- A proposal to share the IRS’s historically closely guarded data with immigration authorities will make immigrants far less likely to pay taxes in the future, experts say. Undocumented immigrants paid $97 billion in federal and state taxes in 2022, and many have filed tax returns in hopes of bolstering their case to eventually gain legal residency.
In its push to deport record numbers of immigrants, the Trump administration is reportedly on the verge of accessing some of the most closely guarded data in America: taxpayers’ returns. The unprecedented move could threaten tens of billions of dollars in tax revenue as it casts a chill on taxpayer compliance, experts say.
According to the Washington Post, Immigration and Customs Enforcement (ICE) is pushing for a deal that would allow it to cross-reference IRS data to see the names and addresses of people suspected of being in the U.S. Illegally.
The move “would mark a really stark shift in IRS policy,” said Vanessa Williamson, a fellow in governance studies at the Brookings Institution. “The IRS has traditionally been very, very conservative in terms of data sharing.” That includes requiring a court order to share information as basic as a taxpayer’s name and address, according to the Post.
The Post reported that previous IRS leadership rejected the DHS’s push for taxpayer data, following which the IRS acting head stepped down. The IRS did not respond to Coins2Day’s request for comment.
“There’s no doubt this will make it harder for the IRS to do its job,” said Carl Davis, research director at the Institute for Taxation and Economic Policy.
$97 billion in tax revenue
Undocumented immigrants paid $97 billion in federal and state taxes in 2022, according to ITEP’s analysis. That number will drop significantly if taxpayers believe their data can be used against them, according to Davis and Williamson.
Many undocumented immigrants file returns as a show of good faith, in the hopes that it will help them eventually gain legal status, Davis said. “In the past, some undocumented immigrants have been able to gain legal status in part by showing that they were paying the taxes they owed, playing by the rules, and doing what they were supposed to do,” he said.
Filing a return is “for many people a hopeful act, and it’s increasingly looking like that act of hope will be used against them to attempt to expel them from the country,” he added.
The IRS is not the only agency to keep records of Americans’ names and addresses—but the completeness of this data and its frequent updates make it a “gold standard,” said Williamson.
“It’s annually updated, it’s from every employer, it’s just an amazing amount of information around people—that’s why we protect it so carefully,” she said. “It’s not just about your income and where you live, it’s about your family arrangements, it’s whether you have dependents, it’s a whole range of things.”
Regardless of how far the IRS’ data sharing goes, just the rumor that taxpayer data is no longer confidential will mean a hit to tax collection, said Davis.
“The mere fact this is being talked about and reported on is going to lead to declining compliance in the immigrant community,” he said. People at risk of deportation may switch to under-the-table work where they get paid in cash or without documentation, and newly arrived immigrants will be less inclined to pay their taxes upfront, he said.
Already, the U.S. Is facing a drop of $500 billion in tax collection this year, about 10% of the year’s tax revenue, thanks to cuts in IRS staffing.