Tax Revenues and Legalizing the Undocumented

Tax day has come and gone, leaving some of us to anticipate a juicy refund, and others, still smarting from the check written to cover taxes still owed for 2009.  Most of the media’s attention focused on the protests by TEA party activists – whose acronym stands for Taxed Enough Already – a recent item in Washington’s The Hill newspaper indicates that not everyone agrees. According to The Hill, demonstrators in several cities – Detroit, Columbus, and Cincinnati, among them – picketed outside of public buildings with signs saying “We love taxes!” and “Viva Taxes,” to call attention to the projected increase in tax revenues that could be achieved through immigration reform. (See Immigrants Display Revenue Generating Prowess in Run Up to Tax Day, by Jay Heflin, The Hill, 14.Apr.2010.)

The article refers to a recent report from the Immigration Policy Center and the Center for American Progress, which found that tax revenues would grow by $4.5 to $5.4 billion if undocumented immigrants were legalized through comprehensive immigration reform. (See Raising the Floor for American Workers: The Economic Benefits of Comprehensive Immigration Reform, by Dr. Raul Hinojosa-Ojeda, Jan.2010.) According to the study, the increase in tax revenue would be driven by the upward mobility of newly-legalized workers, whose income would increase by $30 to $36 billion following legalization. (See Immigration Reform With Legalization Does Help U.S. Economy and Newly Legalized, 09.Apr.2010, press release.) According to the Immigration Policy Center, only about half of America’s undocumented immigrants currently pay taxes, and legalization would bring many more people into the tax system. The Treasury also would likely gain a revenue windfall from the fines and other fees that are integral to most “path-to-citizenship” proposals that have been circulating in Washington over the past several months.  Time will tell whether we get to test these hypotheses sooner rather than later.