And just like that, the Senate voted no on the controversial immigration bill.
Even worse, there were signals that the bill would not be revived again until 2008 – not coincidentally after the next round of elections.
This was a major blow to President Bush, who had made this a priority. In response, Bush said, “The American people understand the status quo is unacceptable when it comes to our immigration laws. A lot of us worked hard to see if we couldn’t find common ground. It didn’t work.”
You can read some prior thoughts about immigration, the budget and the consequences of the bill here.
What do you think the next step for the Senate, House and President should be? Do you really think they’ll wait until after 2011?
One of the most polarizing features of the proposed immigration bill is whether illegal immigrants currently living in the United States should be granted a form of amnesty. Opponents claim, among other things, that illegal immigrants have not paid taxes while living and working in the United States. Proponents of the bill say that’s not true and cite increased numbers of ITIN (individual tax identification number) filings as evidence that immigrants are paying taxes, even if it’s under the radar; they acknowledge, however, that proof of filing consistently may be difficult.
So today’s Fix the Tax Code Friday question is actually a series of questions:
Should offering proof of filing and paying US taxes be part of any amnesty bill for immigration? And if so, how many years would be appropriate? Understanding that compensation will be difficult to prove because it was most likely “under the table”, what kind of proof would be acceptable?
When Senate Majority Leader Harry Reid (D – Nevada) pulled the immigration bill last week, the blame game started immediately. Conservatives blamed Liberals. Liberals blamed Conservatives. But nobody pointed the finger where it rightly belonged: at the American people.
While most surveys indicate that Americans aren’t opposed to an immigration bill that offers some form of amnesty to qualifying immigrants (though who qualifies has hardly been a consensus vote), most Americans are opposed to the cost of an immigration bill. In a recent poll, 70% of Americans agreed that illegal immigrants use more public services than they pay for in taxes. In a year in which government spending is increasing and the projected revenues are not, that means that Americans are loathe to embrace legislation that hits where it hurts the most: their own pockets.
And what a hit this bill would be. The Congressional Budget Office estimated that the bill as introduced would have cost the government as much as $126 billion over the next decade.
Where would the dollars go? Law enforcement measures including hiring additional workers and building the controversial fence along the US-Mexico barrier alone would cost $3.3 billion. In fact, more than half of the bill would fund law enforcement measures that will likely happen whether a comprehensive bill passes or not.
The remainder of the bill (nearly $50 billion) would be paid out to newly legalized immigrants in federal benefits. Over the next decade, it is estimated that legalized workers, guest workers and their families would claim $24.5 billion in tax refunds through the earned income credit and child credit, $15.4 billion in Medicare and Medicaid, $5.2 billion in Social Security benefits and $3.7 billion in food stamps and child nutrition programs. All billion with a b.
While it is estimated that there are between 11 and 15 million illegal immigrants currently in the United States, it’s difficult to gauge the their cost because much of the financial details are undocumented. Many employers are paying illegal immigrants “under the table” and that income escapes taxation not only on the immigrant level, but also on the employer level. As much as it is popular to blame immigrants, large scale companies like Wal-Mart fail to verify employment again and again – even after they were fined for federal employment violations – ostensibly because of economics. As long as Americans want to buy 10 tube socks for $1, companies like Wal-Mart will continue their hiring, sub-contracting and importing practices.
Despite the subversive nature of employing illegal immigrants, the conservative think tank, The Heritage Foundation, has made an attempt to quantify the cost. They estimate that for every dollar that an illegal immigrant receives, the US spends three dollars in services. This amount is, of course, disputed by those who again cite the undocumented nature of the income and claim that illegal immigrant taxpayers are on the rise. A story cited by the Tax Foundation indicates that undocumented workers are increasingly filing taxes, claiming that last year, 1.4 million people filed tax returns using ITINs (Individual Tax Identification Number) – a 40% increase.
This buffers the claim by proponents of the immigration bill who argue that, in the long run, tax revenue generated by new workers would offset virtually all the additional upfront spending. They advocate that it is likely that many of the immigrants who are legalized will become taxpayers and not tax consumers, just as many of those before them have done. In fact, Forbes reported encouraging news about second generation immigrant families. The difficulty is finding the data to support those claims on a wide scale – not because success stories don’t exist but because they are rarely documented.
Senator Ten Kennedy (D – Massachusetts) has said that if immigrants “work hard and play by the rules and work in very tough and menial jobs, they may have an opportunity to be a part of the American dream.” After all, America was founded on that very basis. But when it affects current American fiscal policy, we’re a little less likely to embrace that idea.
I want to know what you think: are American tax dollars a good investment in our future in a bill such as this? It is, after all, your money.
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Changes to the Tax Code, tax reporting and tax policy are generally reflective of the state of mind of the country at any given time. In other words, Congress uses taxes to modify your behavior (gasp). Think about it… We tax cigarettes and alcohol (sin taxes) to discourage those behaviors and we call those taxes "sin taxes." We impose luxury taxes on goods that we believe to be extravagant because, well, why shouldn’t the wealthy pay more, right? And of course, we offer incentives to purchase homes rather than rent because that’s the American dream.
So, what’s going on now that would merit a mention in tax policy? There’s a lot of talk lately on the federal level about immigrants, their effect on our economy and how our government should treat immigrants, both legal and illegal. It should come as no shock to anyone then that the IRS seems to be focusing on international taxpayers and immigrants with their latest round of revisions.
Take federal forms 8898 and 8840, for example. Those forms involve the residency requirements of taxpayers in American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, or the United States Virgin Islands. To qualify as a resident of those US possessions, you must pass the physical presence test, which means that you have been present in the US possession for at least 183 days during the taxable year, you must not have an established tax home outside of the U.S. possession during the taxable year, and you must not have a closer connection to the United States or a foreign country than to the U.S. possession. This is significant because a number of individuals want to be classified as a resident for tax purposes in order to tax advantage of certain tax attributes only allowable to US residents, such as the ability to itemize deductions.
In 2006, the IRS released federal form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession, so that taxpayers who change their residency to or from a US possession post 2001 (to present) can formally notify the IRS of the change. If an exception applies, a resident alien would file federal form 8840, Closer Connection Exception Statement for Aliens.
However, this has proved to be a bit tricky. Apparently, the forms (I’ll admit that I haven’t prepared either one) are quite detailed. The IRS has received feedback that the reporting requirements on certain sections of the form are quite burdensome. As a result, the IRS is going to modify the forms to require less information. Yeah, you read that right. The IRS is going to require fewer details. Specifically, the information on lines 17 and 29 of federal form 8898 and lines 20 and 31 of federal form 8840 will be modified. Until then, taxpayers can simply disregard these line items by relying on Notice 2006-73. The catch (there had to be one) is that supporting documents for the information requested on those lines must be available for inspection, if necessary. C’mon you didn’t really think the IRS was going to give you that much of a break, did you?
