One of the most divisive issues facing America is illegal immigration. The Trump Administration wants to deport those who reside here illegally, while immigration supporters claim immigrants are an important part of our economy, pay substantial taxes and their cost is vastly overstated. So, who’s right?
From a California perspective, I was curious about the relative accuracy of these claims that are so radically different. Google searches on the cost of illegal immigration in California provide significant data. Unfortunately, the Google artificial intelligence summary contains hallucinations; when one digs deeper into the underlying websites, it becomes apparent that AI did not correctly summarize the situation.
Two websites contain the most relevant information.
The first is the Institute on Taxation and Economic Policy, a left leaning nonpartisan organization that provides extensive quantitative analyses of various tax issues. According to Wikipedia, ITEP’s analyses are utilized by observers across the political spectrum and by analysts within government.
The second is the Federation for American Immigration Reform. In written testimony before the House of Representatives on March 7, 2024, FAIR stated, “FAIR is a national, nonprofit, public-interest organization comprised of millions of concerned citizens who share a common belief that our nation’s immigration laws must be enforced, and that policies must be reformed to better serve the national interest.”
ITEP analyzed tax collections paid by “undocumented immigrants” on a state-by-state basis, concluding that, during 2022, those immigrants paid approximately $8.5 billion in California taxes. ITEP’s study used data provided by the Bureau of Labor Statistics and documented its methodology.
FAIR’s website contains a link to a study, “Fiscal Burden of Illegal Immigration on United States Taxpayers-2023,” which concluded that 2022 state and local tax collections from “illegal aliens” amounted to about $15 billion nationally. While the study does not break out the amounts by state, California probably accounts for a significant portion of those collected taxes because it imposes more taxes than other states.
In 2013, FAIR reported that illegal aliens living in California paid about $3.5 billion in state and local taxes. That amount has probably increased since then, but we can use it as a placeholder as it represents 23% of the reported 2022 national total. For comparison purposes, there is a $5 billion discrepancy between the ITEP and FAIR studies.
When it comes to state and local funds spent on undocumented residents, the FAIR report states that, in 2022, California spent $22.8 billion on services to illegal aliens. It is interesting to note that a previous 2013 FAIR study claimed California spent $25.3 billion as the result of illegal immigration. The amounts included in the earlier study have been disputed by other organizations, including The Cato Institute. Given the significant expansion of Medi-Cal services over the past decade, it seems unlikely the spending on undocumented residents decreased by $2.5 billion between 2013 and 2022. One has to remember that cost accounting is an art, not a science, and cost allocation methodology can have a huge impact on the results.
The FAIR analysis does not consider the economic impact of mass deportations. On June 17, the Bay Area Council Economic Institute and the University of California Merced published a study concluding that mass deportations would cause the $4.1 trillion California economy to contract by approximately $275 billion, or 6.7%. California tax collections would drop by approximately $23 billion, which ironically approximates the amount FAIR says California spends on illegal immigrants.
A 6.7% decline in gross domestic product would clearly cause an economic crisis. Putting this in perspective, in the Great Recession of 2007-09, the largest economic downturn since the Great Depression, GDP declined by 4.3%.
It is important to remember that all of these studies are based on certain economic assumptions that are applied to data that is difficult to collect, and therefore, may not be fully accurate. But, if the amounts reported in the FAIR and BACEI studies are directionally correct, they suggest that mass deportations would result in $23 billion of cost savings offset by a $23 billion reduction in tax revenue. If this is accurate, then mass deportations probably would not have a significant impact on the bottom line of California’s budget.
Dealing with illegal immigration is a complex, emotionally charged issue that must be objectively addressed, but there clearly is no simple solution. Perhaps we should have a better understanding of the underlying economics before we consider mass deportations.
Jim de Bree is a CPA who resides in Valencia.
