A recent study by the Institute on Taxation and Economic Policy showed that, in Utah, undocumented immigrants paid more than $235 million in taxes overall. Offering some insights on the figure, the study’s research director Carl Davis said that undocumented immigrants pay a higher rate of tax than the top 1% of Utah households. While the figure paid by undocumented immigrants is certainly interesting, it is this statement about the “higher rate of tax” paid which warrants some clarification.
KSL NewsRadio elaborated: Often higher income tax households pay less in sales tax, as “very little of their earnings are going toward taxable purchases,” Davis said. Therefore, higher income families “tend to pay a lower tax rate than other families in Utah, and undocumented immigrants.”
There are some important truths in this statement. First, Utah has a flat income tax rate of 4.55%, paid by low earners and top earners alike. Second, individuals pay sales tax when they purchase goods and services, and an increase in income does not necessitate a commensurate increase in purchasing.
Utah’s flat income tax rate, implemented in 2007, is a major asset to the state. It is one of the important criteria the state is measured on for ALEC rankings, attractive to individuals and companies looking to relocate, predictable for both taxpayers and those forecasting government revenues, and tends to discourage tax hikes since its universal impact unites taxpayers in opposition to such measures. While perhaps it allows top earners to pay less tax than what they are able to pay, it certainly does not allow top earners to pay less than their fair share. As we have discussed in the past, the amount the 1% pay is more important than the rate, and far surpasses the amounts paid by all other earners. The implication that the mere $235 million paid (in total taxes – remember, 49% of this figure was estimated to be sales taxes) by undocumented immigrants compares to or surpasses the income tax paid by the top 1% ($1.3 billion in tax year 2021) is laughable. The table below shows the income tax paid by income group, further illustrating the absurdity of the statement.
Source: Utah Tax Commission Annual Report 2023
Sales tax is applied to virtually all purchases made, and, for lower-income families, tends to have a greater impact on their overall budget. Whether wealthy or not, a gallon of milk costs about $3, and the total 3% or 9 cents sales tax will mean more to a family with a budget of $50 than a family with a budget of $200. This is true. However, those with higher incomes tend to buy more, and tend to buy higher-priced items. Since sales tax is a percentage of the cost of an item, they end up paying a higher amount of sales tax although the rate is the same, and the rate compared to their income is inevitably lower. It is for this reason that the Utah Taxpayers Association has long argued against the removal of sales tax on food: its removal would disproportionately be a tax cut for the wealthy. However, sales tax remains the most advisable tax to implement since it is a consumption tax and – though difficult in the case of food and necessities – individuals can control how much sales tax they pay by controlling how much they purchase.
While the taxes paid by undocumented immigrants is interesting and no doubt a policy discussion for those involved in that space, we encourage readers to remember: the wealthy pay their fair share of taxes.