A proposal to tax remittances despatched by people with out Social Safety numbers has handed the Home and is now earlier than the Senate. At 3.5%, the levy was initially anticipated to lift $26 billion over the subsequent decade.
Adjustments made by the Senate on Saturday significantly narrowed the scope, so the tax could be 1%, and the yield solely $10 billion over the subsequent decade. Nevertheless, the targets have remained the identical: deter undocumented migration and recoup funds from these working outdoors authorized standing who ship cash to their households again dwelling.
It would appear to be simple cash to tax migrants, however that doesn’t make it good coverage. The proposed tax dangers undermining each monetary transparency and nationwide safety. The coverage would push billions of {dollars} into unregulated channels corresponding to cryptocurrency exchanges, make legislation enforcement’s job more durable and in the end damage the very communities the US seeks to stabilize overseas for geopolitical causes.
The U.S. is the world’s largest supply of remittances, and Mexico has the best dependency on them; 97% of the cash Mexican expats ship again dwelling comes from the States ($64.75 billion in 2024). A 1% tax on remittances to Mexico alone might take much-needed funds away from migrants and their households and divert it to the state. Whereas this may sound like a simple income win, the real-world impacts are extra sophisticated and the slippery slope of permitting for remittance tax can have unintended unfavorable penalties for everybody.
First, Mexican President Claudia Sheinbaum has already condemned the measure and mentioned the federal government will “mobilize” in opposition to it. Different international locations throughout Latin America and Southeast Asia, the place remittances account for as a lot as 25% of GDP, are sounding alarms. The U.S. has lengthy relied on financial diplomacy to construct goodwill, and taxing remittances might erode that, making it more durable to companion on border safety, anti-trafficking efforts and the battle on medicine.
Subsequent, taxing formal transfers doesn’t cease folks from sending cash dwelling, it simply adjustments how they ship it. And sometimes, the next-best choice is way worse. In states like Oklahoma, even modest charges led to a surge in casual cash transfers. Equally, the proposed federal tax, which some lawmakers have mentioned needs to be as much as 15%, goes to push migrants to remit by means of different programs together with Chinese language- or Russian-owned fintech corporations, crypto platforms and cash-based implies that function outdoors the formal monetary system. These underground strategies are notoriously troublesome to observe and are exploited for cash laundering, organized crime and terrorism financing. Whereas most migrants are merely making an attempt to assist their households, shifting funds by means of black market programs exposes them to the chance of being unknowingly entangled in illicit exercise.
Federal companies and educational consultants have lengthy cautioned that casual remittance programs complicate efforts to trace illicit monetary flows. When remittances are pushed out of the formal system, it turns into considerably more durable to implement safeguards designed to forestall cash from being diverted to legal or extremist actors. A federal remittance tax dangers accelerating this shift underground, weakening oversight and inadvertently increasing a shadow market the place the traces between official and illegitimate transfers are more and more blurred.
In the meantime, implementing such a coverage brings its personal set of issues. To start, it outsources immigration enforcement to banks and wire providers. A clerk at Western Union might quickly be legislated to ask whether or not a sender has a Social Safety quantity, flag suspicious transfers and perform new compliance programs. These are all new obligations which may result in a rise of switch charges, which within the U.S. are already round 6%, rising the burden on senders. Thus, the tax is a pricey and complicated enterprise — one that can have an effect on authorized residents and U.S. residents, who though not topic to the federal tax would nonetheless be paying the upper charges to subsidize corporations’ compliance.
None of this excuses unlawful migration. The U.S. has a proper and duty to implement its legal guidelines and shield its borders. However not each enforcement instrument is efficient, and so they all deserve scrutiny.
Take the hypothetical instance of a grandmother dwelling in Arroyo Seco, Mexico, the place one in 4 households receives U.S. remittances and remittance flows supersede the annual municipal price range. Her son, an undocumented migrant within the U.S., sends $400 a month to assist with hire, treatment and her grandchildren’s fundamental wants. An virtually 10% levy (combining the proposed tax and switch charges) would claw again $40 month-to-month, sufficient to power her to skip treatment for herself or meals for the kids. Multiply this story by thousands and thousands, and you start to see that this sort of financial destabilization doesn’t simply erode family resilience but additionally weakens whole communities, fuels migration pressures and creates openings for legal networks and authoritarian states to take advantage of monetary desperation.
Taxing remittances gained’t scale back undocumented migration however might gas extra. And it’ll drive flows underground, forcing households to depend on riskier and fewer accountable monetary channels — corresponding to unlicensed cash transmitters working by means of apps like WeChat Pay, which lack shopper protections and function beneath opaque governance frameworks tied to overseas state pursuits. It would additionally burden and disincentivize the very establishments that make lawful transactions potential.
Whereas the remittance tax may rating political factors, the long-term danger in addition to geopolitical and institutional damages may not be well worth the $10 billion.
Yvonne Su is the director of the Centre for Refugee Research and an assistant professor of fairness research at York College in Toronto.
