President’s Amnesty Program Includes a Generous Cash Bonus

President Obama recently announced a new program granting amnesty in the form of “deferred deportation” status, including work permits, to millions of illegal immigrants who are parents.

Some of the President’s remarks seemed to be directed at the illegal immigrant population, including:

If you register, pass a criminal background check and you’re willing to pay your fair share of taxes, you’ll be able to apply to stay in this country… [emphasis added]

cash-bonus-table-2

The part about taxes was probably intended to mislead the rest of us.  For most of the people eligible for deferred deportation, “fair share of taxes” is misleading.  In reality they’ll receive FROM the IRS a lump sum of cash, provided by the American taxpayers. 

In selling this scheme Obama emphasized the hope that illegal immigrants will “emerge from the shadows” of the underground economy, “pay taxes” and file tax returns. 

To this end they’ll be issued Social Security numbers, enabling them to work on the books for legitimate employers, and making them eligible to receive two substantial cash subsidies, delivered to them by the IRS.

To millions of low to moderate income people the IRS is not the scary tax collector, nor is our annual tax season a time of anxiety and stress.  Instead, the IRS is a benefactor, distributing cash every spring via a system of misleadingly named, “refundable tax credits.”

Several  mechanisms reduce one’s income tax bill: exemptions, deductions, credits and refundable credits.

  • Exemptions  of $3,950 for each taxpayer and each dependent, and deductions such as charitable donations, lower one’s tax bill by reducing the portion of income that is taxed.
  • Tax credits are more valuable because they directly reduce the amount of tax that would otherwise be owed after taxable  income is reduced by exemptions and deductions.
  • Refundable tax credits, are the most valuable of all.  They are, in effect, reverse taxation.  Refundable credits are payments from the IRS to the “taxpayer” that exceed his/her tax obligation. People who meet IRS eligibility criteria receive these payments even if they have no tax obligation at all, even if no income tax withholding was deducted from their paychecks.  If income tax was withheld from their paychecks and their tax obligation turns out to be zero that withheld money is refunded back to them along with the refundable tax credits.

Low to moderate income people who are parents with children are eligible for the two largest refundable credits, the earned income credit or EIC and the child tax credit.

Under IRS rules parents of dependent children, either single or married are eligible for the EIC and the child tax credit.  These can add up to thousands each year.  In 2012, the latest year for which IRS has published statistics, $28 billion in child tax credits was distributed and $62 billion in EIC payments went to 21 million parents with children.  (These statistics do not include taxpayers without dependent children, who may qualify for a much smaller version of the EIC, at most $496.)

President Obama’s deferred deportation program promises millions of illegal immigrants that they will not be deported for three years.  His eligibility criteria is the same as for the EIC and child tax credit: they must be parents.

There is no citizenship requirement for refundable tax credits.  To qualify, parents who are not citizens must:

  1. have a Social Security number.  Numbers will be provided to all of those who are granted Obama’s deferred deportation status;
  2. be “resident aliens.” Anyone who has been “physically present” in the US for all or most of the past 3-4 years qualifies, by IRS regulation, as a resident alien;
  3. earn some income.

So, how much are these tax credits worth to the millions of people who will be granted Obama’s “deferred deportation” status?  It depends on how much they earn and how many children they have.  The table above shows some examples.

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