By James D. Agresti
November 7, 2016
In the last presidential debate between Hillary Clinton and Donald Trump, Clinton said that “half of all” illegal immigrants in the U.S. “actually pay federal income tax.” PolitiFact, a Pulitzer Prize-winning fact check organization, investigated Clinton’s claim and reported: “While there is no official figure, experts estimate that about half of all undocumented workers pay federal income taxes, if not more.”
In reality, the polar opposite is true. Federal government data shows that while roughly half of illegal immigrants file federal tax returns, the vast majority of them don’t pay any federal income taxes. Instead, they use these returns to claim refundable tax credits, which are a form of cash welfare. In other words, illegal immigrants mainly use the federal income tax code to collect money from U.S. citizens.
Reliable Data on Illegal Immigrants Is Scarce
Federal law generally prohibits illegal immigrants from earning income in the U.S., but many of them do so by working for cash and by fraudulently using Social Security numbers. A 2013 report by the Social Security Administration notes that illegal immigrants get Social Security numbers by using counterfeit birth certificates, usurping other people’s numbers, and reusing numbers that they received to work temporarily in the U.S.
Because illegal immigration is often covert, reliable data on it is scarce. In the words of the Congressional Budget Office, figures for the number of illegal immigrants in the U.S. “are subject to considerable uncertainty.” This applies to most data on illegal immigration, but various federal agencies have produced estimates that shed degrees of light on these issues.
Individual Taxpayer Identification Numbers
One of the most reliable sources of data concerning the federal income taxes of illegal immigrants comes from an IRS program that gives them “Individual Taxpayer Identification Numbers” or ITINs. These numbers are “issued regardless of an individual’s immigration status,” and they allow illegal immigrants and foreign investors to file tax returns without a Social Security number.
Obtaining an ITIN also allows illegal immigrants to claim the federal Child Tax Credit, which can provide them with a cash benefit of up to $1,000 per child per year. According to the latest IRS data, 72% of all tax returns filed with ITINs in 2010 claimed child tax credits to receive cash payments from the federal government.
It is important to note that illegal immigrants likely received higher child tax credits in 2010 than in other years. This is because the 2009 American Recovery and Reinvestment Act (“Obama stimulus”) enabled more people to claim child tax credits or to claim greater amounts in 2010. Furthermore, the U.S. was still in the early stages of recovering from the Great Recession, and incomes were down. Since child tax credits generally increase as income falls, these payments should have been higher in 2010 than most other years.
Nonetheless, the contrast between tax returns filed with and without ITINs in 2010 is enlightening. As documented above, 72% of ITIN filers paid no income tax and received cash payments through child tax credits. In comparison, only 14% of people who filed regular tax returns (with a Social Security number instead of an ITIN) paid no income tax and received these payments.
The monetary totals of ITIN returns are also instructive. In 2010, ITIN filers paid a total of $0.9 billion in income taxes and received cash payments of $4.9 billion. In other words, ITIN filers received 5.4 times more cash than they paid in income taxes. Most of this cash—$4.0 billion of it—came through child tax credits. Since these figures include foreign investors who are not eligible for child tax credits, it is possible that little-to-none of the taxes paid came from illegal immigrants.
PolitiFact claimed that illegal immigrants use ITINs to “pay income taxes,” but the truth of the matter is that illegal immigrants mainly use ITINs to get cash from U.S. taxpayers. As explained by the IRS Taxpayer Advocate Service, the federal tax code has provisions “designed to assist low income populations,” and the “IRS no longer is just a revenue collection agency but is also a benefits administrator.”
In 2013 and 2015, a number of Republican congressman cosponsored bills that would restrict illegal immigrants from obtaining refundable child tax credits. However, Congress did not vote on either of these bills.
Fraudulent Social Security Numbers
It is difficult to determine the income taxes of illegal immigrants who file tax returns by fraudulently using Social Security numbers. This is because their tax returns are indistinguishable from U.S. citizens and foreigners who legally work in the United States.
However, federal data on the incomes of non-citizen immigrants and the tax rates of people with different incomes suggest that few illegal immigrants pay federal income taxes.
A 2013 report by the Congressional Budget Office estimated that the median cash income of male non-citizen immigrant workers was 43% below male workers who were born the USA. The comparable figure for females was 41%. This is significant, because people with low incomes generally pay negative federal income taxes, which is another way of saying that they receive welfare payments by filing tax returns.
One of the primary reasons why illegal immigrants have much lower incomes than U.S. citizens is that they have much lower levels of education, which is highly correlated to earnings. In 2012, 7% of people aged 25 to 64 who were born in the U.S. did not have a high school diploma or GED. The comparable rate for U.S. residents born in other countries was 27%, and the rate for U.S. residents born in Mexico and Central America was 54%. In 2011, 73% of all illegal immigrants were from Mexico, El Salvador, Guatemala, or Honduras.
Each year, the Congressional Budget Office calculates the average incomes and federal tax rates of U.S. households by income group. According to the latest data, in 2013:
- the lowest-income households (the bottom 20%) had an average income of about $25,000 and paid an average federal income tax rate of –7.2%.
- the second-lowest 20% had income of about $47,000 and paid a federal income tax rate of –1.2%.
- the middle 20% had income of about $70,000 and paid a federal income tax rate of 2.6%.
Given the above estimates on earnings, incomes, and federal income tax rates, most illegal immigrants who file a tax return with a Social Security number are probably paying no federal income taxes and receiving cash payments from the IRS.
In comparison to illegal immigrants who file taxes using ITINs, illegal immigrants who file with fraudulent Social Security numbers have more opportunity to earn income. This is because a Social Security number allows them to get jobs with employers who will not knowingly break the law by paying them under the table. Such added income would increase their taxes and reduce their eligibility for child tax credits. However, fraudulent Social Security numbers would also allow them to receive eight other refundable tax credits. These tax credits would reduce their taxes and give them more cash welfare.
Another benefit that illegal immigrants obtain through fraudulent Social Security numbers is the ability to vote. This is because a Social Security number is a common requirement for voter registration. A 2013 report by the U.S. Social Security Administration estimated that 3.1 million illegal immigrants were working with fraudulent Social Security numbers in 2010. This lends credence to the hotly debated findings of a 2014 paper in the journal Electoral Studies, which estimated that 1.2 million noncitizens voted in the 2008 federal elections.
Other Taxes and Benefits
Clinton raised the point about illegal immigrants and federal income taxes to draw a contrast with Trump. Due to a $916 million loss that Trump claimed on his 1995 tax return, it is likely that he has paid little-to-no federal income taxes since then.
However, as Trump pointed out, he pays other types of federal taxes. The same is true of illegal immigrants. Beyond federal income taxes, most U.S. residents in all income groups bear the burden of federal social insurance taxes, federal excise taxes, and federal corporate income taxes.
On a net basis, however, most low-income households pay much less in federal taxes than they receive in government benefits. Although the law prohibits illegal immigrants from receiving most federal benefits, there is no effective enforcement mechanism to prevent those who use fraudulent Social Security numbers from getting these benefits. Also, beyond child tax credits, illegal immigrants are legally eligible for:
- free public educations.
- free school lunches and school breakfasts.
- free emergency room healthcare and childbirths.
- automatic citizenship for any of their children born in the U.S., which entitles the children to a host of other benefits, such as food stamps, housing subsidies, utility subsidies, cash assistance, and the Children’s Health Insurance Program.
Rough estimates in the federal reports cited above suggest that roughly half of illegal immigrants file federal tax returns. According to these reports, in 2010:
- 3.0 million federal tax returns with ITINs were filed by illegal immigrants and foreign investors.
- 3.1 million illegal immigrants filed federal taxes with fraudulent Social Security numbers.
- 11.6 million illegal immigrants lived in the U.S.
Adding 3.0 million to 3.1 million and dividing this by 11.6 million comes to about 50%. However, the federal data above also shows that very few illegal immigrants “actually pay federal income tax,” as Clinton claimed. Instead, they file tax returns to obtain cash welfare payments.
PolitiFact’s failure to differentiate between filing federal tax returns and paying federal income taxes adds to its series of misleading reports that support partisan political narratives.