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Unauthorized Immigrants Pay Greater Share of Income in State and Local Taxes Than Top Earners

March 6, 2017 at 1:45 PM

Unauthorized immigrants pay a larger share of their income in state and local taxes than the nation’s top earners, and immigration reform would improve state and local finances across the country, a new report from the Institute on Taxation and Economic Policy (ITEP) finds.

ITEP’s findings are particularly timely and important as a growing number of states are facing budget shortfalls, and the Trump Administration considers immigration-related policy changes that could affect state and local tax revenues.

Unauthorized immigrants pay sales taxes when they buy goods and services, property taxes (mostly passed along through their rent), and income taxes when employers withhold them from their paychecks — even those who don’t file income tax returns, although between about half and three-quarters do.

Among ITEP’s key findings:

  • Unauthorized immigrants paid about $11.7 billion in state and local taxes in 2014.
  • They pay about 8 percent of their income, on average, in state and local taxes, significantly higher than the 5.4 percent that the average taxpayer in the top 1 percent pays. (See chart.)
  • Comprehensive immigration reform would further boost the state and local taxes that these immigrants pay by allowing them to come out of the shadows and work legally. ITEP estimates that granting lawful permanent residence to all unauthorized immigrants who are now in the country would lift state and local tax collections by about $2.2 billion a year and raise the effective state and local tax rate that these unauthorized immigrants pay to about 8.6 percent from about 8 percent.

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