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-Editorial
A provision tucked deep into President Donald Trump’s recently passed House spending package has triggered growing alarm among economists, immigrant advocates, and international development organizations. The measure, which proposes a 3.5% federal tax on remittances sent by non-citizens, could dramatically reshape global money transfers, with potentially severe consequences for vulnerable communities abroad and in the United States.
In 2024, U.S. residents sent over $220 billion in remittances to other countries, with over half of those funds flowing to Latin America. Mexico was the top recipient of U.S. remittances, while India led globally. Experts say the proposed tax would not only strain foreign economies that heavily rely on these transfers—some of which comprise over 30% of their GDP—but could also spark instability in U.S. financial systems and worsen irregular migration trends.
Ariel Ruiz Soto, a Senior Policy Analyst at the Migration Policy Institute, warned that the proposal may undermine one of the most vital economic lifelines for low- and middle-income countries. “In 2024, about $905 billion was sent in global remittances,” Ruiz Soto said. “Of that, $685 billion went to countries that depend on these funds for survival.” In places like Guatemala and Honduras, remittances are often used to pay for necessities like food, electricity, and medical care.
Though remittances to Latin America increased in past years, new data shows signs of decline. “Mexican immigrants are sending less than before—about $400 per month—while Guatemalans send slightly more,” Ruiz Soto noted. He warned that the tax could not only reduce overall remittance flows but also force migrants to resort to informal and riskier transfer methods.
One of the most contentious aspects of the proposal is its enforcement mechanism. The tax would apply only to non-citizens, requiring money transfer companies like Western Union and Remitly to verify the immigration status of senders—a task experts say is both unprecedented and burdensome. “It could create a two-tier system that discriminates against immigrants while placing heavy operational costs on businesses,” Ruiz Soto said.
Helen Dempster, Policy Fellow at the Center for Global Development, echoed similar concerns. She described the tax as a blow to low- and middle-income countries already suffering from foreign aid cuts. “Remittances have long outpaced official development aid. For many nations, they are the last remaining cushion,” Dempster said.
She pointed to data showing that in 2023, remittances accounted for 41% of Tonga’s GDP and 31% of Lebanon’s. In Central America, Honduras and El Salvador received more than a quarter of their GDP through remittances. For Mexico, while the GDP share is smaller (4.5%), the sheer volume—over $67 billion annually—makes it the second-largest remittance recipient globally.
If enacted, the tax could slash total remittance flows by as much as 5.6%, costing Mexico alone over $2.6 billion per year, Dempster said. She added that El Salvador, a close U.S. ally, could see its Gross National Income reduced by more than 1% due to the tax, highlighting the geopolitical risks.
Dr. Manuel Orozco, Director of the Migration, Remittances, and Development Program at the Inter-American Dialogue criticized the measure as a national security risk. The law would compel financial institutions to collect citizenship proof—such as birth certificates or passports—from all senders, a requirement Orozco deemed both “unrealistic and dangerous.”
“This creates privacy risks and operational chaos,” he warned, noting that private firms would have to integrate with U.S. Treasury systems to confirm both citizenship and tax compliance. “It opens the door to identity theft, data breaches, and fraud.
Dr. Orozco also emphasized the economic danger of pushing remittance flows underground. “Even a 1% increase in the cost of remittances raises informality by 6%. At 3.5%, this would reverse years of work to formalize and secure these systems,” he said.
Ana Valdez, President and CEO of the Latino Donor Collaborative, offered a more personal critique. “This tax is a penalty on the American Dream,” she said in a recent statement. “Immigrants contribute as buyers, builders, and workers. To tax their ability to support loved ones is not just unfair—it’s shortsighted.”
The amendment is currently under congressional review and its future remains uncertain. However, the mounting opposition from economic experts, development organizations, and immigrant leaders signals that its path forward could be politically fraught.