The fiscal hit from the IRS sharing immigration information
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The more afraid immigrants are that the IRS will report them to immigration authorities, the less they may pay in taxes, experts warn.
Why it matters: Mere reports that the IRS might start sharing information, like this recent one from the Washington Post, are likely to significantly reduce tax collections, Carl Davis, research director of the Institute on Taxation and Economic Policy (ITEP) tells Axios.
- A formal acknowledgment of any information-sharing protocol would hit collections even more.
Follow the money: Undocumented immigrants paid $96.7 billion in federal, state, and local taxes in 2022, per ITEP.
- While much of that came in the form of sales and other taxes over which they have little control, about $57 billion is made up of "taxes that are likely to be prone to noncompliance," Davis says.
- Already, the compliance rate for undocumented immigrants is low, at about 60%. If that were to fall to, say, 30%, then the fiscal cost would be more than $28 billion a year, per ITEP.
Between the lines: If undocumented immigrants stop filing tax returns in fear that the IRS will pass on their information to immigration authorities, that could actually increase total tax revenues this year, as the government holds onto withheld money that would otherwise be returned as a tax refund.
- Over the medium term, however, says Davis, undocumented immigrants in fear of the immigration authorities are likely to move out of any job where their employer withholds taxes and reports their pay to the IRS — and work instead in more cash-based, informal sectors.
- Because those jobs are generally lower-paid, even gains like sales tax revenues would likely decrease.
- Self-employed undocumented immigrants will also be much less likely to file tax returns, after many years in which they have been encouraged to do so on the explicit promise that their personal information would not be shared with the rest of the government.
Zoom out: "There's a general increase in fear around deportation, independent of anything going on with IRS tax return data," notes Davis.
- "That's likely to lead to people trying to retreat from government view, and, in general, wanting to find situations where they're less visible to government authorities."
For the record: The IRS did not respond to a request for comment.
- Historically, it has kept personal tax information highly confidential, unavailable even to the people running the agency.
The bottom line: The greater the crackdown on undocumented immigrants, the greater the fiscal hit — even putting aside the obvious loss of tax revenue from all immigrants who are deported or otherwise leave the country.
