In the United States, 9.6 million children are living in poverty. Federal and state tax credits are among the most effective policy tools for fighting child poverty. However, nearly 2 million children – 1.6 million US citizens and 270,000 non-citizens – are living in poverty and are ineligible for these poverty-fighting tax credits because they have at least one undocumented parent.
In this episode of CMSOnAir, Roberto Suro explores this inequality and other findings from the paper, “Tax Equality for Immigrants: The Indispensable Ingredient for Remedying Child Poverty in the United States,” which he co-authored with Hannah Findling. At a moment when the Biden administration and Congressional Democrats are pursuing substantial expansions of tax credits for working-poor families, an important question remains: Who will be eligible?
This episode of CMSOnAir is part of a series featuring academics, policymakers, and advocates who have written for CMS’s Journal on Migration and Human Security (JMHS).
Emma Winters: Welcome to CMSOnAir, the podcast on migration and refugee issues, brought to you by the Center for Migration Studies of New York (CMS). I’m Emma Winters, CMS’s Communications Manager. Today, I am joined by Roberto Suro. He is Professor of Journalism and Public Policy and the Associate Director of the Price Center on Social Innovation at the University of Southern California. Prior to joining the USC faculty in August 2007, Suro was director of the Pew Hispanic Center, a research organization in Washington, D.C. that he founded in 2001. He is also a long-time journalist who has reported for TIME, The New York Times, The Washington Post, and other outlets.
In this episode, Suro shares findings from a new report in CMS’s Journal on Migration and Human Security (JMHS), which he co-authored with Hannah Findling. The paper is called “Tax Equality for Immigrants: The Indispensable Ingredient for Remedying Child Poverty in the United States.” Here’s my conversation with Roberto Suro…
Thanks so much for being here today, Roberto. Your article talks a lot about tax credits. What are tax credits? And why are they so effective at alleviating child poverty?
Roberto Suro: Well, tax credits are pretty much as they sound. When you file your income taxes, the tax code makes various provisions for you to get money back. Some of those tax credits only give you back the money that you’ve paid in, and others will actually pay you back more than what you paid in.
There are two major tax credits that are aimed at people who are working poor, and one is the Earned Income Tax Credit (EITC). The other is the Child Tax Credit (CTC). For both, the scale of benefits is determined both by the family’s income and the number of dependent children they have. They’re structured so that if you’re at the very bottom of the income ladder, if you’re working poor, if you’re employed but at the poverty level, below it, or even a little bit above it, you get payments that increase with your income to a certain plateau. The Child Tax Credit is also dependent on how many children you have. It’s similarly based on your income, increases, and then plateaus. If your income goes beyond a certain level, you no longer qualify.
These tax credits do two things that have been identified as the magic formula for addressing poverty, particularly child poverty. First, they deliver relief immediately. They give people cash money that they can spend. The other is they incentivize earnings and incentivize work. These two tax credits have been proven extremely effective in that regard. They’ve both been around for a long time. There’s a ton of evidence that they do incentivize the adults to increase their earnings and to stay in the workforce, and they can have very immediate effects in alleviating child poverty.
So there’s not only an evidence base behind them, but there’s also very considerable bipartisan support. Republicans like the tax credits because they’re linked to work. They’re not handouts, per se. It is earned income. You have to do something to get these payments from the government. Liberals tend to like them because it is a very effective way of addressing poverty overall, and especially child poverty. These are tried and true solutions. And then the question becomes – and what we address in this paper is – who is eligible?
Emma Winters: In your article, you describe a two-tier system for US tax filers. Could you say, what are the two tiers? And how is the system different for each one?
Roberto Suro: Sure, the one that most everybody is familiar with is you have a Social Security Number. If you’re an American citizen, you basically get it at birth. A Social Security Number does a number of different things. It shows that you’re authorized to work. It allows you to participate in the Social Security system. With a Social Security Number, you’re eligible for all of these tax credits.
There are all kinds of people who earn income in the United States in different ways and who have tax obligations but who don’t qualify for a Social Security Number. Decades ago, the Internal Revenue Service (IRS) and Congress created this parallel system, the Individual Taxpayer Identification Number – affectionately known in the business as the “ITIN” – for everybody else. The basic qualification for it is that you’re not eligible for a Social Security Number, but you have an obligation to pay taxes.
One of the interesting aspects of the tax code is that it’s blind to immigration status. As far as the tax laws of the United States, it doesn’t matter what your status is at all. If you earn income in the United States, if you are resident here for an extended period of time, if you’re half time living in the United States, and if you earn income here, you have to file a tax return. If you’re not eligible for a Social Security Number, you’re supposed to use an ITIN.
When you do that, what you pay in is the same. Whether you have a Social Security Number or an ITIN, it’s exactly the same. You pay the same taxes. In terms of credits, however, there’s a big difference. You pay in the same, but you don’t get back the same. Those are the two tiers. ITIN filers, for example, are excluded entirely from the Earned Income Tax Credit (EITC), and they’re excluded from the Child Tax Credit (CTC) in almost all cases.
Let’s say you have two families, the income earners in one have Social Security Numbers. In the other, they have ITINs. They both make poverty wages as fully employed adults in the many, many jobs in our economy that don’t pay people enough to keep a family above poverty. The ITIN filers will actually be paying more in taxes than the Social Security filers. They have a higher burden. The tax system, on the one side for the Social Security filers, is helping them get out of poverty. For the ITIN filers, the way it’s currently structured is taking more money and making it harder to get out of poverty – if you follow the rules. If you do what the IRS says and you don’t qualify for a Social Security number, you are penalized. Those are the two tiers.
It’s a very unequal system. You have a tax code that is ostensibly blind to immigration status in terms of the requirements but is quite cognizant of immigration status when it comes to the benefits. There are all kinds of people who don’t qualify for a Social Security Number. The largest population are unauthorized migrants, but there are all kinds of people who are in the process, have papers in the works. They’re “gray.” In immigration studies, there is a complicated and now very large population of people who are between legality and not. There are also special situations, for example, the spouses of certain visa holders and students in certain categories. All kinds of people file with ITINs and as a result of this two-tier system suffer consequences if they are working poor.
Emma Winters: I’m thinking about the fact that a lot of us recently got stimulus checks from the government as a result of the Coronavirus pandemic. Could you say within this two-tier system, what happened to the ITIN filers?
Roberto Suro: At the onset of the pandemic and in first version of the stimulus, ITIN households were basically excluded. For example, in a very typical case, the parents are ITIN filers, the children are US citizens and born here. In that circumstance, initially, that family was excluded from the stimulus.
That turns out to be a lot of people, and a lot of poor people. A lot of US citizen kids were excluded because of the tax identifier that their parents were using to file their taxes. In the subsequent bills, they revised the qualifications of the first one. Those [mixed-status] households were eventually included substantially in the later stimulus payments.
It marked a very important moment in which Congress, first the Trump administration, and then the Biden administration acknowledged these ITIN holders as an important segment of the workforce and an important segment of the poverty population. The qualification rules [of the subsequent bills included] US citizen children. They recognized that ITIN households are made up of parents who are raising US citizen children, and if you’re trying to reach those US citizen children, you have to go through their parents who are ITIN filers. This was a moment of inclusion.
Also related to the pandemic in early 2020, several states led by Colorado and California took measures to include ITIN filers in their state EITCs. There are about 30 states that have a state version of the Earned Income Tax Credit. Many of them also have Child Tax Credits that run in parallel or are embedded in their state EITC programs. In Colorado and California and subsequently five other states in the past year, we’ve seen legislators come to the conclusion that to effectively combat poverty and specifically the kind of poverty produced during the pandemic and the threats to children in poor households generated by this pandemic, that it was good social policy to include ITIN filers in those tax credits. One of the fallouts, and a kind of unpredictable and unintended consequence of the pandemic, [is that] we’ve seen this momentum developing for ITIN inclusion.
Emma Winters: States that did choose to include ITIN filers, how did they explain that change?
Roberto Suro: In different states, these things came about in different ways. The arguments vary a little bit, but there are a few central arguments that have recurred. One is related to the narrative of essential workers. The realization that there is this large number of people who labor in jobs that require human contact, and that we can’t live without because they provide our food, our medicine, and all kinds of services with which civilization, our nation can’t function, and that many of them are very poorly paid. That prompted some of this attention.
In other places, there was an emphasis on the equality aspect of it. You have similarly situated families that are treated differently. In some places, advocates argued successfully that ITIN inclusion helps remedy a structural racial bias in the tax code. ITIN filers are predominantly people of color, especially because the unauthorized make up a very large segment of that population, a lot of Latinos. There are a constellation of arguments, and the tax credits are very popular. They have a constituency in legislatures because they are proven to be a very effective use of public funds.
Emma Winters: Another point your article makes is that the number of people who are filing with ITINs is going down. It’s decreased since 2015. Could you say why that’s happened, and what’s the impact of that?
Roberto Suro: The ITIN is a curious creature that has gone through a couple of incarnations. The ITIN emerged in the 1990s. Then in the early aughts, under the George W. Bush administration, there was a lot of interest in bringing the unauthorized population into the banking system, particularly as the dollar amounts of remittances going to Mexico and other countries of origin was becoming quite substantial. Remittance payments to Mexico were increasing very rapidly.
A lot of it was outside the banking system. You had a lot of people who were relying on payday lenders. They would take their paychecks and go to somebody and pay all their bills and send their remittances and then pay enormous fees, and then deal everything else in cash. As a matter of policy, the Treasury Department, the Federal Reserve, and the banks all wanted to bring these people into the system. The way to do that was to declare – as the Treasury Department did – that an ITIN could be used for all kinds of financial transactions, including opening a checking account, taking out a mortgage, and buying and selling stock. It opened up the doors and encouraged financial institutions to use the ITIN for all kinds of things.
Along the way, you also had discussions of comprehensive immigration reform in the latter part of the aughts and then through the 2013-2014 effort. There was the notion that if you could prove that you had been employed, if you could prove continuous presence, if you could prove that you paid taxes, these were all things that would benefit you in the legalization process. You had the government encouraging people to use their ITINs and file taxes as a precursor to legalization, very explicitly.
Our immigration politics started to change considerably at the end of the aughts, beginning of the teens. The effort of comprehensive immigration reform failed in 2013-2014. There was greater agitation about allegations of fraud in the ITIN system and misuse of the ITIN system. There were concerns about unauthorized immigrants getting benefits through the ITIN system.
You had both regulatory actions and some statutory actions, which were designed to clean up the ITIN system. The allegations of fraud were never documented in a way that we can say there was a very clear problem. There was a perceived problem, but it resulted in these measures that required renewal of the ITIN and made it very difficult to get the ITIN.
There were rules that obliged the Treasury Department to review large shares of ITINs every year to see whether they were still in use, whether they were still legitimate or not. The IRS wholesale started disqualifying ITINs if they had not been in use or there were any issues. They made it more difficult to get the document. They made requirements that you have to do it on paper. You can only request an ITIN at certain time of the year. You have to submit your original documents and send them to the IRS. You have to send your birth certificate, your passport, and other original documents and mail them off under the promise that you would get them back in a few months. I think there are a lot of native-born US citizens who, if the IRS said, “Send me all your original documents and don’t worry, we’ll get them back to you,” would say, “Yeah, not a chance.”
All these bureaucratic measures together resulted in a continuous decline in the number of people holding an ITIN, a decline in the number of people who were successfully renewing an ITIN, and a decline in the number of people who were applying for an ITIN. Along the way, some of the benefits that had existed, including some access to the Child Tax Credit, were withdrawn, specifically by the Trump administration.
What was once seen as this important tool of immigrant integration – a way of bringing people into the financial system and allowing them to fulfill their obligations as taxpayers – became something very different with a negative connotation and under suspicion and facing a lot of bureaucratic difficulties. It has withered.
During this time, internal watchdogs at the Treasury Department and the IRS have repeatedly sent reports to Congress describing all this as it was happening and urging Congress to instruct the IRS to not let this system fall into the disarray that is in now. There are passionate statements from the National Taxpayer Advocate and the Treasury Department Inspector General. The IRS… [cancelled] almost half a million ITINs one year without notifying the people that they were losing their ITINS. When those people filed their taxes – all of a sudden – they had invalid numbers. [These statements] protested this as unfair, not following congressional intent, and being fundamentally inefficient in the administration of this aspect of the tax system.
There are two agendas that we address in this paper. One is inclusion, but the other one is access. And the second one, access, is as important as inclusion because you can’t say, “Okay, you now are eligible for this benefit, but you’re going to have to jump through a series of impossible hoops in order to get access to it.”
Emma Winters: What types of regulatory changes at the federal level could be done to improve that access?
Roberto Suro: The application system could be much simpler. It could be done electronically. It could be done all year round. You could make provisions for people to deliver certified copies of their documents as opposed to the originals. Currently, you can do that by going into certain IRS service centers. There are some designated around the country where you can go in with your documents and have them certified, but that is a cumbersome process. It’s only available in some places, and those offices have all been closed since the beginning of the pandemic.
There are a number of steps, which have all been outlined in specific recommendations by these internal watchdogs. We’re not talking about advocates. We’re talking about offices of the US government that have said to the IRS, “Look, this is what you need to be doing.” These are fairly simple measures. There’s [a larger fix] that Congress would have to undertake, which is to make the ITIN permanent the way the Social Security number is, so you don’t have to go through a renewal process every few years. Access could be greatly facilitated through a number of simple measures.
You get inclusion. You get access. Then, there needs to be a substantial program to educate and assist people in applying for an ITIN and understanding how to file taxes and who’s eligible for a tax credit and how to claim the tax credit.
All of us go through this. The tax system ain’t simple. If you’ve never encountered it before, you need help and more help than you can get from an online tax preparation program. That would require a substantial campaign that would involve advocacy groups, NGOs, philanthropies, faith organizations, and the government at the local, state, and federal level, saying, “This is a priority. We want people to come forward, identify themselves, fulfill their tax obligations, and in exchange, they will be eligible for these very substantial credits.”
Emma Winters: What happens if ITIN filers don’t have access to these tax credits, the system doesn’t become easier to navigate, and we don’t see this type of outreach you’re describing. What’s the effect on child poverty in the United States?
Roberto Suro: President Biden, early on, declared that his primary goal in terms of social policy was to cut childhood poverty in half. If you don’t undertake these measures we’ve described, reducing child poverty to that degree will be difficult, if not impossible.
There are about 10 million children living in poverty in the United States today. Of them, about 2 million live in ITIN households. One out of five children living in poverty in the United States today has a parent who, if they were to file taxes, would have to use an ITIN. Of those children 1.6 million – or 85 percent – are US citizens.
We’re talking about our kids, our future. These aren’t immigrants. These are native-born US citizens who are being denied a benefit that is meant to ensure their physical and mental health, their social well-being, their ability to go to school, their ability to become productive in their future as US citizens. There’s this ambition to cut child poverty in half. Beyond that, these are our kids. They’re being denied something that really is essential to having food, having shelter, being able to go to school, and having clothes. We’re denying them the same credit that the kid next door is getting because the nine-digit number their parents would use to file taxes is different. It’s an ITIN and not a Social Security Number.
But there’s more to it than that. Imagine that there’s a substantial increase in the number of people who are ITIN eligible workers and are paying their taxes with an ITIN. They’ve come forward. They’ve identified themselves. They’ve given all their information to the government. They’ve basically said, “Yeah, we’re here without authorization. That’s why we’re getting an ITIN, but we’re workers and we’re parents. We’re here to tell you, we’re ready to play by the rules. We are going to obey the tax code and do everything you ask of us.”
In exchange, the government says, “If you meet the qualifications for these very effective social policies, we will include you. We will give you the funds in order to raise your children to the standards that we think are the minimum, the bare minimum of America in society in the 21st century.”
To my mind, that constitutes a very important transaction. I call it transactional recognition. Both parties are saying, “We’re here. We’re playing by the rules. We’re incorporating ourselves.” [In that scenario], the tax code is embracing the logic of legalization: You’ve been here. You’ve been here for a long time. You meet a series of qualifications. In this case, you’re employed, you’re earning, and you’re parents. Under those circumstances, we are recognizing you, and we are legitimizing you as workers, and as parents. We accept the fact that you’re here doing essential work, and we accept the fact and we honor the fact that you are raising our children.
Given the current state of immigration politics and policy, that would be a very important step forward. We may be at a moment where this can happen.
The key to President Biden’s child poverty reduction program was an expansion of the EITC and the CTC, expanding the benefits and making them more generous. That was part of the last stimulus plan, the American Rescue Plan that was passed in spring of 2021 as a temporary measure. He proposed in April they become permanent. That is embedded in the reconciliation bill, which now, in August 2021, is presenting itself in both houses of Congress as part of the big $3.5 billion investment in human infrastructure.
This presents an opportunity. In the Senate, there’s legislative language to do exactly that with the Child Tax Credit – to extend it to all US citizen children regardless of their parents filing status. We’re at a moment when this very unusual effort to enact enormous social policy in Washington through a budget reconciliation measure has created an opportunity. Meanwhile, there are five or six state legislators that still have bills in front of them knocking around, that would expand state tax credits to ITIN filers. We’re at a moment where this could happen, and it could be real.
Emma Winters: If you want to learn more about the Center for Migration Studies’ Journal on Migration and Human Security, please visit: cmsny.org/jmhs.
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This transcript has been slightly edited for clarity.
Both at the federal and state levels, tax credits have proved effective policy instruments to combat poverty, and they are at the heart of President Biden’s massive initiative on childhood poverty. However, about one of every five children suffering poverty in the United States has an unauthorized immigrant parent and thus little or no access to tax credits. That is nearly two million children, and 85 percent of them are US citizens. Achieving historic reductions in childhood poverty thus will be impossible without remedying the eligibility exclusions and bureaucratic impediments that unauthorized immigrants face in the US tax system....
Please join the Center for Migration Studies of New York (CMS) and co-sponsors the Price Center for Social Innovation at the University of Southern California and NETWORK, the national Catholic social justice lobby, for a webinar and discussion of the Journal on Migration and Human Security report, “Tax Equality for Immigrants: The Indispensable Ingredient for Remedying Child Poverty in the United States.”
States across the country are tackling an equity issue in the tax code by breaking from federal eligibility standards for their state Earned Income Tax Credits (EITCs). Specifically, states are taking it upon themselves to end the exclusion of taxpayers who file their taxes with an Individual Taxpayer Identification Number (ITIN). ITINs are personal tax processing numbers issued by the Internal Revenue Service (IRS) to individuals who are not eligible for a Social Security number. They are primarily issued to undocumented immigrants, although they are also issued to certain lawfully present immigrants. Millions of people pay taxes with ITINs every year. Together ITIN-filers paid $23.6 billion in taxes in 2015. In less than a year, five states have successfully passed legislation to end the exclusion of these tax filers from their EITCs....
In the United States, 9.6 million children are living in poverty. Federal and state tax credits are among the most effective policy tools for fighting child poverty. However, one in six US citizen children who are living in poverty are not eligible to receive these tax credits because they have at least one undocumented parent.