and Economic Policy (ITEP) has updated its estimate of the “contribution” of illegal aliens to the economy. In The Nation, Michelle Chen writes on March 14 that ITEP credits illegal aliens with adding $11.6 billion annually in tax payments – nearly $7 billion in sales and excise taxes and $3.6 billion in property taxes. Note that neither of those amounts are ones that can be avoided by working ‘off-the-books’, which allows them to avoid payments for income taxes, Social Security, and unemployment insurance.

But is this significant? The answer is that the ITEP estimate is irrelevant because it ignores that the same amount, or more, would be contributed by legal workers if the illegal workers were unavailable. Legal workers would be much less likely to be working off-the-books and would, therefore, be contributing to the other programs that illegal workers often evade. In addition, because legal workers are much less likely to be sending remittances out of the country, their spending in the United States would be greater and generate more sales tax receipts. Further, if employers did not have a ready supply of exploitable illegal workers, they would have to offer higher wages to attract legal workers. The result would reduce legal worker unemployment, social assistance dependence and poverty.

So when you hear someone citing the ITEP estimate, think about how it documents the failure of the country’s immigration enforcement operations and the social and fiscal consequences that result from that failure.