Tax Contributions of Undocumented Immigrants

Bias and misinformation have fueled much of the policy conversation on immigration, both nationally and here in Colorado. In particular, inaccurate information about the tax contributions of immigrants without documentation of lawful presence (otherwise known as undocumented immigrants) has led to misconceptions and inequities in our policies and state and federal tax codes. Some argue these immigrants and their families take advantage of welfare programs or take jobs away from U.S. citizens. The reality is far different: Undocumented immigrants collectively contribute approximately $11.74 billion a year in sales, income, and property taxes, but are ineligible for most federal- and state-funded public benefits. 

Approximately 11 million undocumented immigrants are in the U.S., and two-thirds have lived in the states for more than 10 years. Like their peers living and working in the U.S., undocumented immigrants pay sales taxes when they purchase goods and pay property taxes on their homes or indirectly as renters. Many file income taxes using Individual Tax Identification Numbers (ITINs) or have taxes deducted directly from their paychecks. Even though undocumented immigrants pay into public benefit systems, they cannot access benefits equal to U.S. citizens and are often excluded from welfare policies.

Tax Contributions of Undocumented Immigrants in Colorado

Undocumented immigrants are a growing and important part of Colorado’s economy, and multiple industries depend on their labor. If 10 percent of undocumented immigrants left Colorado, the state would lose $23.8 million in federal taxes and $12.4 million in state and local taxes. They are strong contributors to our public systems and contribute to our economy in significant ways:

Despite their contributions, political debates continue to focus on the costs to educate immigrant children and emergency health care, but don’t consider undocumented immigrants’ annual contributions through tax dollars. Selective use of data to advance anti-immigrant policy are present at all levels of government and have led to a false narrative that undocumented immigrants should be exempt from public resources because they do not contribute their “fair share.” The Bell Policy Center explored this issue in 2011 by analyzing the costs of providing government mandated services compared to tax contributions, and estimated undocumented immigrants contribute more than they receive in services. Despite these facts, some leaders—including prominent Colorado legislators in the past—have used this false narrative to push against initiatives that would benefit undocumented immigrants. 

Inequities in Tax Policies for Undocumented Immigrants

With few exceptions (such as emergency medical care), undocumented immigrants are not eligible for federal benefits, e.g., unemployment insurance and Medicaid. They are also ineligible for most state and locally funded benefits, like the Colorado Child Care Assistance Program. For example, unemployment insurance (UI) is a program that provides temporary relief to workers who have lost their job by providing a partial wage replacement to help pay for basic expenses. In Colorado, UI is funded through payroll premiums paid to the state primarily by employers and a small portion paid by federal funds. According to economists, most employers pass UI premium fees onto employees through required taxes and benefits. 

Over the past 10 years, undocumented immigrants in Colorado have contributed to $188 million in UI premiums, yet are ineligible for unemployment insurance benefits. Considering the realities of COVID-19, these inequities can have life-threatening impacts on undocumented immigrants who may not have health insurance and work in essential jobs. Currently, 78,600 undocumented immigrants in Colorado are on the frontlines of COVID-19 response working in essential critical infrastructure roles. Exclusion from essential benefits make undocumented workers one of the most vulnerable populations, yet they are critical for our response efforts.

Another concerning reality is undocumented immigrants, on average, pay a higher effective tax rate or share of their total income in taxes than wealthy taxpayers. A national study from the Institute on Taxation and Economic Policy finds undocumented immigrants pay an average effective tax rate of 8 percent while the top 1 percent pay an effective tax rate of only 5.4 percent. 

COVID-19 Has Worsened Racial & Gender Inequities for Undocumented Immigrants

For many years, data on immigrants without documentation has been limited because standard data methods usually do not include them. Estimates generally rely on using broader immigrant population data and then subtracting the number of those without immigration documentation. Recent data on undocumented immigrants suggests: 

Nationwide, undocumented workers are disproportionately on the front lines of the pandemic; 3 in 4 undocumented workers is considered essential. Women of color are also disproportionately represented in jobs deemed essential during the pandemic, including in the direct care workforce. Despite being on the front lines, they are ineligible for many of Colorado’s COVID-19 recovery benefits. These inequities further exacerbate challenges present in our public benefit systems for immigrants without documentation, who make contributions without being able to access benefits in return. 

Time to Put an End to Inequities

For years, misconceptions have shaped realities for immigrants without documentation. At the federal level, the unwarranted belief that immigrants were draining public benefit systems was central to the debate that led to the Welfare Reform Act of 1996. This law banned immigrants, including those with documentation of lawful status, from access to public benefits governed by the federal government. However, under certain conditions or federal statutes, states have flexibility to allow undocumented immigrants eligibility for state and local public benefits. 

In Colorado, misconceptions about undocumented immigrants shaped two specific bills signed into law by Gov. Bill Owens in 2006, HB06-1023 and HB06-1009. HB06-1023 requires applicants for public assistance to affirm lawful presence in the U.S., and HB06-1009 denies undocumented immigrants state-issued permits and professional licenses. 

Advocates in the state are planning to introduce legislation in the 2021 legislative session to repeal both HB06-1023 and HB06-1009 to allow undocumented access to critical benefits and services. Colorado policymakers now have a choice: to continue this divide or create inclusive policies for our state’s undocumented immigrants.

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