Tax Revenue Lost to States While Immigration Reform Waits


, ,

By Wayne Jebian
Throughout the past year, Connecticut was faced with tough choices in passing its budget, and it was forced to do so with tens of millions of dollars less in tax revenue than the state would have had if its undocumented immigrants had been part of the mainstream population.
It’s not that these immigrants don’t pay taxes; they do. “Individuals who are undocumented are paying taxes in one form or another and contributing to the revenues that go to the state and this nation, and that seems to be not part of the conversation,” said state senator Andres Ayala (D-Bridgeport). According to the Institute on Taxation and Economic Policy (ITEP), undocumented immigrants contributed $118,707,000 worth of state taxes in 2010.
With Congress deeply divided on immigration reform, Connecticut residents and leaders have become frustrated by the slow pace of progress. Earlier this summer, Governor Malloy joined eleven other governors in sending an urgent plea to House Speaker John Boehner and Minority Leader Nancy Pelosi to come together and pass a bill quickly. Now, more than a month later, everyone is still waiting.
The problem is that if those immigrants had not been undocumented, that number could have been almost $30 million higher, given that ITEP estimates that the same population would have paid $146,564,000 had immigration reform already been in place. That figure is 23 percent more than what the state actually collects in sales taxes and other fees that undocumented immigrants actually do pay.
The state has very little latitude to change how much revenue it can collect from this population. One exception is drivers’ license fees. Since the passage of a bill permitting the licensure of undocumented immigrants by the Department of Motor Vehicles, as much as $2 million in additional annual revenue could be generated, according to state representative Juan Candelaria (D-New Haven).
In terms of other potential revenue measures available to state agencies, “there’s really nothing they can do,” asserted Orlando Rodriguez, a Senior Policy Fellow with Connecticut Voices for Children. “Immigration is a federal issue, period.”
The Congressional Budget Office estimates that the access provisions in the bill passed by the U.S. Senate would reduce the federal budget deficit by $175 billion over 10 years. This would happen through adjustments to guest worker programs and allowing recipients of student visas to remain in the U.S. to become tax-paying workers, among other measures in the bill.
However, Rodriguez warned that short-term money issues aren’t nearly as serious a threat to the economy as long-term demographic shifts. “The state’s working age population is declining. We have more retirees and fewer workers, so looking forward, what’s going to happen to ourtax base?” he asked. “What’s one way out of this problem? One way is allowing these unauthorized workers who are here, basically, into the system.”
It’s fairly clear that the population of the state is aging,” confirmed Patrick Flaherty, an economist with the state Department of Labor. However, Flaherty said that the state is not yet experiencing the dramatic effect on the economy predicted by Rodriguez. One reason is that the number of employed workers is currently growing as the state and the nation experience an economic recovery. The second reason is that older workers are choosing to continue working. “There’s a lot of evidence that people are delaying retirement because of financial issues,” said Flaherty.
At some point those people are going to retire, one way or the other,” added Flaherty, which means that since the working population is not being fully replaced through reproduction, the need for immigrants to fill the gap will soon grow more urgent.
Rodriguez insists that the workforce shrinkage is already underway, pointing to the Department of Labor’s own statistics. He said that the total labor pool of in-state legal residents actually peaked at 1,915,300 in 2010, and declined to 1,850,400 by June of 2013.
Although Rodriguez is a proponent of bringing currently undocumented workers into the workforce through legal means, he believes that doing so will necessitate having more effective laws to stop employers from hiring additional undocumented workers. “If you don’t do this, all you do is turn unauthorized workers into authorized workers, and businesses are going to just turn around and find other unauthorized workers,” he said. With built-in incentives to hire the less expensive, more compliant undocumented workers, holding employers accountable will be one of the ongoing challenges of immigration reform.
(Photo by via Flickr)