This story needs to be understood by every citizen taxpayer. Illegal aliens already in this country will destroy our economy if action is not taken soon. The congress and recent presidents have avoided this issue because they realize that there is no palatable solution to this problem. Citizen taxpayers need to know how much amnesty for illegals would cost them. Like it or not, deportation is the only solution. No one in congress has yet had the courage to say so.
Senators Charles Schumer (D-NY) and Lindsay Graham (R-SC) are pushing an “immigration reform” bill that has President Obama’s support (see Obama Wants Amnesty for 11 Million Illegal Immigrants).
There’s a problem with this bill and with almost any conceivable form of immigration reform: back taxes.
American citizens may be willing to overlook the past sins of illegal aliens in so far as they have made free use of our public schools, hospitals and health care system, and myriad welfare programs. But most of these illegal immigrants, whether they took advantage of the public treasury or not, have not paid into the treasury. How could they? With no, or phony, social security numbers they could not file tax returns without exposing themselves. “Besides,” many surely reasoned, “why should I pay taxes if they don’t know I’m here?”
Back taxes are going to be a deal breaker for almost any form of amnesty for illegal aliens.
Among the provisions of the Schumer/Graham/Obama proposal are “paying fines and back taxes.” For most illegals this is going to prove impossible unless the federal and state governments cut them special deals on back taxes.
Deals on back taxes for illegal aliens seeking amnesty are not going to sit well with citizens. Although the IRS occasionally makes concessions to taxpayers in order to get something out of them, citizen taxpayers know that these arrangements still are onerous. And they also know you can’t get out from under taxes owed to the IRS by declaring bankruptcy. Citizen taxpayers are going to be livid if the federal government and IRS allow non-taxpaying illegals to get out from under the tax liabilities that would be demanded from citizens.
Marco’s Dilemma. Let’s take a look at Marco, an illegal alien who entered the United States 20 years ago at the age of 25. Like almost half of our illegal aliens, Marco initially entered the country legally on a visa. He became an illegal alien when he overstayed his visa.
Marco entered the US at JFK airport in New York. After a month in the US, he liked what he saw and decided to stay. He moved to Chicago, where he had relatives from the Old Country. He took his relatives’ advice and set himself up as a self-employed handyman doing painting, gardening, light repairs, etc. For $10 an hour in 1990 he gave his customers good value and managed to work almost all the time. He made $20,000.
We’ll keep this simple and presume because of his relatively low income, Marco owed no income tax. In fact, although Marco’s income increased (at the rate of 3% per year) to $35,000 in 2009 we’ll assume he would never have owed income tax for any year had he actually filed tax returns.
If he had filed tax returns Marco would have found that he did owe self-employment tax (Social Security and Medicare). Marco’s self-employment tax would have applied to every dollar he earned before deductions and exemptions. For 1990, Marco owed $3060 in self-employment taxes. For tax year 2009, self-employment taxes were $5366.
Marco files for illegal alien amnesty under, say, the Schumer/Graham bill that provides for “fines and back taxes.” He goes to the IRS to see just how much he owes.
“Well,” says the friendly revenuer, “you owe us self-employment taxes for the past 20 years (see column C). You also owe a penalty for failure to file. That’s another 25% of the tax due and on top of that, you owe us a penalty for failure to pay taxes due. That’s another ½ of 1% for each month (totaled in column F). And then, of course, you owe us interest of about 5% on all of your back taxes and penalties (column H). The way we figure it, Marco you owe us $478,873 in back taxes, penalties, and interest (column I).”
“But, but I, uh,…”
“Don’t interrupt me pal. There’s more. For each year you failed to file a return, we can fine you up to $25,000, or sentence you to one year in prison. And this is just for being negligent. If we can show that you did not file a return in an effort to evade taxes, we can pursue felony charges, including a fine up to $100,000 or a maximum of 5 years in jail for each year. There is a six-year statute of limitations for filing criminal charges based on failing to file a tax return, so you wouldn’t be looking at more than another $600,000 in fines and 30 years in jail. But, there is no statute of limitations on how long we can demand payment or taxes owed on non-filed returns. ”
“Well, I uh,…”
“Tell you what, Marco. We’re nice guys here at the IRS. We promise not to throw you in jail if you just pay the fines, penalties, back taxes and interest. Let’s not quibble about small change. We’ll just call it a million even, huh?”
Your dilemma. If you want “immigration reform” and you’re willing to accept the Obama/Schumer/Graham proposal do you really think the government is going to ask illegals to “pay fines and back taxes?” Sure, the government can ask, but there’s very little blood to be squeezed out of these turnips.
Marco’s case is not meant to represent the situation of every illegal immigrant but it does illustrate the kind of problems that amnesty would engender. There are potentially 8 million cases similar to Marco’s (some of the 11 million illegals are children for whom taxes are not yet an issue), each with its own complications and nuances. The cost of investigating and adjudicating each of these cases would be enormous and resolution would take decades.
And, it is unrealistic to believe that the government will recover the taxes due from illegals currently residing in the United States. Consider Marco’s situation. Even if the government waives all fines and penalties and asks Marco to square up his Social Security and Medicare, he can’t do it. Marco is now 45. He owes the government $136,101 in Social Security, Medicare taxes, and interest (column J). If he strikes a deal with the IRS (a deal they probably wouldn’t give a citizen taxpayer), he’s going to have to pay about $10,000 a year (at 5% interest) for the next 20 years to be paid up by the time he’s ready to retire. On top of this, he’ll also have to come up with another $5-6,000 a year to pay his current self-employment taxes. Do you think Marco can pay the IRS $16,000 a year on an income of $35-40,000?
Are you willing to forgive Marco’s past sins and foot the bill for his becoming a citizen? The Heritage Foundation estimates that just for retirement benefits, amnesty for illegal aliens would add $2.6 trillion to our already out-of-control debt. This amounts to about $26,500 for every citizen household in the country. Do you want your household to pay its ‘fair share?’ Do you want to saddle your children and grandchildren with this debt? And don’t forget, according to the Federation for American Immigration Reform, illegal aliens already are costing us $113 billion per year, or about $1117 per household annually.
The alternatives. Faced with the above realities, I think we as a nation have three choices:
Do nothing. Maintain the status quo. Allow illegals to continue working in the underground economy, drawing, welfare benefits, and burdening our health care system. When the illegals reach old age, instead of drawing Social Security and Medicare, they will simply take advantage of our generosity and draw welfare and Medicaid. They’ll still cost us $2.6 trillion; the money will just come from different pots. If elderly indigent illegals file welfare claims a good deal of the financial burden will be transferred to the states and cities. Don’t put it past the federal government to do this. Congress can can make the federal balance sheet look better while bankrupting the states.
Tax forgiveness. Since most illegal immigrants will never be able to make good on their past tax obligations we can simply forgive all, or a significant portion, of the taxes they owe. This will never work because tax forgiveness would have to be granted to non-citizens to a degree that would never be offered to citizens. Tax forgiveness of any kind to illegal immigrants would bring our whole system of taxation to a state of collapse. Citizen taxpayers would simply stop paying taxes and demand the same treatment that was being given to illegals.
Deportation. It’s cruel, it’s heartless, it breaks up families, etc., but it is really our only alternative. If we don’t break up the families of illegals through deportation, we’ll break up the families of citizen taxpayers through economic ruin. In his July 1 speech Mr. Obama said, “Now, if the majority of Americans are skeptical of a blanket amnesty, they are also skeptical that it is possible to round up and deport 11 million people. They know it’s not possible. Such an effort would be logistically impossible and wildly expensive.” Wrong again, Barry. If it cost us the outrageous sum of $100,000 per illegal, to round them up and deport them the total cost to our economy would be $1.1 trillion, less than half what it would cost us if we let them stay.
Bottom line. Don’t let presidential or congressional smoke and mirrors divert your attention from the disastrous consequences illegal aliens pose to our economy. Got a better idea for dealing with the problem? I’d love to hear it.