New Report: ”Undocumented Immigrants’ State and Local Tax Contributions”
Undocumented Immigrants in Kentucky Pay $58.8 Million Annually in State and Local Taxes; Immigration Reform Would Boost State Revenues $23.2 Million
New 50-State Study From The Institute On Taxation And Economic Policy
With fiscal costs and benefits figuring large in the immigration reform debate, a new analysis from the Institute on Taxation and Economic Policy (ITEP) estimates that unauthorized immigrants are already paying $10.6 billion a year in state and local taxes nationwide, including $58.8 million in Kentucky. The study also estimates that Kentucky stands to gain $23.2 million in increased revenue should undocumented immigrants currently in the U.S. be allowed to work here legally. The analysis assumes a newly legalized immigrant population of 80,000 in Kentucky, 11.2 million nationally, fully participating in the federal, state and local tax systems. The overall revenue gain for all states would be $2 billion a year.
“We know that undocumented immigrants already pay six or seven percent of their income in state and local taxes, simply because they buy things and they rent or own homes, and sales and property taxes are paid automatically,” said Matthew Gardner, ITEP’s Executive Director. “With legalization, both wages and tax compliance will go up, resulting in substantial new revenues for states, especially from the income tax.” A recent Congressional Budget Office (CBO) report concluded a similar effect on federal revenues.
States like Kentucky which include an income tax would see the most significant revenue change since it is in the income tax where compliance will increase under reform; unauthorized immigrants currently pay approximately the same level of sales and property taxes as other U.S. residents in the same income brackets.
“At least 50 percent of undocumented immigrants already pay income taxes,” said Anna Baumann, Research and Policy Associate with the Kentucky Center for Economic Policy, “but immigration reform would increase revenues by boosting wages and creating legal channels for full compliance with the income tax. Immigration reform would be good for Kentucky’s immigrant and non-immigrant households, and also for our fiscal health and economy.”
The full study finds:
- Undocumented immigrants in Kentucky currently contribute a collective estimated $58.8 million in state and local taxes each year, for a 7.1 percent average effective tax rate. Nationwide, they pay $10.6 billion in state and local taxes for an average effective tax rate of 6.4 percent.
- Allowing undocumented immigrants to work legally will increase their state and local tax contributions by an estimated $23 million in Kentucky, raising their effective tax rate to 9.0 percent. Nationally, contributions would increase by $2 billion each year, raising the effective tax rate to 7 percent.
- Kentucky’s undocumented immigrants currently pay $15.3 million in personal income taxes, $4.8 million in property taxes and $38.8 in sales and excise taxes. Nationally, they pay $1.2 billion in personal income taxes, $1.2 billion in property and $8 billion in sales and excise taxes.
The report also provides:
- A breakdown of tax payments by category (sales, income, property) for each state, before and after immigration reform, including the effect of undocumented immigrants becoming newly eligible for state Earned Income Tax Credits.
- Key state-by-state data points on the immigrant population underlying the tax analysis.
- A complete methodology section and footnotes.
The report and a clickable 50-state data map can be accessed at http://www.itep.org/immigration.
Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP’s mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy. ITEP’s full body of research is available at www.itep.org.
The Kentucky Center for Economic Policy is a non-profit, non-partisan initiative that conducts research, analysis and education on important policy issues facing the Commonwealth. Launched in 2011, the Center is a project of the Mountain Association for Community Economic Development (MACED).