Immigration Legislation’s Impact on State and Federal Taxes

Material Information

Immigration Legislation’s Impact on State and Federal Taxes
Lane, Ryan
Hames, Cameron
Bennett, Mike
Garcia, Melissa
Zhang, Iris
Publication Date:


Subjects / Keywords:
Cost estimates ( jstor )
Estimated taxes ( jstor )
Hispanics ( jstor )
Illegal immigration ( jstor )
Immigration ( jstor )
Immigration policy ( jstor )
Population estimates ( jstor )
Tax revenues ( jstor )
Taxes ( jstor )
United States government ( jstor )
Emigration and immigration law
Illegal aliens
Taxation, State
Undergraduate Honors Thesis


The paper focuses on the effect of immigration legislation on state and federal taxes. It utilizes a wide range of primary and secondary sources including exploration of legislation documents and writings of experts. There are five sections in this paper; two take a look at immigration and taxes in Arizona and other states. The section that follows explores tax benefits in relation to illegal immigrants. The final two sections explore immigration and taxes on the federal level. All together, these sections demonstrate that illegal immigration is a larger burden on state and local taxes than federal taxes; however, different states are imposing inconsistent laws that can promote additional burdens on certain states, therefore states would benefit from a sweeping federal regulation of illegal immigration. ( en )
General Note:
Ryan Lane awarded Bachelor of Science in Business Administration; Graduated December 20, 2011 summa cum laude. Major: Finance
General Note:
Cameron Hames awarded Bachelor of Science in Business Administration; Graduated May 8, 2012 magna cum laude. Major: Finance
General Note:
College/School: Warrington College of Business Administration
General Note:
Advisor: John Banko

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University of Florida
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University of Florida
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Copyright Ryan Lane, Mike Bennett, Cameron Hames, Melissa Garcia and Iris Zhang. Permission granted to the University of Florida to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.


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Impact on State and Federal Taxes [ The Legal, Ethical, and Financial Implication of ] Ryan Lane, Mike Bennett, Cameron Hames, Melissa Garcia, and Iris Zhang 11/17/2010


2 Abstract The follo wing paper focuses on the effect of immigration legislation on state and federal taxes. It utilizes a wide range of primary and secondary sources including exploration of legislation documents and writings of experts. There are five sections in this paper ; two take a look at immigration and taxes in Arizona and other states. The section that follows explores tax benefits in relation to illegal immigrants. The final two sections explore immigration and taxes on the federal level. All together, these sectio ns demonstrate that illegal immigration is a larger burden on state and local taxes than federal taxes; however, different states are imposing inconsistent laws that can promote additional burdens on certain states, therefore states would benefit from a sw eeping federal regulation of illegal immigration.


3 Index I. Introduction II. Senate Bill 1070 and it s Effect on Arizona State and Local Taxes Ryan Lane III. States Mike Bennett IV. Tax Benefits and Illega l Immigration Cameron Hames V. Federal Implications Regarding Legal Immigration and Taxes Melissa Garcia VI. Illegal Immigration and Federal Taxes Iris Zhang VII. Conclusion VIII. Bibliography


4 I Introduction ration reform through its Senate Bill 1070 has raised many grows, the effect of such harsh legislation is hard to predict. In a time of huge budget defi cits across many states and at the federal level, increasing tax revenue is more important than ever. Changing immigration policies have far reaching effects on United States citizens and the economy, which in turn has significant effect on tax policy and revenue. To assess the effect of immigration legislation on taxes, we begin by examining the Ariz ona Senate Bill 1070, which sparked the national immigration debate, and its effect on s finances. Afterwards, we explore immigrati on laws and tax ef fects in the states of Utah, Florida, and California to assess how other regions handle the effect of immigration. To put these findings in a national context, we conclude with a discussion on legal and illegal immigration as it relates to federal tax cost and benefits These sections demonstrate that illegal immigration is a larger burden on state and local taxes than federal taxes; however, different states are imposing inconsistent laws that can promote additional burdens on certain states therefore sta tes would benefit from a sweeping federal regulation of illegal immigration.


5 II Senate Bill 1070 and its effect on Arizona State and Local Taxes sweeping e effects on both tax revenue received and the way taxpayer revenue is expended. The state of Arizona will have to spend a significant amount of tax revenue to enact the legislation and it already faces pressure of a meet current budget needs. Overall, the legislation enacted in Senate Bill 1070 is counteractive i n helping Arizona meet its financial needs. Understanding the details of the Arizona Senate Bill 1070 will give a fuller understanding of the effect of this bill on Arizona state taxes. illegal immigrati on a state crime in Arizona. The law vehicle if the officer has reasonable suspicion to believe (2) or in violation of new human smuggling statutes. This means that a law enforcement officer can stop and frisk any person who they think looks reasonably like an illegal immigrant. According to Senate Bill 1070, if an illegal alien is discovered and arrested, they are expected to pay the financial costs of their own arrest and detainment. This bill also creates stricter standards against the knowing employment of illegal aliens; if complaints are filed against the business, it will be investigated and the owners will face consequences ranging from warnings to revocation of business licenses to possible imprisonment. Through all these new statutes, the state of Arizona not only creates a large funding ne ed but may also face economic consequences from the likely public outcry. As a state with a heavily Hispanic population, Arizona Senate Bill 1070 will have widespread consequences, both social and financial One of the biggest criticisms of this bill is that it encourages racial profiling by law enforcement officers


6 30.8% of which are of Hispanic or Latino origin; this is double the national average. Nearly 13% of English. This large Hispanic population will potentially creat e a large burden on Arizon as law enforcement will now need to verify citizenship status on any person suspected of lacking documents. This also leads to one of the biggest complaints about the legislation: since the majority of illegal immigrants are Hispanic, th is legislation will likely lead to widespread racial profiling. Racial profiling is an illegal procedure that offends the fourth and fourteenth amendments. Also of importance, Arizona has a 14.7% poverty rate and it is estimated that Arizona currently has over 460,000 illegal immigrants within its borders (4). These illegal immigrants are more likely to be impoverished that to have a negative impact on Hispanic business owners and their customers which will be reflected in the decrease in tax revenue from this segment. The above table shows the breakdown of tax revenues in the state of Arizona from the trailing twelve months roughly 3.5% (five brackets ranging from 2.68% 4.54%) and 6.968% for Corporations. These are taxes that illegal immigrants may avoid as they often do not report incomes. However, the nearly 61% of tax immigrants contribute to. This category includes the various levels of sales tax from consumer goods, cigarettes, alcoh ol, etc, as well as real estate taxes.


7 claims that Sena Hispanic out of Arizona to more tolerant states. If s uch a migration were to occur, the effects on e xamination assumes that approximately all of the illegal immigrants are driven from Arizona and 15% of the Hispanic population leaves as well over the next five years. As shown above, the estimated decrease in the three categori es of tax revenue resulting from the three categ ories; income tax revenue is down 2.9%, corporate tax is down 30.2% and Transaction Privilege, Severance & Use Taxes are down 9.7%. This model gives credit to economic improvements and assumes tax laws remain constant. With improving economic conditions t hese revenues would see increases; however, the economic effect of a migration out of Arizona due to intolerant immigration policies would likely limit econo mic progress and create further l osses.


8 The tax revenue breakdown above assumes that taxes will see increases from normal economic upswings but will also see losses as detailed above due to the immigration laws. This study of tax revenue does not even factor in the large costs to implementing Senate Bill 1070; the costs are di scussed in detail below. The bill is also believed to cause a real drop in tourism for Arizona (7) which is reflected in the decrease to TP, S, and U taxes. In summation, with modest gains due to normal economic upswings the resulting tax revenue five year s out has grown but only by a minimal amount of three percent. a result of the above case. According to research from the University of Arizona, economic output related to immigrant workers in Arizona was $44 billion in 2004. Also, the sales for all Latino owned businesses in Arizona were $4.3 billion in 2002 (8). The Perryman Group, an economic and financial analysis firm, claims that if all the illegal i occur as the Perryman Group estimates, the resulting changes to tax revenue wo uld be much more severe than estimated above. The 2009 $700 million (9). The budget deficit for fiscal year 2010 is estimated to increase by $400 million to $1.4 bill $2.25 billion deficit that needs to be wiped out in the next 20 months (in reference to fiscal 2009 and 2010), s Chairman John Kavanagh (9). Implementing Senate Bill 1070 will add to these large deficit numbers. The deficit, the cost of senate bill 1070 implementation, ture; there is no evidence that Arizona will be able to eliminate or even slow its growing budget deficit. The costs of implementing Senate Bill 1070 will create even greater strain on the already budget strained counties of Arizona. The Yuma County Sher implementation of Senate Bill 1070. Yuma County has roughly 200,000 residents and is thus on the small


9 ex penses could range from $775,880 and $1,163,820, jail costs would range from $21,195,600 and $96,086,720, and attorney and staff fees would be between $810,067 and $1,620,134 (8). Taking averages based on these ranges, the estimated costs for the bill for Yuma County are $60.83 million. Assuming that $2 billion based on the cost estimates from the Yuma County Sheriff. Yuma County Attorney Jon Smith f urther details how this bill will increase costs in all areas of the system and warns that: LEA (law enforcement agencies) are [already] fighting to stay afloat through the use of furloughs, and mandated days off with pay; the fines and fees assessed wil l not be able to match These estimates by the Yuma County Sheriff only include the most basic costs; there are likely to be a variety of additional costs associated with this legislation including legal fees due to likely ra cial profiling and other discrimination lawsuits. The combination of loss of economic productivity, a growing budget deficit, and a wave of new costs creates a very unfavorable economic environment for the state of Arizona. The growing deficit is putting a burden on Arizona lawmakers to try to increase tax revenue. The costs associated with the implementation of Senate Bill 1070 only increase to the budget deficit, as the huge implementation costs will be only marginally covered by fines and fees. Tax rev enue needs to grow significantly to meet the quickly growing budget deficit; however, as this section details, tax revenue gains will be minimal due to wi th its current and future budgeting needs. There is definitely an issue with illegal immigration in Arizona but Senate Bill 1070 is not an economically feasible solution.


10 III. & Florida) and the people of the state in general stand behind its proceedings. Though the bill has met some resistance, its passage has given hope to othe r states forming their own Anti Illegal Immigration bills and policies mainly due to increasing impatience with the realizing the profound economic impact of illegal immigration have begun to consider their own version First, we will examine California and its divided legislators despite the highest level of illegal immigration in the country. Next week we will see how initially Utah intended to take a strong stance against i llegal immigration just as Arizona has but in recent times has tried to form more effective and less harsh w ays of dealing with the issue. immigration policies and concerns. Florida is yet another state that has been subjected to very high levels of illegal immigration and has even attempted to sue the federal government for failing to stop illegal immigration. Though they lost the suit, it is just another example of how states are getting desperate to curb the e xpenses of illegal immigration and put pressure on the federal government to do their part in upholding the law. The cost to each state due to illegal immigration at an all time high, has been rising However, this evaluation of t and resulting policies may create devastatingly different logistical, legal, and economic consequences. Despite having the highest estimated illegal immigrant count list since 2000 California has n ot been able to take legislative action on the issue of illegal immigration due to political paralysis The number of illegal immigrants in California has increased by 50% to 3.2 million according to the 2008 Federation for American Immigration Reform (F AIR) study. This astoundingly large number of people has generated serious economic issues and the burden of those particular issues fell on the taxpayers. In the 2008 FAIR study, the cost to the state of California from illegal immigration is over $9 b i llion per year. This cost covers the children, medical care, and incarceration other expenses that are difficult to measure, such as special English


11 instruction, school lunch programs, and welfare benefits for American workers displaced by illegal compared with the $1.7 Billion in taxes that illegal immigrants pay through Individual Taxpayer Iden tification Numbers the difference is stark. The nearly $8.8 Billion difference of benefits illegal immigrants receive versus what they pay in to the system is highly unsustainable for the state of California. The federal government has taken little action other than strengthening border security, as far as producing legislation enabling the states to enforce the federal illegal immigration laws. California has not taken a strong legislative demographic s of California have changed substantially, acquiring the Latin American vote has become pivotal in order to win an election. Politicians have refused to take a stance either way on immigration out of fear it would jeopardize their votes. Inde cision on the issue by state or federal government has only proven to bring out the frustrations of taxpayers and force the state government to take action. gration work to their advantage. Since Utah is not a border state it has not been affected by illegal immigration as much as Arizona and California. Nevertheless Utah has seen the huge cost that they could potentially face if the problem gets worse and has attempted to manage that risk. The sheer cost of illegal immigration to Utah is a small fraction of what it is in California at $453 Million with their illegal immigrant population at around 100,000 according to the FAIR 2008 study. Though illegal im migration in Utah is not costing taxpayers that much money now it could pose some very serious problems in the future. Initially Utah was ready to take a strong stance against illegal immigration in response to ction including a potential boycott of Arizona and its businesses, Utah decided that there must be a better way to solve the problem. Though they have increased border security substantially, the state still has not taken a strong stance in either directi on on the issue mainly for political reasons. allows illegal immigrants to work in Utah for a specified period of time legally. "Just even the mention of


12 it is going to be a disaster for Utah encouraging people to come from Arizona and other states. It sends out a message that it is a friendly sanctuary state," said Alex Segura (The Washington Post). Encouraging illegal immigrants to travel to Utah for work will drive the supply of low skil led labor up, overall wages down and force neighboring states to make an exception if illegal immigrants are passing through to Utah. Another strategy that is up for debate is the integration of illegal immigra nts already in the state and the punishment o f those that attempt to immigrate in the future. However, some resistance to this idea have already manifested into action by citizens of Utah. A list of 1 all of their personal information has been leaked into t he public (potentially due to an unlawful act) and has demanded that all of them be found a deported. This act is an example of obvious scare tactics designed to send any illegal immigrant out of Utah. If Utah can enforce the new law currently formulated, it can potentially instill confidence in the citizens and find an economically sound solution for illegal immigration not based on fear. If Utah decide s to implement this solution and enforce a strict policy against new coming illegal immigrants the ove rall wage rates may stay at normal levels and tax rev enue will increase due to the new addition of workers paying into the income tax system. Fl orida, much like California, has a serious illegal immigration problem. While the state has attempted to deal w ith the issue through jurisdiction, the financial burden of immigration remains paid mostl y by Florida. There are nearly one mi llion illegal immigrants in Florida, costing the state an estimated minimum of $3.83 b illion per year (FAIR 2008). In order to r ecoup some of these costs Florida attempted to sue the Federal Government for failing to stop illegal immigration but came up short. Even though the suit was unsuccessful, the Justice Department granted Florida with $1 8 m illion in order to help with the c ost of illegal immigration. The total cost of incarc eration alone is well over $56 m illi on dollars and with only $21.6 m remaining $34. 4 m illion. As in many other examples the burden of illegal immigration on taxpayers has sparked a wave of disapproval and voter dissatisfaction. This has ultimately forced the politicians in Florida to pick a side and make changes to current legislation. Rick Scott, the recently elected go vernor of


13 Florida, has taken a hard stance aga inst illegal immigration, a stance backed by the majority of Floridians. (NumbersUSA 09). Stopping illegal immigr ation and creating new ways for immigrants to come into the state legally and become contributing taxpayers i overnor. Illegal ion now With the pressure of illegal immigration is sues looming overhead, politicians will soon be forced to make changes to their states policies in order to balanc e the state budget Utah has taken strides to begin resolving their illegal immigration problems but Florida and California, with larger illegal immigrant populations, have yet to make progress on fixing the problem Clearly, no states will completely ado pt identical illegal immigration policy on the exact same timelines. This could potentially lead to some states becoming illegal immigrant penitentiaries and others becoming sanctuaries, prompting confusion from citizens, mass migration of illegal immigran ts, and legal nightmare. Since states shoulder the burden of illegal immigration unequally, the federal government should have more comprehensive and equitable legislation that addresses the issue.


14 IV. Tax Benefits for Illegal Immigrants Tax benefits f or illegal immigrants have been a widely debated issue for decades. Critics of illegal imm igration have stated that non US citizens have consistently run a state and federal deficit in terms of payments versus cost. They have argued that is the reason wh y such programs such as Medicaid and Social Security have been consistently in the red. However, many dispute this claim and draw to the attention of Americans that undocumented immigrants are overall helping the social programs of the United States. We will analyze the data from both sides on many issues, and bringing in data from both the American Civil Liberties Union and the Federation for American Immigration Reform to figure out the answers to this issue. First, we shall learn the process by which illegal immigrants contribute to federal programs such as Social Security and Medicare. We will examine what their contribution is and why they are restricted from receiving those benefits. Next, we will examine how much state tax benefits are being used by illegal immigrants; mostly education. The discovery will be made on how much of a burden this putting on state and local economies. Finally, the issue of post secondary education will be raised and how illegal immigrants pursing college educations ar e helping or hurting the economy, and what struggles they face in the process. Contrary to popular belief, many illegal immigrants do pay taxes. Since the Immigration Reform and Control Act of 1986, most alien workers have been required to purchase fake IDs in order to get jobs from employers that have required proper documentation to avoid harsh penalties by the government. Currently available for about $150 on street corners in just about any immigrant neighborhood in California, a typical fake ID pac kage includes a green card and a Social Security card. It provides cover for employers, who, if asked, can plausibly assert that they believe all their workers are legal. It also means that workers must be paid by the book which includes payroll tax deduc tions. It is believed that roughly two third s stash W 2 fillings that had incorrect or fictitious Social Security numbers. This file is growing by more than $50 bil lion a year (Porter).


15 In a 2007 report by the Council of Economic Adviser to the Executive Office of the President a thorough investigation in a impacts. That study concluded that immigrants generally generate public revenue that exceeds their public cost over their lifetime by over $80,000 (Immigration). The main reason by be hind this is that illegal immigrants are restricted from receiving such benefits that they have been paying for due to their citizenship status. Illegal immigrants who are not self employed have Social Security and Medicare taxes withheld from their paych ecks. Since undocumented workers have fake numbers, they will never be able to claim these benefits that these taxes are meant for. The Social Security taxes collected from illegal immigrants added up to more than 10% of the surplus for the program in 20 04 (Dalmia). The net benefit per illegal immigrant household is more than $1,800 for Social Security and Medicare (Camarota). If Social term funding hole over 75 years would be 10% deeper. Most do not mind the loss of money from their paychecks or the loss of benefits in the future and just take it as another cost of working in the United States (Porter). Both legislation and fear of government prevent illegal immigrants from t aking advantage of full benefits from the government. The I llegal Immigration Reform and Immigrant Responsibility Act of 1996 enacted reform on a number of issues including the benefits that illegal immigrants could rec eive. Title V of the bill contains a mendments to the welfare bill, the Social Security Act, and the Immigration and Nationality Act. The amendments limited citizenship for collection (Dalmia). This effectively limits the abili ty of aliens to receive benefit programs such as food stamps, Medicaid, Social Security, and Temporary Assistance for Needy Families (TANF). Essentially, the only benefits that they could collect would be K 12 education and emergency room services. Some illegal immigrants have found ways around the process that grants them access to some of the federal programs. However, t he majority of illegal immigrants does not cheat the system and are


16 actually afraid of claiming the few benefits that they do qualify for due to the fear of being caught as undocumented and facing strict penalties such as deportation Evidence proves that illegal immigrants are using resources such as ER services at a fraction of the amount native born citizens do. In addition the De partment of Agriculture reports that noncitizens that are eligible for food stamps are significantly less likely to use them than are all other individuals who are eligible for the program (Immigration). The evidence so far shows that illegal immigrants ac tually are helping the U.S. economy at the federal level They are paying into systems along with Americans, but do not get to withdra w from those systems which help these struggling federal programs drastically. However, this situation that benefits t he federal government may differ for state economies. In the 2007 Economic Council report mentioned above, it states that most of the fiscal impact from immigration deral level, but the providing such benefits as education (Immigration). Large states such as California, Florida, and Texas educate millions of child ren each year that are paid for by a mixture of federal and state funds. Anti immigration reformists are strong advocates for trying to keep children of undocumented immigrants out of the school system. Reformists got so much support it resulted in a 197 5 Texas ban. However, it was overturned in a 1982 United States Supreme Court 5 4 decision in the case Plyler v. Doe that prevents states from denying K 12 education to children of illegal immigrants. The Supreme Court states that even though children of illegal immigrants many not be citizens they are still people and are protected under l er). Education is probably the most expensive cost to a state economy, but the effect of illegal immigration on the system is difficult to quantify objectively. In a study done by the Federation for American Immigration Reform, educating K 12 children of illegal immigrants cost the fifty states $28.6 billion. This is based on 1.5 million illegal immigrant childre n and 2 million U.S. born children of illegal immigrants. The estimate is that over 10% of K


17 Critics of illegal immigrants argue that state funds are going to educate children of undocumented immigr ants which the state is not receiving reimbursement. The funds that the state has to do without could be spent expanding the education of U.S. born citizens, but rather everyone suffers from overcrowding, low er test scores, and sometimes violence (Breakin g). However, the FAIR study has its opponents who state that knowing the exact cost of educating illegal immigrants is unknown due to the lack of information on which children belong to illegal immigrants. All of the results produced above are based on pu re speculation since it is prohibited under Plyler v. Doe status (Borkowski). Thus it is the assumption that all K 12 children are U.S. citizens and no record can immigration status. Grade school education is now a legal right for all children, but post secondary education is a different story. A recent debate has spawned about illegal immigrants pursuing college degrees. Plyler v. Doe did not rule on college edu cations leaving it up to the state, which usually passes along the decision to the individual colleges, to decide the rules of accepting illegal immigrants. South Carolina outright bans illegal immigrants from enrolling at public institutions and Georgia will follow suit in 2011 when it restricts access of illegal immigrants to certain institutions (Brown). Only five to ten percent of all undocumented immigrants who graduate from high school go to college. In 2009, many organizations started speaking out for illegal immigrants to receive in state tuition and financial aid assistance of their public institution as an effort to increase high skilled workers and ultimately help the U.S. economy in the form of increased tax revenue and consumer spending (Coll eges). Anti illegal immigration reformists believe that only true residents of the state should be given the right to pay reduced cost to education in the form of in state tuition. What really outrages them is the fact that illegal immigrants could be re ceiving federal and state taxpayer money in the form of financial aid. All though most undocumented immigrants do pay taxes, they will be receiving benefits that they should not be provided thus driving up their cost on the state.


18 Not all states are burde ned by providing state benefits to undocumented immigrants. In 2004, Arizona reported an estimated $1.41 billion fiscal cost but had $1.64 billion in state tax revenue attributed to immigrants reported by the University of Arizona. A similar example is f ound in Texas for 2005 (Immigration). The conclusion that can be drawn is that illegal immigrants may put a fiscal burden on local and state economies because they do receive education benefits, police and fire protection, etc, but also help out federal p rograms such as Social Security and Medicare. If amnesty were adopted for the illegal immigrant population, tax collection would increase only marginally, but they would become eligible for benefits such as Social Security retirement benefits. This would put a serious strain on that already drained system. Their new citizenship status would also make them eligible for social welfare programs meant for low income individuals such as TANF and food stamps. They are required to put money into these systems, but are not eligible to receive the benefits. Allowing amnesty would drastically increase the benefits they would receive, without an increase in tax revenue. However, if illegal immigrants wanted to pursue college degrees it may be worthwhile for the e conomy to let them do so. It will be a small fraction going for those degrees, but skilled and educated workers are always better for the nation no matter how few.


19 V. Legal Immigration and the Federal Government Immigration policy in Arizona has not on ly posed ma ny questions at the state level but also has at the federal level. Concerns regarding federal immigration policy are pushed to the forefront as the federal the magnitude of the situation and its implications concerning taxes, one must take a comparative look at the affects of legal immigration on federal policy. To further this discussion, the sec tion provides a background to U S immigration policy, how it is today, and what the costs of becoming a legal resident are. It will then discuss a comparison between legal and illegal residents in order to emphasize how much they each demographic affects the country. Because of differing policies toward immigration thr oughout history, the legal immigrant population in the US today has vastly different characteristics from t he illegal immigrant population, and these differences cause tensions among those who argue for and against amnesty. To understand the impact that l egal immigration has at the federal level, it is important to note the hist ory and evolution of US immigration policy. Immigration policy, virtually nonexistent until after the establishment of the United States as a legal country, became significantly mor e restrictive as time passed. The timeline at the end of this section summarizes significant measures that were taken throughout history that continues to shape immigration policy today. During the early to mid 1900s, the government strengthened its restri ctions on immigration. By the second half of the century, caps on immigration numbers were set. (Congressional Budget Office) Then in 1952, the government passed the Immigration and Naturalization Act which was intended to prevent immigrants from certain c ountries, particularly those from Japan and Germany and those who were believed to be communists, from coming to the U.S. during the post World War II and the Cold War eras. (Johnson) By 1986, the government passed measures to grant amnesty to certain ille gal residents due to the demand for agricultural labor. Within the past 20 years, government agencies, such as the Immigration and Naturalization Service (INS) and the Bureau of Citizenship and Immigration Services (BCIS) were created to increase control o ver immigration. While Europeans have generally formed most of the immigrant wave before the 21 st


20 century, immigrants from the Americas and Asia have made up most of the immigrant migration to the US in the latter half of the century (FAIR). U S immigrat ion policy also outl ines a process for becoming a US citizen. There are two forms of legal residency: permanent and temporary. Permanent residents (or lawful permanent resident) receive green cards and may later apply for citizenship. Temporary residents ( also called non immigrants) are allowed in the country for a limited amount of time and must have a specific purpose to gain entry. Those who are residing illegally are subject to removal and may be prevented from entering the country permanently. In fact, in 2004, approximately 203,000 illegal aliens were removed from the US (Congressional Budget Office) Additional hurdles to overcome in order to become a US citizen include financial, educational, and working s tatus. The cost of becoming a U S citizen is $6 75, which includes the payment of $595 for the application fee and $80 for a fingerprinting fee. In addition to paying these fees, a person applying for US citizenship wi ll be tested on the basics of U S history and government and must be able to speak, rea d, and write simple English. This process is overseen by the BCIS. Additionally, there are specific means for one to obtain a working visa and permanent residency. (USCIS) Rega rdless of citizenship status all legal residents must pay income taxes. (Epperl y) These policies hint at the various purposes for the US. The official purposes of US immigration policy are specific: (1) to reunite families with those that live in the US ; (2) to extract specific skilled labors to avoid labor shortages; (3) to provide refuge for those experiencing persecution; and (4) to enhance diversity. However, the many arbitrary distinctions between what constitutes persecution and which countries get more quota slot continue the leg acy of an evolving but flawed U S immigration poli cy. As a result, the demographics of the legal immigration population differ from the illegal immigration population. These US immigration policies have created a vast difference between demographics among legal and illegal immigrants. The following data offers a comparison between legal and illegal residents regarding education, income, and labor. About 60% of legal residents have at least attended college


21 compared to only 26% of illegal residents. Additionally, 40% of illegal aliens have less than a high school education while only 15% of legal aliens never obtained a high school diploma. These striking differences in the educational levels between illegal and legal immigrants have a significant effect on household incomes. The median house hold income fo r legal immigrants is $52,000 compared to $36,000 for unauthorized immigrant households. Furthermore, about 85% of male legal residents contribute to the share in labor force between the ages of 18 64 while 94% of male illegal residents contribute to this share. Overall, approximately 16.76 million legal immigrants contribute to the civilian labor force while only 8.26 million of unauthorized immigrants do so. (Passel) Therefore, legal residents contribute more to paying income taxes overall than illegal re sidents if all illegal residents hypothetically paid income taxes as well. One of the biggest issues concerning immigration policy is the idea of granting amnesty to illegal residents and whether this form of action will benefit the country. According to the Center for Immigration Studies article, US Immigrants Statistics November 2007, granting amnesty to illegal residents will do little for taxpayers. They argue the fact that many immigrants are, in fact, unskilled, which will lead to their heavy use of social welfare programs s of poverty lack of health insurance and welfare use is their low education levels, not their legal Overall, US immigration policy has changed much throughout history. However, immigrants, both legal an d illegal, still flock to the US for better employment opportunities. Despite their disparities in income, welfare use, and education levels, immigrants share the search for gainful work.


22 VI. Illegal Immigration and Federal Taxes The debate over illegal immigration is rooted within the notions of equity: is it fair for illegal immigrants to enjoy services provided by the government? Is it fair for the taxpayers who fund those services? Digging deeper, the issue of cost also raises the question of whether or not illegal immigrants simply cost Ame rica more than they bring in. By evaluating the federal services that illegal immigrants use compared to the federal taxes illegal immigrants pay, we may evaluate the overall cost of illegal immigrants on the federal government. The method will begin with an investigation into the federal taxes citizens have to pay every year and how they pay them. This will give us an idea of how illegal immigrants avoid or pay taxes. Secondly, several sources will provide different perspectives on the issue. The Center fo r Immigration Studies (CIS) sheds light into how immigrants cost the US federal government more than imagined. The Pew Hispanic Center offers objective statistics on the estimate of the US illegal immigrant population. Finally, the Immigration Policy Cente r (IPC) takes an opposite view of CIS, promoting immigration and placing emphasis on the economic stimulus of pro immigration reform. After evaluating each of these sources for bias and methodology, they will be used to analyze the current situation of ill egal immigration and federal costs in the US. An evaluation of federal revenue sources reveals how citizens contribute in taxes to the federal government. Most federal revenue comes from individual income taxes and payroll taxes, which includes Medicare, the fiscal year of 2008, individual income tax made of 45% of federal tax revenue, while payroll taxes made up 36%. While historically, corporate income tax has b een the second largest sources of revenue, that situation changed as payroll taxes swelled after 1965 with the creation of Medicare and Social Security. Individual income tax and payroll tax now account for more than 80% of the federal ( Tax Policy ). However, not every citizen contributes equally. According the Tax Policy Center, In contrast, payroll taxes for


23 Social Security and Medicare are regressive, claiming a larger share o f income from lower income than from higher payroll taxes is subject to a cap. Second, higher income households tend to receive more income from sources other than wages such as capital gains and dividends, which are not subject to the payroll tax. For this section, only individual income taxes and payroll taxes will be considered. US citizens pay federal taxes through several means: everyone both citizen and alien (wit h certain exceptions) must file a federal tax return form with the Internal Revenue Services. Citizens with a social security number (SSN) may fill out a W 4 form through their place of occupation that processes taxes, which are then withheld from the indi vidual until tax refund time. Finally, certain nonresident and resident aliens may file for an individual taxpayer identification number (ITIN) which is available for individuals who cannot get a SSN. ( DoT ) Under this system, illegal immigrants technically can file taxes using an ITN, even though they have no legal method of filing for tax refunds. Now we will evaluate three sources of data used in analysis. The Center for Immigration Studies partisan, non profit, r reliable information about the social, economic, environmental, security, and fiscal consequences of legal and il C amarota ). However, the Wall Street Journal uncovered some potential sources of bias for CIS, particularly in its founding. The executive director of CIS, Mark Krikorian, admitted in March 2004 during a subcommitt ee hearing in Congress that the CIS was a spin off of Federation for American Immigration Reform (FAIR), a heavily conservative anti immigration pro deportation lobby. Both FAIR and CIS were founded or funded (or both) by Dr. John Tanton, a known anti immi gration activist whose stances include promoting sterilization of Third World Wome n and However, we should not outright dismiss its actual research, based on US C ensus Bureau statistics, due to dubious motives. The second opposing source, the


24 conversation on immigration and immigrant integration. Through its research and analysis, IPC provides policymakers, the me dia, and the general public with accurate information about the role of immigrants pro immigration watchdog role for the group ( Immigration ). Overall, strong evidence suggests that the 11.9 million illegal immigrants who reside in the US do pay taxes and benefit from social services provided by the g overnment ( Passel ). CIS estimates that illegal billion. However, they also estimate that each household costs the US government about $6,950 per hou sehold or total $26.3 billion, for an overall fiscal balance of $2,736 ( Camarota .) Overall, this is an overall federal deficit of about $10.6 billion estimated for the fiscal year 2003. However, some of this data is suspect, as the source misrepresents i llegal households as the total impact of illegal immigrants. In National Research Council in including in the costs incurred by the children of illegal immigrants. Ho wever, this means that their estimate of the $26.3 billion cost includes costs incurred by legal citizens used by these children allows for a full acc presence of these children and the costs they create are a direct result of their parents having been allowed Camarota. ) The Pew Hispanic Center sheds some light on t hese numbers. ($41,300) and citizens ($50,000), the lower tax income from illegal immigrants may have more to do with their overall lower incomes rather than their undocumented status. In contrast, the IPC notes that immigrant households as a whole contribute $165 billion in federal income taxes, but does not single out tribute to the tax rolls but are ineligible for almost all Federal public assistance programs and most major Federal


25 Immigration ). This came from the 2005 Economic Report of the President, which suggests that while illegal immigrants might contribute to the federal deficit, they by no means make a huge impact. Overall, even taking the liberal estimate of $10.4 billion cost a year from the CIS, that is only a fraction of the overall US federal budget ($2.1 trillion). Overall, illegal immigra nts contribute more federal taxes than what many commonly perceive, but they also take more in terms of benefits due to having considerably lower wages than the national average. CIS does admit that many of the preconceived notions about illegal immigrants using a disproportionate share of federal services turned out to be inaccurate. According to their data, illegal significant, is still less than for other ho useholds. Only use of food assistance programs is significantly The reason for this low receipt may be the distrust illegal immigrants harbor for the government. Knowing their illegal status, they probably r esist giving information that may give away their undocumented status. CIS also estimates that more than half of illegal immigrants actually pay payroll taxes. CIS also includes an estimate of how amnesty would change the federal deficit. Their estimates s how that while taxes from legalized illegal immigrants would increase, their costs would also increase Again, the increased cost here may be due to illegal immigrants, who are now citizens, eagerly taking advantage of government programs once they are no longer afraid of being discovered for their illegal status. They will also probably take advantage of government benefits more than current legal immigrants due to their lower wage status. Overall, illegal immigrants do contribute to federal taxes and also cost the federal government. The sources used here cannot definitely make a good estimate of whether illegal immigrants cause a federal deficit or benefit, but the numbers do not seem to make a huge impact on the overall federal budget, even given the hig her end of the estimate. Solving the illegal immigration issue should not become a huge financial burden for the federal government, although gaining the political may prove out of reach during this administration.


26 VII. Conclusion The 11.9 million illegal immigrants working and taking residence in the United States and the rising cost of these residents on local and federal government pose a serious financial problem ( Passel ). These undocumented workers need education for their children, hospital care, i ncarceration, and government aid, all of which must be paid for by taxes. With the increase of illegal immigrant migration, especially in Border States Senate Bill 1070 took the fi rst step by granting the state the authority to seek out illegal immigrants, although it overstepped human rights and legal bounds in doing so. The law will also create an additional financial burden on the state as law enforcement will need additional res ources to carry out the law, actions, have quickly signaled they would follow. However, the political inaction of California, the roposal in Utah, and the failed judicial action in Florida all indicate that various states will react vastly differently due to different circumstances regarding illegal immigration within their borders. Meanwhile, illegal immigration does not pose a trem endous threat to the federal budget, even though they have considerably higher rates of poverty and welfare use. Most illegal immigrants cannot or will not take advantage of government benefits, but this situation could change with the enacting of sweeping financial reform on a federal scale. Overall, illegal immigration imposes a heavy burden on the states with higher rates of illegal immigration, but low financial impact federally and potential conflicts between differing state policies leaves Washington a prime chance to reform immigration policy. The finer details in what U.S. immigration policy reform should entail are beyond the scope of this chapter. In order to carry out immigration reform in an equitable, economically sound way, we would consider n ot merely the economic impact of reforms such as amnesty or mass deportation, but also the legal, ethical, and humanitarian aspects, too.


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28 Epperly, Greg. "Federal Tax Laws for Immigrants on Work Visas |" EHow | How To Do Just About Everything! Web. 1 Oct. 2010. . Federation For American Immigrat ion Reform. 2010. < > . (6) 2008. Web. 10 Oct. 2010. < rights/immigration myths and facts >. http://www.i > Johnson, Wade. "U.S. Immigration Legislation: 1952 Immigration and Nationality Act (McCarran Walter Act)." Campus Library Homepage Web. 10 Oct. 2010. . "June 2010 Tax Facts." State of Arizona Department of Revenue Web. 15 Oct. 2010. . (5) Legalzoom Staff. "Becoming American: Understanding Legal and Illegal Immigration | LegalZoom." LegalZoom: Online Legal Document Services: LLC,Wills,Incorporation,Divorce & More Mar. 2006. Web. 30 Sept. 2010. . Meckler, Laura. "U.S. Hits Immigration Law." Wall Street Journal. 7 July 2010. Web. . (1) Institute and Brooklings Institution. Modified: 2010. Acces sed: 2010. < book/background/numbers/revenue.cfm > NumbersUSA. 10 April 2009. < 10 2009/florida study reveals high cost illegal immigration and voter dissatisfaction.htm > Passel, Jeffre Pew Hispanic Center: a PewResearchCenter Project, 14 Apr. 2009. Web. 16 Oct. 2010. Pitzl, Mary Jo. "Arizona Budget Deficit Estimated to Have Grown to $825 Million." The Ariz ona Republic. 22 Sept. 2010. . (9)


29 l < 1989/1981/1981_80_1538 >. PolitiFact Florida. August 2010. < scott/rick scott says illegal immigrants taking jobs/ > New York Times, 5 Apr. 2005. Web. 10 Oct. 2010. < 3 >. Rubenstein, Edwin. "The Social Contract Immigrants an d the Earned Income Tax Credit." The Social Contract Press. Fall 2002. Web. 1 Oct. 2010. . Savage. The Washington Post. 14 August 2010 < dyn/content/article/2010/08/13/AR2010081304360.html > Sefs, Wendy. "How Much Will Arizona's Immigration Bill (SB1070) Cost? & Implementation Costs of SB 1070 to One Arizona County." Immigration Policy Center. 21 Apr. 2010. Web. . (8) Sifuentes. North County Times. 6 December 2004. < 9d5d 5335 af7e 2af6730a577c.html > U.S. Census Bureau. "Arizona QuickFacts from US Census Bureau." Arizona State and County QuickFacts. 15 Oct. 2010. . (3) US Immigration Support. 2010. < > "USCIS General Path to Citizenship." USCIS Home Page. 10 Sept. 2009. Web. 10 Oct. 2010. . Vergakis. The Huffington Post. 14 July 2010 < illegal immigration _n_646955.html > Wood. The Christian Science Monitor. 10 May 2010 Treasury: Internal Revenue Services. Modified: 2009. Accessed: 2010 < pdf/p17.pdf >