April 10, 2007
Undocumented Workers Are Taxpayers, Too
(Revised) April 10, 2007
Public discussion in Oregon about undocumented immigrant workers and their families has tended to focus on the costs to Oregon of providing certain public services to these families. Relatively little is mentioned about the contributions undocumented workers make to Oregon.
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This issue brief is also available in Spanish:La Contribución De Los Inmigrantes Indocumentados a la Economía de Oregon (PDF)
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Undocumented workers are an important part of Oregon’s economy. The work they perform is vital in certain industries. In addition, a substantial portion of the roughly $2 billion they earn in income each year is spent on goods, services, and taxes in Oregon, to the benefit of the state economy.
This issue brief estimates the total contributions by undocumented Oregon workers in state income taxes, property taxes, and excise taxes. In addition, this issue brief computes the approximate amount undocumented workers pay in federal Social Security and Medicare taxes, which are matched by employers. Last, it also estimates the amount Oregon employers pay in state unemployment insurance taxes on behalf of undocumented workers.
Data on undocumented workers is limited. Though it is not possible to determine precisely the tax contributions made by undocumented workers, the available data allows reasonable estimates of the likely scale of tax payments they make.
How many undocumented immigrants live in Oregon?
- Oregon’s undocumented immigrant population is conservatively estimated at between 125,000 – 175,000.
The first step in computing the approximate taxes paid by undocumented workers in Oregon is to determine the size of the undocumented population. The Pew Hispanic Center estimates Oregon’s 2005 undocumented immigrant population at between 125,000 and 175,000. This estimate is in line with a prior estimate by the Pew Hispanic Center, and with a report by the former Immigration and Naturalization Service (now the U.S. Citizenship and Immigration Services bureau).
The OCPP estimates Oregon’s undocumented immigrant population at between 125,000 and 175,000.
How much income do undocumented workers make?
- Oregon’s undocumented immigrant families average $24,300 in annual income.
- In the aggregate, undocumented workers living in Oregon earn between $1.8 billion and $2.5 billion in income annually.
Undocumented workers tend to work in low-wage jobs, and therefore have low incomes. Nationally, undocumented workers are concentrated in low-wage farming, cleaning, construction, and food preparation jobs.
The Pew Hispanic Center has estimated the income of undocumented “families” in the U.S. and in Oregon. In these estimates, individual undocumented immigrants count as “families,” as do couples with and without children.
According to the Pew Hispanic Center, Oregon’s undocumented immigrant families average $24,300 in annual income.
In the aggregate, undocumented immigrant workers living in Oregon earn between $1.8 billion and $2.5 billion in income annually.
How much do undocumented Oregon immigrants pay in state and local income taxes, property taxes, and excise taxes?
- Undocumented immigrants contribute annually to Oregon between $65 million and $90 million in property taxes, state income taxes, and excise taxes.
To estimate how much undocumented Oregon immigrants pay in state income taxes, property taxes, and excise taxes such as gas and cigarette taxes, the OCPP relied upon data from the Institute on Taxation and Economic Policy (ITEP), a non-profit, non-partisan research and education organization based in Washington, D.C. that provides tax information to state policy makers and others. ITEP maintains a model of state and local tax structures that allows researchers to estimate the state and local tax contributions of families at different income levels.
ITEP’s model can be used to estimate the tax contributions of undocumented immigrant families. We made two adjustments to ITEP’s basic model so it could better estimate the taxes paid by undocumented immigrants. First, the model was adjusted so that all households are assumed to be renters, not homeowners. This was done so that property taxes would be more accurately apportioned to them. OCPP assumes that few, if any, undocumented immigrants pay property taxes as homeowners. Second, since studies suggest that between 50 and 70 percent of undocumented workers pay income and payroll taxes, the OCPP conservatively adjusted the model to subject only half (50 percent) of the income earned by undocumented workers in Oregon to state income taxes.
The OCPP estimates that undocumented immigrants contribute annually to Oregon between $65 million and $90 million in state income taxes, property taxes, and excise taxes such as gas and cigarette taxes.
How much do undocumented Oregon workers pay in Social Security and Medicare taxes?
- Undocumented immigrant workers in Oregon pay between $56 million and $79 million annually in Social Security taxes, and another $13 million to $18 million annually in Medicare taxes. Employer contributions match these payments.
Undocumented workers may also have Social Security and Medicare taxes withheld from their paychecks. OCPP again conservatively assumes that half of undocumented workers in Oregon pay these payroll taxes. These taxes help to fund federal social programs that will not benefit undocumented workers unless in the future they become legal U.S. residents.
OCPP estimates that undocumented immigrant workers in Oregon pay between $56 million and $79 million annually in Social Security taxes, which is matched with employer contributions.
Undocumented immigrants in Oregon pay another $13 million to $18 million annually in Medicare taxes that are also matched by employer contributions.
Oregon employers pay $28 million to $39 million in state unemployment insurance taxes on behalf of undocumented workers.
Unemployment Insurance (UI) provides temporary, partial wage replacement benefits for laid-off workers. UI benefits help families avoid the worst aspects of unemployment and sustain demand for goods and services provided by local businesses. UI also benefits employers who must temporarily lay off workers by helping to assure that those workers will be available to return to work when the employer needs them again.
Undocumented workers are not eligible to receive unemployment insurance (UI) benefits. As a result, their families, their employers, and their communities are less stable following layoffs than they otherwise would be.
Even though undocumented workers are ineligible for UI benefits, some Oregon employers pay UI taxes on behalf of undocumented workers. These UI payments to the state unemployment insurance trust fund help cover unemployment insurance benefits for authorized Oregon workers.
As mentioned earlier, studies have found that between 50 and 70 percent of undocumented immigrants pay income and payroll taxes. Using that research, the OCPP estimates that half (50 percent) of the earnings of Oregon undocumented immigrants are subject to UI taxes that are paid by their employers.
Based on this assumption, the OCPP estimates that Oregon employers annually pay between $28 million and $39 million in state UI taxes on behalf of undocumented workers. When undocumented workers are laid off, though, the benefits of UI do not accrue to the workers, their families, their employers, or their communities.
Public debate about undocumented workers in Oregon should be informed by an understanding of the significant contributions these workers make to Oregon’s economy as workers, consumers, and taxpayers. The labor of undocumented workers is crucial to certain industries. They purchase products and services in Oregon with the roughly $2 billion in income they earn annually. Finally, they are taxpayers, contributing millions of dollars annually to Oregon’s tax base and to the federal Social Security and Medicare systems. These taxes paid by undocumented workers total about $134 million to $187 million annually. Taxes paid by Oregon employers on behalf of undocumented workers total about $97 million to $136 million annually.
Undocumented workers are ineligible for the Oregon Health Plan, food stamps, and temporary cash assistance. They may receive some emergency services, and their children (most of whom are probably U.S. citizens) may attend public school. At the same time, undocumented workers contribute substantially to Oregon’s economy, through their labor, their purchases, and the taxes they pay.