Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
TAXING UNDOCUMENTED IMMIGRANTS:
SEPARATE, UNEQUAL, AND WITHOUT REPRESENTATION
Francine J. Lipman
Associate Professor of Law, Chapman University School of Law; University of California, Santa Barbara, B.A. 1981; San Diego State University, M.B.A. 1989; University of California, Davis, J.D. 1993; New York University, LL.M. 1994. A draft of this Article was presented at the 2006 Conference of Western Law Professors of Color in San Diego, California and the 2006 Western Region American Accounting Association Meeting in Portland, Oregon. The author thanks Michelle Dalton (’05) and Sean M. Stegmaier (’06) for their expert tax research, skillful editing assistance, and valued camaraderie. The author also gratefully acknowledges research support from Chapman University School of Law and her affiliation with the George L. Argyros School of Business and Economics. This Article is dedicated to Rose Lipman, my grandmother, who continues to amaze me with her phenomenal strength and courage even in her 100th year of life.
Americans believe that undocumented immigrants are exploiting the United States economy. 1 The widespread belief is that “illegal aliens” 2 cost more in government services than they contribute to the economy. 3 This belief is undeniably false. “[E]very empirical study of illegals’ economic impact demonstrates the opposite . . . : undocumenteds actually contribute more to public coffers in taxes than they cost in social services.” 4 Moreover, undocumented immigrants contribute to the U.S. economy through their investments and consumption of goods and services; 5 filling millions of “essential worker” positions resulting in subsidiary job creation, increased productivity, and lower costs of goods and services; 6 and unrequited contributions to Social Security, Medicare and unemployment insurance programs. 7 Seventy-four percent of economists surveyed have concluded that undocumented immigrants have had a positive impact and 11% have concluded that undocumented immigrants have a neutral impact on the U.S. economy. 8
Documented and undocumented immigrants have played a vital role in this country’s economy and development since its colonization. 9 Immigrants “voted in the United States and even held public office from the colonial era through the 1920s.” 10 “[N]either the Constitution nor common law jurisprudence present a bar” to extending voting rights to noncitizens and principles of democracy and equal protection actually support it. 11 For many years the right to vote was based upon property ownership, not citizenship, because “property owners, including noncitizens, pay taxes and thus they too should have the right to vote.” 12
Undocumented immigrants, like all U.S. citizens and residents, are required to pay taxes. 13 Despite Americans’ historically strong opposition to taxation without representation, undocumented immigrants have not enjoyed the right to vote on any local, state, or federal tax for almost 80 years, except in rare and unusual cases. 14 Nevertheless, each year undocumented immigrants add billions of dollars in sales, excise, property, income, and payroll taxes—including Social Security, Medicare, and unemployment taxes—to federal, state, and local coffers. 15 Hundreds of thousands of undocumented immigrants file annual federal and state income tax returns. 16
Yet undocumented immigrants are barred from almost all government benefits, 17 including food stamps, 18 Temporary Assistance for Needy Families, Medicaid, federal housing programs, 19 Supplemental Security Income, Unemployment Insurance, 20 Social Security, Medicare, 21 and the Earned Income Tax Credit (EITC). 22 Generally, the only benefits federally required for undocumented immigrants are emergency medical care, which is subject to financial and category eligibility, 23 and elementary and secondary public education. 24 Many undocumented immigrants will not even access these few critical government services because of their ever-present fear of government officials and deportation. 25
Undocumented immigrants living in the United States are subject to the same income tax laws as documented immigrants and U.S. citizens. 26 However, because of their status most unauthorized workers pay a higher effective tax rate than similarly situated documented immigrants or U.S. citizens. 27 Yet, these workers and their families use fewer government services than similarly situated documented immigrants or U.S. citizens. 28 Moreover, unauthorized workers have been denied remedies by the U.S. Supreme Court under the National Labor Relations Act 29 and may have difficulty receiving protection under wage and hour, anti-discrimination, and workers’ compensation laws. 30 As a result, undocumented immigrants provide a fiscal windfall and may be the most fiscally beneficial of all immigrants. 31
Despite their net positive contribution to public coffers, hundreds of thousands of immigrants enter the United States each year without documents because of impracticable quota and labor certification requirements. 32 These immigration restrictions combined with the additional tax or “tariff” on undocumented immigrants are inconsistent with an economically efficient immigration policy. 33 Moreover, the high effective tax rate imposed on the poorest undocumented working families relative to their less unfortunate friends and neighbors is inconsistent with fundamental tax policy. 34 This Article will describe and analyze the separate, unequal, and unrepresented federal taxation of undocumented immigrants.
Part II provides a brief description of the demographics of undocumented immigrants. This description provides a foundation for the tax analysis. Part III describes the tax issues most commonly faced by typical undocumented immigrants and their families. The tax analysis includes a description of the separate and unequal treatment of undocumented immigrants under the EITC and the child tax credit (CTC).
Part III includes a description of the new uniform definition of a “qualifying child” and its implications for undocumented immigrants for calendar year 2005 and thereafter. While this new definition of qualifying child simplifies the application of the dependency exemption deduction, the EITC, and the CTC, it comes at a significant cost for some undocumented families.
Part IV presents the inconsistencies of the separate and unequal treatment of undocumented immigrants with regard to fundamental tax and immigration policies. Finally, Part V summarizes proposals to make the tax treatment of undocumented immigrant families more consistent with fundamental tax policies and economically efficient immigration policy. And perhaps most importantly, these proposals are true to “principles of human dignity and human solidarity . . . .” 35