BUSTED! The Myth That Illegal Aliens Pay Their Share of Taxes

One part of the illegal immigrant debate is whether Illegal Immigrants are a drain on the public coffers, in other words, do they pay taxes? Pro-Amnesty pundits will tell you that absolutely, undocumented aliens (their politically correct way of describing people who entered the US Illegally) are not a drain on the system because they pay their fair share of taxes.

The truth is there are different ways to estimate the amount of taxes paid by people who broke the law by crossing the border into the United States, all of them must be taken directionally. Most of the studies show that generally, illegals do not pay their fair share o taxes on recorded income. Additionally, some studies suggest that up to  half of the country's illegal immigrants work in the "underground economy," meaning that they are paid cash under the table, without having to pay any kind of taxes.

A report by the Center For Immigration Studies uses a Government Accounting Office (GAO) report and simple arithmetic to suggest that Illegal Aliens, Nonimmigrants Rip Off IRS by $6 Billion a Year. Their analysis is based on a GAO the report published last month called "IRS May Be Able to Improve Compliance for Nonresident Aliens and Updating Requirements Could Reduce Their Compliance Burden," (embedded below)

The [GAO] report, despite its shortcomings, has two very useful elements. First, it points out that there are two basic income tax forms, the 1040 that most of us have used for years, and the 1040NR (for nonresident) that is supposed to be used by most nonimmigrants and all illegal aliens during their first five years in the country. The 1040NR has fewer opportunities for deductions and thus it taxes the same income more heavily than the 1040. (I have had a lot of exposure to both forms in recent years, as I have provided a volunteer income tax-counseling service to graduate students at the University of Maryland, including many F-1 and J-1 students.

The GAO document's second virtue is that it reports that 634,000 1040NRs were filed in the 2007 tax year, with a total tax liability of $2.5 billion. I pay attention to this field and had not seen either figure in the past.

While the report worries that many aliens may have filed the wrong form, it does not quantify the extent of mistaken (or non-) filing and thus understates the size of the problem. It does so by billions of dollars a year, billions that would help close the income-outgo gap in our seriously over-stretched budget.

The data that GAO overlooks can be found in, or estimated from, the publications of the DHS Office of Immigration Statistics.


I know that I am heading into eyes-glaze-over territory, but let me repeat the 2007 IRS total of 1040NR filers – it is 634,000. That's a key number.

It should be compared with, as GAO does not, the estimated total number of aliens who should be filing the 1040NR.


The bottom line, as I outline subsequently, is that there are probably more than 5,000,000 aliens who should be filing the 1040NR. An unknown number are not filing at all, and another large number are mistakenly (or deliberately) filing the 1040 form, and collecting deductions and tax breaks to which they are not entitled. The 5,000,000 potential filers vs. the actual 634,000 filers is the elephant-in-the-room that the GAO did not discuss in its report.

Put away that calculator and read on.

Let's look at some more numbers: 5,000,000 - 634,000 = 4,366,000 should-be filers. Let's round that down to 4 million (being simultaneously conservative and lazy), and assume that half filed 1040s, and half filed nothing.

Let's also assume that the combined group of nonimmigrants and illegals that did file 1040s (and not 1040NRs) saved about $1,000 each by doing so. (That is about the difference in taxes, between 1040 and 1040NR, on incomes of about $25,000). Let's further assume that the people who did not file at all, probably a less prosperous group than the 1040 filers, saved $2000 each. This second group paid no federal taxes at all. (I should point out that these are very conservative estimates of the tax liability of these two groups.)

The two million who filed the 1040 mistakenly, thus robbed the Treasury of $2 billion a year, and the non-filers deprived the Treasury of about $4 billion, or a total estimated shortfall of $6 billion a year. I think the GAO had an obligation to its readers (and its bosses in Congress) to have made an estimate along these lines.

The CIS report goes on to explain why the numbers used are very conservative and the lost tax revenue could be larger. The bottom line is that Illegals do not pay their fair share, and on the other hand they generally require more services includint public schools, medical care, incarceration and unemployment benefits.

Overall, by not enforcing the law the United States is adding to the fiscal problems of the nation and the local governments.



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