Wednesday, October 26, 2011

Do Illegal Immigrants Deserve This Much Credit?

I am really getting to like the work of the Treasury Inspector General for Tax Administration (TIGTA).  Last week I wrote about their report that showed how millions are claiming tax credits for higher education that they are not entitled to.  This week I came across a July, 2011 report that shows how illegal immigrants are actually collecting far more in dollars from the IRS than they are paying in federal income taxes.

How is this possible?  REFUNDABLE TAX CREDITS!

The TIGTA Report dated July 7, 2011 is entitled "Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits".   The $4.2 billion was entirely the result of refundable tax credits for the Additional Child Tax Credit (ACTC) for the 2010 tax year.

Peter Schulkin with the Center for Immigration Studies explains what this means in a memorandum he wrote on the subject last month.

The ACTC is a bit of a misnomer since it does not have to do with multiple children but rather represents the refundable portion of the Child Tax Credit (CTC) when the CTC (worth up to $1,000 per qualifying child) results in a negative total tax due. In short, filers for the ACTC have no federal income tax liability and the ACTC amount represents Treasury money that is distributed to them.
An illegal immigrant cannot qualify for a legitimate Social Security number to use to file income tax returns or for any other purpose. However, the IRS allows illegal immigrants to apply for a nine-digit Individual Taxpayer Identification Number (ITIN) to be used to file federal income tax returns, and all but a small minority of returns filed with ITINs are filed by illegal immigrants.
The Table below from Schulkin's memorandum shows the numbers.

Using Table 1, it can be seen that for the 2010 processing year more than three million returns were filed with ITINs. Of these, 2.3 million paid no federal income taxes and collected an aggregate of $4 billion from the Treasury in refundable tax credit money from the ACTC. Of those who did not file for the ACTC, most used the CTC to reduce or eliminate their tax liability and thereby recover all or part of any federal income tax money withheld by employers. Of all of the 2010 ITIN filers, fewer than one-quarter paid any federal income taxes, which amounted to about $0.87 billion in total. Thus, on a net basis, ITIN filers gained $3.13 billion ($4.0 billion minus $0.87 billion) from the IRS in the 2010 processing year. The sum of row 6 in Table 1 equals $7.37 billion, which represents an approximation of the total net outflow of IRS funds to ITIN filers for the 2005-2010 processing years.
What are some conclusions that can be drawn from this data?

  • Supporters of illegal immigration argue that illegal workers are paying large sums of taxes in this country and deserve government benefits.  In fact, of those actually filing tax returns, less than 1 in 4 owed any tax according to this data..
  • Due to the refundable nature of the child credit we are providing money to illegal immigrants and the more children they have the more we pay.  This is yet another incentive for illegal aliens to enter, reside and work in the United States without authorization.
  • When you consider that each of the 3+ million tax returns (and 2.2 million tax returns that claim the refundable tax credit) that are filed with ITIN's are almost assuredly illegal immigrants why is it so hard to enforce the immigration laws?  The IRS has an address on the tax return of the filer and they most likely also have the name of the employer as well.  I don't think you can have a clearer case that the federal government has no interest in enforcing the immigration laws.
We have an unemployment rate of over 9%, we borrow over 40 cents of every dollar we are spending in the federal budget and we have total federal debt of over $14 trillion and we allow this to occur?  It is beyond belief.

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