First, thanks to Neil Buchanan, our guest blogger for the last two weeks, who carried the blog forward in many ways during my absence. Hopefully, I can persuade Neil again in the future to take over for a few weeks, to bring a fresh perspective to the blog.
Second, I want to comment on Bruce Bartlett's opinion piece in today's Wall Street Journal titled "The Illegal Immigrant Taxpayer." Bruce seems to be capitalizing on the anti-immigrant sentiment that has been evidenced of late in the nation as one more rationale for supporting a switch from an income to a sales tax base. He claims that this would be reasonable, because illiegal aliens are "almost by definition members of the underground economy" that are "paid cash off the books" without wage withholding or reporting and therefore "the income tax is never going to raise much revenue from illegal aliens." Yet, he claims, they use health care, education and other government services. The only way "realistically" to collect revenue from illegal aliens, he concludes, is through sales taxes, since they pay those taxes on each purchase they make in a state with sales taxes.
Bartlett admits that many illegal aliens are poor and that the poor generally don't have to pay federal income taxes. He notes that a taxpayer who takes advantage of the Earned Income Tax Credit would need to earn about $30,000 before becoming liable for federal income taxes. Yet he seems to suggest that illegal aliens are "escaping" income taxation while not able to so easily escape sales taxes. If they wouldn't owe taxes anyway, are they really escaping taxes?
Bartlett also notes that states that rely more heavily on sales taxes than income taxes are likely to get more revenue from illegal aliens. State income tax systems may be at least as generous as the federal system in exempting those at the bottom, but Bartlett's point seems to be that illegal aliens may be more costly to states with income taxes because they use services but don't pay as much in taxes and less costly to states with sales taxes, even though they also use their services.
My one experience in this area was in Texas, where I once worked for a short period of time as a waitress in a Mexican restaurant. Many of the other employees were Mexicans, and almost all of them were undocumented workers. All of them were paid "above the table" with social security numbers (made up) and withheld taxes. I learned that an even larger number of undocumented Mexicans worked for a large construction company that often required individuals to work on two different timecards (with two different social security numbers) so that the company would not be forced to pay them overtime for their overtime hours. But the company withheld taxes from their wages. That experience at least suggests that Bartlett's assumption that illegal aliens primarily work in a cash-payment, no withholding underground economy may be wrong in some cases.
The other aspect of Bartlett's opinion piece that disturbs me is the insinuation that the cash-based under-the-table economy is solely one of illegal aliens, who "cannot realistically [be] tax[ed] the way citizens are taxed." In spite of the presupposition underlying Bartlett's argument, the underground economy is by no means the exclusive province of illegal aliens. Construction workers who are American citizens, in particular, are thought to deal in "cash only" projects that go unreported and untaxed. They even offer to cut special deals with homeowners who pay them in cash, sharing the tax savings. The underground economy, in other words, is one that we need to deal with in the tax system, whether or not there are illegal immigrants as part of that economy.
Ultimately, Bartlett's piece left me dissatisfied. It may or may not shed some light on how much taxes illegal immigrants pay. Bartlett relies on one source for the estimates he reports, Steven Camarota of the Center for Immigration Studies. It may also accurately describe dfferences between California, a state that is attractive to illegal immigrants in part because of its higher social spending and one that relies primarily on an income tax, and Texas, a state with no income tax and lower state spending. But the conclusion--that regressive sales taxes, though not liked by liberals, are the only ones that will get money from illegal aliens to pay for the services they use--seems to lead nowhere. Even conceding this point arguendo, I'm not sure what it tells us about establishing state or national tax policies. Surely the taxation of illegal immigrants should not drive the decision about tax base, especially when our information about the way illegal immigrants participate in the economy remains sketchy at best.