A New IRS-ICE Agreement Could Reduce Tax Revenue by $300 Billion Over the Next Decade

That's what could happen if undocumented immigrants decide not to file their taxes, according to an estimate by The Budget Lab at Yale.

Earlier this month, the IRS and the Department of Homeland Security (DHS) forged an agreement to share taxpayer data with federal immigration officials. According to a partially redacted memorandum of understanding, Immigration and Customs Enforcement (ICE) "will come to the IRS with the names and address[es] of taxpayers that they believe have violated federal immigration laws," reported CNN.

The government has long encouraged undocumented immigrants who work in the United States to file their taxes. But the new agreement means that someone who pays his taxes in good faith could attract unwanted scrutiny and be at greater risk of deportation.

Between 50 percent and 75 percent of undocumented immigrants pay taxes via federal income and/or payroll taxes, the Congressional Budget Office found in 2007. Undocumented immigrants are required to pay taxes, and doing so can help in their immigration cases down the line. The IRS has long "sought to keep information submitted by undocumented immigrants confidential," so the IRS-ICE agreement marks "a fundamental departure from decades of practice at the tax collector," reported The New York Times.

If the agreement between ICE and the IRS discourages undocumented immigrants from paying their taxes, the U.S. could lose billions in tax revenue. In 2022, undocumented immigrants paid $96.7 billion in federal, state, and local taxes, according to the Institute on Taxation and Economic Policy (ITEP), a left-leaning economic think tank. Over one-third of those tax dollars "go toward payroll taxes dedicated to funding programs that these workers are barred from accessing," including Social Security and Medicare, reported ITEP.

The Budget Lab, a nonpartisan policy research center at Yale University, estimates that the IRS-ICE agreement could cause federal revenues to "come in roughly $300 billion lower" over the next decade. In addition to becoming more hesitant to file their individual income taxes, undocumented immigrants might increasingly take under-the-table jobs.

Undocumented immigrants now have to weigh the risks of filing their taxes against the risks of not filing them. On one hand, the IRS could transmit their personal information to federal immigration authorities, potentially leading to their arrest and deportation. On the other hand, "failing to file taxes can have serious consequences, from penalties for tax evasion to negative impacts on immigration cases—including naturalization applications," wrote Steven Hubbard and Micaela McConnell for the American Immigration Council, a pro-immigration research organization.

"This will be a targeted agreement that will go specifically after individuals who do perpetuate violence and enact crimes in this country," said DHS Secretary Kristi Noem last week. (That undersells how broadly the agreement may be applied.) Noem also stressed that "the American people need to be confident in the fact that their personal privacy will be protected."

But increased data sharing between federal agencies always carries privacy risks. "If you are a U.S. citizen, your sensitive tax data could also be compromised by this short-sighted policy," argued immigration attorney Maurice Goldman. There's another major potential cost that native-born Americans could face: Immigrants, including undocumented ones, play an important role in reducing federal budget deficits and propping up programs like Social Security.

With over $28 trillion in publicly held debt, the last thing the country needs is a policy that scares undocumented immigrants out of paying taxes—and punishes them for doing something the government has encouraged them to do for decades.