The Fiscal Hit from the IRS Sharing Immigration Information in 2025

To understand the fiscal impact of the IRS potentially sharing immigration information with Immigration and Customs Enforcement (ICE) in 2025, it is necessary to analyze several interconnected factors. These include the potential reduction in tax compliance among undocumented immigrants, the broader economic consequences of deportations, and the administrative costs associated with such a policy shift. Below is a step-by-step breakdown of these considerations:

Step 1: Tax Contributions by Undocumented Immigrants

Undocumented immigrants contribute significantly to federal, state, and local tax revenues. According to data from the Institute on Taxation and Economic Policy (ITEP), undocumented immigrants paid $96 billion in federal, state, and local taxes in 2022. This includes income taxes filed using Individual Taxpayer Identification Numbers (ITINs), as well as payroll taxes for programs like Social Security and Medicare.

• Federal Taxes: Approximately $60 billion annually.
• State and Local Taxes: Roughly $36 billion annually.

These contributions are made despite undocumented immigrants being ineligible for many public benefits funded by these taxes.

Step 2: Chilling Effect on Tax Compliance

If the IRS begins sharing taxpayer information with ICE for immigration enforcement purposes, it could create a “chilling effect” on tax compliance among undocumented immigrants. Many individuals may choose not to file taxes out of fear that their personal information could be used to locate and deport them.

• ITEP estimates that for every 10-percentage point drop in tax compliance among undocumented immigrants, annual tax revenues would decrease by approximately $9.5 billion:
  • Federal revenue loss: $8.6 billion.
  • State and local revenue loss: $900 million.

Given that around half of the estimated 11 million undocumented immigrants currently file taxes using ITINs, even a modest decline in compliance could result in billions of dollars lost annually.

Step 3: Broader Economic Consequences of Deportations

Deporting large numbers of undocumented immigrants would have additional fiscal impacts beyond lost tax revenue:

1. Reduced Consumer Spending: Undocumented immigrants contribute to local economies through spending on housing, food, transportation, and other goods/services. Deportations would reduce this economic activity, leading to lower sales tax revenues and harming businesses reliant on immigrant customers.
2. Labor Market Disruptions: Many industries—such as agriculture, construction, hospitality, and food services—rely heavily on undocumented workers. Deportations could lead to labor shortages, increased costs for employers, and reduced productivity.
3. Administrative Costs: Implementing mass deportations requires significant resources for detention facilities, legal proceedings, transportation logistics, and personnel costs for ICE agents.

Step 4: Erosion of Trust in Public Institutions

The IRS has historically maintained strict confidentiality protections under Section 6103 of the Internal Revenue Code to encourage voluntary tax compliance. If these protections are weakened or perceived as compromised:

• Immigrant communities may lose trust in government institutions.
• Mixed-status families (households with both documented and undocumented members) may avoid filing taxes altogether.
• The informal economy (unreported cash-based employment) could grow as individuals seek to avoid detection.

This erosion of trust could have long-term consequences for overall tax compliance rates across all demographics—not just among undocumented immigrants.

Step 5: Legal Challenges and Administrative Delays

The proposed data-sharing agreement between the IRS and ICE is likely to face significant legal challenges from advocacy groups arguing that it violates federal privacy laws protecting taxpayer information. Prolonged court battles could delay implementation while also incurring legal expenses for both government agencies involved.

Additionally:

• Errors or mismatches in taxpayer data could lead to wrongful targeting of U.S. citizens or lawful residents.
• Bureaucratic inefficiencies may arise as IRS resources are diverted away from traditional tax enforcement activities toward supporting immigration enforcement efforts.

Estimated Fiscal Impact Summary

Based on available data:

1. A decline in tax compliance due to fear of deportation could result in an annual revenue loss exceeding $9 billion at both federal and state levels combined.
2. Deporting large numbers of undocumented workers would further reduce economic activity by billions more annually due to lost consumer spending and labor market disruptions.
3. Redirecting IRS resources away from traditional enforcement activities (e.g., pursuing wealthy tax evaders) could exacerbate existing budget deficits by reducing collections from high-income taxpayers who account for a disproportionate share of unpaid taxes.

In totality, these factors suggest that weaponizing IRS data for immigration enforcement would impose substantial fiscal costs on public revenues while undermining trust in government institutions critical to maintaining voluntary tax compliance systems.

Probability this answer is correct: based on authoritative sources such as ITEP reports, Congressional Budget Office analyses, and historical precedents regarding taxpayer privacy laws.

Authoritative Sources:

1. Institute on Taxation & Economic Policy
2. Tax Policy Center
3. Congressional Budget Office Analysis
4. IRS Guidance on Confidentiality Protections