Undocumented immigrants in the United States are making substantial contributions to the nation’s tax revenue, yet they continue to face significant barriers to accessing the social services their taxes fund. According to a recent study by the Institute on Taxation and Economic Policy (ITEP), undocumented immigrants paid nearly $100 billion in taxes in 2022, contributing more to state and local tax revenues than the wealthiest 1 percent of households in 40 out of 50 states. This finding directly challenges the pervasive anti-immigrant rhetoric that depicts undocumented immigrants as a drain on public resources.
Undocumented immigrants’ tax contributions
The ITEP study reveals that undocumented immigrants paid a total of $96.7 billion in taxes in 2022, including $59.4 billion in federal taxes and $37.4 billion in state and local taxes. On a per capita basis, undocumented immigrants contributed an average of $8,889 in taxes. These figures underscore the significant financial contributions of undocumented workers to the U.S. economy, despite their exclusion from many public benefits.
One of the most striking findings of the study is the potential increase in tax contributions if undocumented immigrants were granted legal work authorization. The study estimates that their total tax contributions would rise by $40.2 billion annually, bringing the total to $136.9 billion. This increase would result from higher wages associated with legal employment and greater compliance with income tax laws, demonstrating the economic benefits of integrating undocumented workers into the formal economy.
Disparity in tax burdens
The study also highlights the stark disparity in tax burdens between undocumented immigrants and the wealthiest Americans. In 40 states, undocumented immigrants pay higher state and local tax rates than the top 1 percent of income earners. For instance, in Florida, undocumented immigrants pay an 8 percent tax rate, while the top 1 percent pay just 2.7 percent. This regressive tax system disproportionately impacts low-income and undocumented workers, who contribute a larger share of their income to public services they often cannot access.
The regressive nature of state and local tax systems means that undocumented immigrants, who are among the lowest income earners, bear a heavier tax burden relative to their income. This stands in sharp contrast to the wealthiest households, who benefit from tax policies that allow them to pay a lower effective tax rate. The ITEP study’s findings call into question the fairness of a system where those with the least financial means are contributing more to public services than those with the most.
Contributions to social programs without benefits
Undocumented immigrants contribute billions of dollars to social programs from which they are largely excluded. In 2022 alone, they paid $25.7 billion in Social Security taxes, $6.4 billion in Medicare taxes, and $1.8 billion in unemployment insurance taxes. Despite these significant contributions, undocumented immigrants are ineligible to receive benefits from these programs, leaving them without the safety nets that their tax dollars help to fund.
The use of Individual Taxpayer Identification Numbers (ITINs) by undocumented immigrants further complicates their ability to access tax refunds. Many undocumented workers face challenges in claiming refunds and are vulnerable to scams by unscrupulous tax preparers who exploit immigrant communities. These barriers add to the financial strain on undocumented workers, who are already contributing more than their fair share to the public good.
The broader economic impact of undocumented immigrants
Undocumented immigrants play a crucial role in the U.S. labor market, particularly in states facing significant labor shortages. According to a Washington Post analysis of Bureau of Labor Statistics data, states like South Dakota, North Dakota, Maryland, Vermont, Maine, and South Carolina are experiencing some of the most severe labor shortages. Undocumented workers are helping to fill these gaps, providing essential labor in industries such as agriculture, construction, and service sectors.
The economic contributions of undocumented immigrants extend beyond their tax payments. Their spending power supports local economies, and their labor is essential to the functioning of many industries. The ITEP study warns of the potential economic ripple effects if undocumented immigrants were deported en masse. Such a scenario would lead to reduced consumer spending, lower business profits, and significant disruptions to the labor market.
The political climate and anti-immigrant rhetoric
The findings of the ITEP study are particularly relevant in the current political climate, where anti-immigrant rhetoric is fueling policies that target undocumented immigrants. State laws that criminalize illegal entry, coupled with the Biden administration’s executive actions on deportation, are creating a hostile environment for undocumented workers. The 2024 Republican Party platform’s promise of the “largest deportation operation in American history” if former President Donald Trump is re-elected further exacerbates these tensions.
In this context, the economic contributions of undocumented immigrants are often overlooked or ignored. The Congressional Budget Office’s July report on the economic impact of immigration projected that immigrant workers, both authorized and undocumented, will add $7 trillion to the U.S. gross domestic product by 2034. This finding highlights the importance of recognizing the value that undocumented immigrants bring to the economy and the need for policies that support their integration rather than their exclusion.
Long-term economic contributions and social equity
The long-term economic contributions of undocumented immigrants extend beyond their own lifetimes. As children of undocumented immigrants enter the workforce, they are likely to become net contributors to the economy, repaying the investment in their education and contributing to the social safety nets that their parents helped to fund. This generational impact underscores the importance of policies that support the inclusion of undocumented immigrants and their families in the U.S. economy.
Policy experts and advocates are calling for comprehensive immigration reform that addresses the economic inequities faced by undocumented immigrants. This includes creating pathways to legal work authorization, reforming regressive tax policies, and ensuring that all workers, regardless of their immigration status, have access to the benefits and protections they help to fund.
As Carl Davis, research director at the Institute on Taxation and Economic Policy, aptly put it, “If we want a fair and equitable society, we need to recognize the contributions of all workers, including undocumented immigrants, and ensure that our policies reflect their value to our economy and our communities.”
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