Report: Immigration Reform Could Boost NJ Tax Revenues by $80M Yearly

Hank Kalet | July 11, 2013 | More Issues
Higher wages, more spending, increase in income taxes and sales taxes expected if undocumented workers became legal

Local and state tax coffers could gain see an injection of more than $80 million in taxes annually if federal immigration reforms are passed and undocumented workers are brought into the regular economy, a report issued Wednesday by a liberal tax policy group says.

New Jersey would see the seventh-highest tax windfall when compared with other states, because of its large population of undocumented workers, the report from the Institute on Taxation and Economic Policy in Washington says.

Nationally, the report said state and local tax receipts could grow by more than $2 billion, due to increased collection of sales and income taxes from currently undocumented workers, who would be expected the report said. to earn and spend slightly more money after they became legal.

Supporters of immigration reform seized on the report as evidence that legalizing the status of undocumented workers will have economic benefits.

“This another piece of evidence of the importance of the need to assimilate undocumented immigrants and approve immigration reform,” said Martin Perez, president of the Latino Leadership Alliance of New Jersey. “It is important not just for the undocumented people but for the country as a whole.”

Critics of the report discounted its methodology and said that the reforms being proposed – which they called “amnesty” – would lead to a “new wave of illegal immigration” and “a major new fiscal burden on already stressed state and local budgets.”

Gayle Kesselman, president of New Jersey Citizens for Immigration Control, said reform might lead to increased tax receipts, but that the increase would be nominal when compared to the costs.

“The problem with the illegal immigration issue is that most, not all but a large majority, consist of semi-skilled and unskilled labor and as a result they earn less money,” she said. “Even if they pay taxes, they are paying on less income and they use more in government services. It is not that they are morally deficient, it is just that government provides a lot of services to the lower end of the economic ladder.”

The U.S. Senate passed a comprehensive immigration reform bill June 7. It would expand border security, while offering undocumented immigrants a chance to register for legal status and, after 10 years, to file for permanent residency, provided border security goals are met. Immigrants would have to need pay a $500 fine, back taxes and other fees. They would be eligible to work in the country and travel outside the United States, but would not be eligible for federal benefit programs. Those who have been convicted of a felony or three misdemeanors would be disqualified.

The bill also requires employers to use the federal E-Verify system – a computerized identification system – to ensure that prospective workers are in the country legally. The bill also creates special visas for agriculture and for some specific high- and low-skill jobs.

The House of Representatives is debating reform, but has not scheduled a vote as of Wednesday, when the House Republican caucus was scheduled to meet behind closed doors to discuss the issue, according to The Hill newspaper. Speaker John Boehner (R-Ohio) says no bill will be brought to the floor unless it can win a majority of Republican votes, though it seems unlikely. Observers say reform can pass the House with Democratic support joined by a small number of House Republicans.

Sen. Robert Menendez, a member of the Senate “Gang of Eight” that wrote the Senate immigration bill, released a statement Wednesday following a meeting between President Obama and the Congressional Hispanic Caucus urging the House to pass immigration reform. The House leadership, he said, should follow the Senate’s lead and “garner the political will and courage to unite the nation and send a comprehensive immigration reform bill to President Obama’s desk.”

He said the legislation would “increase the (national Gross Domestic Product), reduce the deficit, promote prosperity, and create jobs.”

The ITEP report did not address larger economic concerns, but it did find that “the 11.2 million undocumented immigrants living in the United States are already paying a significant share of their income in state and local taxes, and that figure would rise under immigration reform” – in addition to the more than $450 billion in federal revenue likely to be generated over a 10-year period.

ITEP says that undocumented immigrants paid about $10.6 billion in state and local taxes in 2010, or about 6.4 percent of their income. Extrapolating from that figure, the report says that legalizing the status of undocumented workers and allowing them to work legally in the United States “would increase their state and local tax contributions by an estimated $2 billion a year.”

“Their effective state and local tax rate would also increase to 7 percent on average, which would put their tax contributions more in line with documented taxpayers with similar incomes,” the report says.

In New Jersey, the estimated 550,000 undocumented immigrants currently pay about $323.2 million in sales and excise taxes, $95.1 million in property taxes and $58 million in state income tax.

If immigration reform passes, according to the report, the undocumented population would pay more in all categories: $341.1 million in sales taxes, $99.8 million in property taxes and $116.7 million in income taxes.

Overall, state and local taxes paid by the undocumented population in New Jersey would grow from $476.4 million to $557.6 million.

The report acknowledges that “the spending and income behavior of undocumented immigrant families is not as well documented as is the case for other U.S. residents.” The numbers, it says, “a best approximation of the taxes undocumented immigrant families likely pay” based on U.S. Census surveys, Pew Center research and state data.

Built into the projections, the report said, is a “conservative estimate of a 10 percent wage hike post-legalization” based on prior research showing “that legal immigrants had higher wages than undocumented immigrants and that gaining legal status could boost wages anywhere between 6 and 15 percent after a period of a few years.

Gordon MacInnes, president of the New Jersey Policy Perspective, a state partner with ITEP, said Wednesday that the report’s conclusions were “not surprising,” especially the finding that undocumented workers pay a significant amount in taxes despite their immigration status.

“Not surprisingly, people who come to this country to work and to make a better life for themselves pay a significant amount in taxes,” he said.

Most of those taxes come in the form of sales or excise taxes – almost three-quarters of the taxes collected from the undocumented – because “they are not making a lot and they have to survive, so they have to buy things that are subject to the sales tax.”

As the report shows, he said, the undocumented are paying income taxes — $241 per family for the 240,170 undocumented families in the state – but that figure will double if their statuses can be legalized. Most, he said, live in fear of being deported, which has kept them from being entered into the tax system.

Perez, of the Latino Leadership Alliance, said the report should convince those not already supporting reform to back the Senate plan.

“We hope that the people who are not already supporting immigration reform, that this will convince them to support this important issue,” he said. “This is an issue not just for the undocumented, but for the economy of the country. It is an opportunity to do something for the economy of the country.”

Critics of reform, however, were not swayed. The Federation for American Immigration Reform posted a response on its blog, which it also sent out as a rebuttal to the report, questioning the report’s assumptions. FAIR said ITEP failed to account for “differences in spending patters between illegal and legal workers” based on their ties to their home countries and living arrangements.

“The illegal workers often send money (remittances) to those family members and that means they have less disposable income than legal workers for purchases that generate sales tax collections,” FAIR says. “Illegal alien workers are more likely to share housing than legal workers, so indirect property tax collection is less. Illegal alien workers are more likely to make purchases in the underground economy – such as from unlicensed lunch wagons and bodegas – than legal workers.”

Because of this, FAIR estimated in a 2010 report, state and local tax receipts amount to less than $4 billion nationally, while $83 billion is spent by local and state governments.

FAIR also said that many of the workers whose status had been legalized would remain “off-the-books” because there was “no incentive for an employer to reward … employee(s) for becoming legal.”

“Even if you take their estimates at face value that it is going to increase revenues, it is a small increase and doesn’t begin to offset the enormous costs that state and local governments will bear as a result of illegal immigration,” said Ira Mehlman, spokesman for the Federation for American Immigration Reform in Washington.

Kesselman agreed, saying the “amount of taxes they pay will be disproportionately low compared to what they use in social services. She said the federal government needs to first address issues of border security and visa control first, before to legalize those already here.

“I am in favor of some sort of process where status is normalized, but only after border security is addressed and there is an employment verification process and an entry-exit system in place where we can track people who are here on visas. Without those systems in place, legalizing their status is an open invitation for people to come here.”