The Illegal Immigrant Debate, Why You Shouldn't Worry about Their Taxes, and How We All Benefit

Illegal immigrants can have a tendency to frustrate many Americans. A large part of the reason is probably the issue of taxation. We feel that they’re coming here illegally, working illegally, and on top of stealing an American’s job they’re not paying taxes on those wages. We’re furious when we read the news stories, but do we ever stop to check the numbers? Common sense tells us that a non-taxpayer working in the system means less tax revenue, and when the average immigrant household costs the federal government $2,700 a year (Center for Immigration Studies) this adds up to a large deficit. But there are two very important considerations to take into account as to why illegal immigrants are actually more tax efficient.

The first reason can be read about in more detail from a story on CNN’s website, and the link will be provided later. It basically states that illegal workers get taxes withheld from them in their paychecks, but due to their illegal status they never file for the return. The IRS doesn’t track an immigrant’s status, but very few illegals are going to risk the exposure by filing. It is impossible to track for sure but in just Social Security tax alone it is estimated that illegal immigrants contributed roughly $9 billion this past year alone. When you consider that these workers will never benefit from Social Security, any amount is a positive. I won’t go too in-depth here, but I recommend checking out the story from CNN.

I will, however, discuss at length illegal workers who are paid under the table. Now I’m not entirely a liberal, nor am I entirely a conservative, so my position is from an economist’s point of view. In other words, I can recognize the bottom line.

Essentially, having illegal immigrants in the country who are working for cash under the table is better for the tax system overall. It seems counterintuitive, but stay with me. Let's examine some of the numbers, and for simplicity’s sake we’ll assume that one is single and there are no deductions, just a flat Federal tax bracket (not including State.)

You're John Smith, average American citizen, and you make a relatively decent salary, let's say $50,000 a year. Your tax bracket for the last dollar earned would be at a rate of 25% for 2007 (from $31,850 to $77,100.) Now you pay your 25% on any income you make over $31,850, and you pay 15% on any income from $7,825 to $31,849, and you pay 10% on your income up to $7,824. You’re going to pay more than this in payroll taxes, but these are not what I call a “true” tax, in that it is not directly for government revenue. These go towards benefits and such that will likely be taken advantage of by you at some future date, medical, dental, etc.

So in a true tax sense, a.k.a government revenue, you have paid $8,924. Because of the stratified arrangement of the taxes, this works out to about 18% of your total income. Not bad.

Now let’s look at the scenario of an immigrant coming to this country, obtaining citizenship so he can pay his taxes, and he then gets a minimum wage job. We'll call him Juan. We love Juan, because Juan pays taxes on his minimum wage job. Juan is lucky to eke out $17,000 this past year, and when he does he pays taxes along the same brackets we do, and overall we get a grand total of $2,159 from Juan, roughly 13% of his net income.

But what about illegal workers?

After hearing of Juan’s success, Juan's brother Raul decides to come over as well. Raul wants the same minimum wage his brother Juan is making but realizes that obtaining citizenship is difficult and he cannot do so at this time, so he opts to go illegal and work under the table. Raul makes $17,000 a year, cold hard cash, baby! Raul does not pay a dime in taxes, and we hate him for this. But should we really hate Raul? From my point of view, being an economist, I hate Juan. Well, I don't hate hate him, but I hate his status as a taxpayer and I’ll tell you why.

You see, someone has to pay Raul $17,000 a year in cash. Is John Smith going to pay him, with his meager salary of $50,000, almost a quarter of which has gone to taxes of his own, and now he is left with a mere $24,076 to live on all year? No way. John just bought a pretty sweet ride. He probably pays over half that alone in car payments and insurance. John, rightfully so, needs his bling.

Luckily, he doesn't need to hire an illegal immigrant, at least not full-time at $17,000 a year. But who does? Typically, in more than two-thirds of the cases, the answer is someone making a $150,000 and up income, oftentimes with their own business. Sure, you can deduct for small business taxes, etc., and do all these fancy loophole things, but if we assume that on a tax bracket scale when all is said and done these guys are generally paying anywhere from 24% - 33% in taxes each year. Let’s assume that Mr. Fatcat has a business and pays 25% a year in taxes on his total income of $175,000, and he hires Raul for $17,000 a year.

Well, well, well. Where does this $17,000 come from? It's not tax deductible because Mr. Fatcat really doesn't get any of the special privileges for payroll to an employee because he can't report Raul. That $17,000 cash given to Raul has been taxed already, at the fantastic rate of 25%. Raul doesn't notice, but his salary has already been taxed for $5,666.67 because it is derived from the post-tax income of Mr. Fatcat's. The reason it's so high is because you can't just calculate 25% of $17,000 and end up with $4,250 in tax revenue, but in order to get $17,000 you must start out with an original amount of $22,666.67 of pre-taxed income. After taxes this now equals the $17,000 Mr. Fatcat has left over in cash for Raul. (Taxing Raul's money again would be taxing that money twice, a big no-no to the IRS, surprisingly.)

So here we have two brothers. Juan is legal, and pays the government $2,159 every year in taxes. Raul, on the other hand is illegal. And yet we all hate Raul because he doesn't pay us $2,159 in taxes. Yet it seems as if people are often too quick to judge. When we examine the numbers we realize that Raul has, in essence, paid us almost two and a half times his brother's taxes - $3,507 more, to be exact. We never stop to think that the under-the-table employees in our country are already being taxed, at incredibly higher rates than if they were working legally.

Raul is, in my eyes, an unsung hero. Not only are illegal immigrants frequently doing jobs that your average working class American won’t do for the low wages, but he's also probably putting in some overtime, and not complaining to anyone (and possibly wasting more tax dollars.) If he complains about low pay, crazy hours, and possibly hazardous working conditions he risks deportation. And yet he does this.

We have evolved beyond this.
We have evolved beyond this.

So by now I hope we can see a different situation. An amazing group of laborers paying well over what they would pay in taxes as full citizens is still far too frequently the target of our hatred. At times their inability to learn English results in more anger, yet we don't even give them the credit they deserve for knowing more English than we know of their language. They work long, hard hours in conditions other people wouldn't tolerate. They deal with problems that all of our forefathers faced coming to this country, and they're paying heavily for that privilege. Since they don’t file for returns, or are paid cash in hand, there are very little bureaucratic costs. Yet all many people can do is blame them for our problems.

Immigrants of all status are the bedrock of this country. It’s easy to criticize them, or view them as scapegoats as to why our economy’s going down the tubes, but it is entirely unfair to do so. It is a human right to be able to seek a better life for oneself and your loved ones. The system as is may not be perfect, but one’s status as an illegal immigrant does not automatically mean that they get a free ride without buying into the system like the rest of us.

There was a time when immigrants sought out a better life for themselves. Many of them were illegal, and they faced intense prejudice and insufferable conditions. These ranged from New England paper mills, Midwest steel factories, and building railroads. Imagine what our country would be like today if the Irish, Italian, Polish, Russian, etc. unwanted illegal immigrants had all been deported. Would you be here today?

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Comments 17 comments

livelonger profile image

livelonger 8 years ago from San Francisco

This is an excellent hub. Thank you Jarrod. I've always felt that illegal immigrants were unfairly targeted on the tax issue. Unfortunately those who see economics as a zero-sum game are the most likely to see it that way.

I do think that the main argument against illegal immigrants, though, is that they "steal jobs".


diegoJ 7 years ago

Very well written article. Looking at the situation of strictly on tax revenue for state and local governments,ceterus paribus, the statistics might not seem so bad. But illegal immigration effects are dynamic throughout society and when all else is considered it makes you wonder if the US and/or state governments can sustains such a high influx of low skilled labor into the workforce? How would the numbers end up when taking into account the cost of millions of people at poverty levels that have no means of providing , let's say, health insurance for 2(being conservative) -6 kids into cash strapped governments. Another number to consider is the amount of money sent back home to families in their native countries that isn't being spent here and contributing to the American economy.  The unforeseen externalities of illegal immigration i believe is why so many states are so deep in the red.


ok 7 years ago

Well unfortunately this article doesn't take into account all the freebies given to poor families working for cash. Because its under the table their children receive free school lunches, medical care, food stamps, rent assistance, clothing assistance, wick formula, etc.

If only one of the parents earns a legal living, and the other an illegal living, their income can be low enough to qualify for a variety of programs, not available to legally working families.

Perhaps if we spent less money on this, we could change the income limits to include the poor that don't really make enough to get by, but too much to qualify for these programs, because the programs only have so much money and have to help the poorest first. But on paper they may seem poorer, because they made money under the table.


jagspeed 7 years ago

Jarod I happen to agree with you on this. Many folks target the immigrant community unjustly when the simple truth is we need them. Im not saying they do not get breaks here and there, but when you take into account all costs and revenue (in taxes) you can see they ultimately contribute to the economy. Click on the 2nd link after this article and look at the picture and tell me you want to do that job, because, in reality, those are most of the jobs they are doing. They are producing and making your food, cleaning and building your houses, picking your fruit. Jobs I know most folks around here wouldn't want to even think about doing. So next time you want to deport every single immigrant back to their country, think again.


Nickny79 profile image

Nickny79 7 years ago from New York, New York

The Federal Income tax is not the issue here. It's state revenues that are most harmed by illegal immigrants.


Matilda Perales 7 years ago

I am married to a wonderfull ilegal imagrent he goes to work every day comes home to four kids that are not his washes close and cooks as well.we hve bean together four 4yrs and married 2yrs and yes we do pay are taxes it sucks because we only get about 2000 back because i get penalized four marrying the man i love and the man that loves me and my wonderfull children.We cant get the earned income four the children or the stimulase checks but hey we wana do the right thang witch is sometimes the wrong the most important thang we have is are family.If u are wondering why he cooks, clean and works i have gotten very ill in the last 1yr and i cant do much because of my condition i do work and i do do the best that i can to take care of my families needs i love them dearly with all my heart. I wish four one i would not have to wake up thanking that my garden angel is going to get thrown back to mexico.


Winfield Sterling 7 years ago

"Mr. Fatcat has a business and pays 25% a year in taxes on his total income of $175,000"

You claim to be neither a liberal or conservative, but you cite CNN (not conservative) and use words like "fatcat" to describe a guy that makes $175,000. You, my friend, are a liberal/socialist and I would not trust this "economic" analysis as far as I can spit.


JarrodHaze profile image

JarrodHaze 7 years ago Author

U. Chicago economist, quite Libertarian, and my salary and employment are of no concern here but I wouldn't exactly call myself a thin alley cat.

http://mises.org/

This link will provide you with some incredible sources for excellent economic discussions and research.


Rookie70 6 years ago

JarrodHaze, you have written a pretty story, but it is a misconception, and lacks realism. The truth of the matter is, illegal immigrants are costing the Americans too much money, and they are hurting our government's budget. What do I mean? Consider these factors:

The legal Americans are receiving 15 billion a year in benefits after losing their job fields to illegals then add in the amount illegals cost the tax payers.

90 billion for social services.

11 billion for welfare

2.5 billion for medicaid

2.2 billion for Food assistance

For a grand total of 120.7 billion of taxpayers money. This isn’t a one time expense this is every year. Makes the military budget look like a day out at McDonald’s.

This isn’t counting the wage suppression factor created by the illegal wage levels paid to Illegal aliens.

The truth is, expenses for the training of illegal immigrants makes the money paid to the military looks like a "night out at McDonalds."


Chuck RitenouR profile image

Chuck RitenouR 6 years ago from Front Royal, Virginia

We are all illegal immigrants....don't believe me, just ask any Native American.


Pollyannalana profile image

Pollyannalana 5 years ago from US

What about the issue of none of them being screened so carrying in diseases America has wiped out years ago and bringing in ones we have never had? What about they throw everything they want in a buggy and it takes two or three of them to get it to their new SUV and now even the above average retired Americans plus many more are having to take time and check prices and watch budgets and what about since they don't have to show ID for anything and citizens do that is a bit....wrong? No one was ever displeased doing it the legal way but now all of a sudden illegal is OK and all of a sudden this is NOT America anymore. Rep-Dem are all in whatever game they are playing, not even allowing states to protect their borders from drug cartel and mafia,,this sounds OK to you too I guess? The law can do nothing with them because they can't approach then discriminating...hmm...but me a citizen they can. Only an idiot would be blind to something not right.


Erik 5 years ago

hey, dont call ur self american if you werent here in America for at least 20 thousand years. This is the US, not america. just a tiney tidbit


francisid 5 years ago

If the case is how you presented it, I wonder why everybody still hates illegal immigrants. I mean, nobody wants them,right? But you said that you benefit from them.If your country benefits from them,why is this not seen by everybody in your country?


timeforchangetoo 4 years ago

What about the employers that are paid in cash? Landscaper's, Construction, Restaurant's and other's.

I don't think Mr. Big Bucks is going to put himself in a higher tax bracket and worry about losing everything to pay illegals in cash.


American 4 years ago

I love how you're giving an opinion as a neutral "economist" but you have completely ignored how this affects the business realm. When law abiding businesses are being undercut by businesses that are breaking the law, it ruins the competitive environment. It's cheating and it doesn't fit into a free market system. Also, your last line of "Would you be here today?" is a little bit irrelevant, due to the fact that immigration laws of the past are not the immigration laws of today. You also ignore that there are a vast amount of illegal immigrants being paid in paper money itself, not cleared through any financial institution.


outlawbilingualpreferred 4 years ago

Oops, guess you didn't know about the Child Tax Credit that enables illegals to steal over 4 billion dollars from the government every year. Don't believe it? FactCheck.org by the Annenberg Public Policy Center has the facts.


terrence benter 3 years ago

They may not collect SS from the SS# they stole from someone else but that person they stole it from will so thats BS CNN.

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