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Top 5 Reasons Why Immigration Reform Means More Tax Revenues

immigration, taxes

SOURCE: AP/Bebeto Matthews

Victoriano Del La Cruz, a carpenter from Mexico, stands just outside of a basement entrance as Sergio Ajche from Guatemala finishes a painting job in New York.

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Last year, the Senate passed the bipartisan Border Security, Economic Opportunity, and Immigration Modernization Act, or S. 744, which the Congressional Budget Office, or CBO, found would have significant fiscal and economic benefits for the nation. Yet since its passage, the House of Representatives has dragged its feet and failed to act on meaningful reform. This inaction means that the United States has already missed out on billions of dollars in potential tax revenues.

As millions of Americans file their taxes today, it’s important to remember that our broken immigration system diminishes our potential tax revenue. The following are the top five reasons why immigration reform would increase tax revenues:

1. 5 million more workers and their employers would pay payroll taxes

While unauthorized immigrants currently contribute more than $13 billion in payroll taxes each year, millions of undocumented immigrants are still working in the informal economy and being paid off the books by their employers. Estimates by the Social Security Administration and the Pew Research Center indicate that 63 percent of undocumented workers and their employers don’t pay payroll taxes. Immigration reform with a pathway to citizenship would allow an estimated 5 million unauthorized immigrants and their employers to get on the books and pay payroll taxes.

2. Unauthorized immigrants would pay an additional $109 billion in federal, state, and local taxes

In addition to more immigrants and employers paying payroll taxes after immigration reform, legalization also boosts the earnings of undocumented immigrants, which in turn leads to even greater tax revenues. Researchers have estimated that undocumented immigrants’ wages would increase 15 percent as a result of obtaining legal status and an additional 10 percent after becoming citizens. Therefore, all undocumented immigrants—even those who are currently paying payroll and income taxes—would pay more in taxes as a result of earning higher wages. CAP estimates that undocumented immigrants would pay $69 billion more in federal taxes and $40 billion more in state and local taxes over a 10-year period.

3. Reform would add a net $606 billion to the Social Security trust fund

Over the coming decades, the Social Security system—which is funded through payroll taxes—will experience rising costs as Baby Boomers retire and begin collecting benefits. Immigration reform provides an opportunity to increase the amount of money being paid into the system without creating any net costs over the next three decades. Since most unauthorized immigrants are young and have many working years ahead of them, they could be paying taxes to fund Social Security at the same time that Baby Boomers are collecting benefits. CAP estimates that if undocumented immigrants could obtain legal status and citizenship, they would contribute a net $606 billion to the Social Security system over the next 36 years. This is enough money to fund the retirement benefits of 2.4 million native-born Americans.

4. Reform would extend the solvency of the Medicare trust fund by four years

Medicare trustees project that the Medicare trust fund will be depleted by 2026. Immigration reform with a pathway to citizenship would extend the solvency of the trust fund by four years, as undocumented immigrants would go on the books and pay more in taxes. Similar to the long-term benefits of immigration reform to the Social Security system, undocumented immigrants over the next three decades would contribute a net $155 billion to the Medicare trust fund.

5. Reform would reduce the deficit by $820 billion over the next two decades

CBO estimated that comprehensive immigration reform such as S. 744 would not only pay for itself but would also lead to a significant reduction in the deficit. Specifically, CBO found that additional tax revenues would outpace costs of reform by almost two to one. That is, for every dollar of the cost of immigration reform, two dollars would be paid in taxes. It is not surprising then that CBO found that immigration reform would decrease the deficit by $135 billion over 10 years and $820 billion over 20 years.

It’s clear that the United States stands to gain significantly from immigration reform, but each day that the House delays passage of reform is another day of missing out on potential tax benefits. It has been more than 280 days since the Senate passed S. 744, and in that time, the United States has lost out on more than $10 billion in tax revenues. While some members of the House continue to hold back reform due to political calculations, the simple math is clear: Immigration reform is good for our finances, and we can’t afford to wait for reform any longer.

Patrick Oakford is a Policy Analyst on the Economic and Immigration Policy teams at the Center for American Progress.

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