Poor countries around the world are still dealing with the impact of America’s foreign aid programs being essentially shut down in the early days of President Trump’s second term. Now Republicans in Congress are poised to deal a smaller yet still significant blow to another crucial financial lifeline: the Money they receive from loved ones working in the U.S.
Money transfers from the U.S., often sent by immigrants who came here specifically to earn cash they can use to support the people they left back home, are a vital source of income for people in developing countries around the world. Cumulatively, U.S. residents sent more than $79 billion abroad in 2022, the most recent year with available data. That’s more than the federal government spent on direct foreign assistance the same year and double the amount that was sent from any other country.
The GOP’s “big, beautiful bill” includes a provision that would impose a new tax on these transfers, which are formally known as remittances. As it’s currently written, the bill would place a 3.5% tax on all outbound remittances. If that rate holds, it would mean billions of dollars intended for the poorest people across the globe would instead go to the government.
The bill is still being negotiated, however, and some Republicans in Congress would like to see the rate cranked up substantially. Even if the rate does not change, the bill would still make the U.S. one of the world’s most expensive wealthy countries to send money from, when you combine the new tax with the fees that banks typically charge for international transfers.
Who would be most affected?
Most of the money that leaves the U.S. goes to countries with the most immigrants living there. Mexico received $52 billion in remittances in 2021, equivalent to about 4% of the country’s gross domestic product. India was a distant second with $15.8 billion.
Mexican President Claudia Sheinbaum denounced the proposal last month, calling it “an injustice” and a “tax on those who have the least.”
While Mexico would lose the most in terms of sheer dollars, the impact would be felt most acutely in poorer nations with small economies that are heavily dependent on money from overseas. Remittances account for more than a quarter of the GDPs of Nicaragua, Honduras, and El Salvador. Some of the poorest countries in Africa would also be significantly affected.
Debate over the tax
The amount of money the new tax would generate would be a drop in the bucket in the government’s budget. Proponents of the proposal say its value would be much more than the revenue it would generate. Mark Krikorian, executive director of the anti-immigration think tank Center for Immigration Studies, told the Associated Press that the extra costs would help reduce the incentives that people have to travel to the U.S. illegally.
“One of the main reasons people come here is to work and send money home,” he said. “If that’s much more difficult to do, it becomes less appealing to come here.”
Critics of the plan say that, while the most severe harm would fall on vulnerable people who are already reeling from the Trump administration’s aid cuts, Americans would also suffer negative consequences.
“The tax is likely to create collateral damage by imposing compliance burdens on people who are not the intended target of the tax while struggling to collect revenue from the intended targets,” Alan Cole and Patrick Dunn of the Tax Foundation wrote earlier this month.
Some financial services groups also oppose the tax because they believe it will create unnecessary and harmful hurdles for international business.
“This remittance tax provision in particular mandates a massive invasion of privacy by private businesses and the federal government on American citizens, creates undue tax burden for law-abiding Americans, reduces business revenue, complicates regulatory efforts, and hinders law enforcement,” the heads of seven lobbying groups for the finance sector wrote in a joint statement.
The “big, beautiful bill” passed the House last month and is currently being negotiated in the Senate. The remittance tax is a relatively minor part of the massive tax and spending plan, but there are some indications that it could be the source of disagreement within the GOP caucus.
Insider reports say that some key senators are “weighing concerns” about the tax, but it also has some strong backers. The most fervent supporters of the plan are in the House, which will have to approve whatever bill comes out of the Senate before it can become law.
Several far-right GOP representatives — including Marjorie Taylor Greene and Chip Roy — reacted to Sheinbaum’s criticisms by calling for the rate of the tax to be dramatically increased. Rep. Eric Schmitt wrote on social media that he would introduce a proposal to increase the rate to 15%. “America is not the world's piggy bank,” he wrote. “And we don't take kindly to threats.”