Taxing the money immigrants send home would hurt economies here and abroad

Mint

2 days ago

A proposed new tax from the Trump administration would slow the flow of money that U.S. immigrants send home to their families, and that has economic implications at home and abroad.
Remittances from the U.S. to Latin America totaled an estimated $160.9 billion in 2024, according to the latest research from the Inter-American Development Bank Migration Unit. Those remittances not only generate transaction fees for the largely American financial institutions that execute the payments, but they also make up between roughly 20% to 30% of gross domestic product growth in countries like El Salvador, Guatemala, Haiti, Honduras, Jamaica and Nicaragua.
President Donald Trump's budget, which recently passed the House of Representatives, included a 3.5% tax on all remittance transfers made by noncitizens to accounts outside the country. That would be a double tax on many immigrants who have already paid income tax on the funds they send to family and friends abroad.
'Remittance growth from the United States could fall to half of what it was in 2024," estimates Manuel Orozco, director of the migration, remittances and development program at the Inter-American Dialogue, a think tank that aims to boost democratic resilience and shared prosperity in the Americas.
In addition to the proposed remittance tax, the U.S. is experiencing slowing migration and increased deportations. Both trends could reduce the number of foreign-born individuals in the U.S., thereby also diminishing the population sending remittances home.
The slowing migration trends in effect since 2023 are expected to continue this year. Morgan Stanley economists estimate that immigration will slow to 800,000 this year, down from 1 million new arrivals in 2024. That is expected to drop to just 500,000 in 2026.
Deportations are also set to rise. The Department of Homeland Security reported 152,000 deportations during the first hundred days of the Trump administration. And the Supreme Court ruled last week that the Trump administration could end temporary status granted by the Biden administration to 532,000 people from Cuba, Haiti, Nicaragua and Venezuela.
Remittances are a key form of support for many countries. Honduras, for example, received $9.8 billion in remittances from the U.S. in 2024, according to Orozco. The country was on track to experience 7% growth in remittances in 2025, but with the proposed tax and the projected declines in immigration, Orozco expects that the country will actually see a 9% decline instead. El Salvador is projected to experience an 8% decline, while remittances to Guatemala and Nicaragua could be down by 7%. Haiti is expected to see a 3% drop.
A drop in remittances could lead to lower domestic incomes and consumer spending, as well as potentially expanding deficits, writes William Jackson, chief emerging markets economist at Capital Economics.
The reduction in consumer spending could occur in the U.S. as well. Migrants typically send 15% of their remittances abroad, but that means about 85% of their incomes remain in the U.S. Last year, immigrant households held $1.7 trillion in spending power, according to data from the American Immigration Council, a nonprofit that aims to shape immigration policies. Undocumented immigrants, specifically, had about $299 billion in spending power.
But if the cost of remittances increases, generally the income spent in-country tends to shrink as well, says Ananya Kumar, deputy director for future of money at the GeoEconomics Center. So this issue does affect consumer spending levels in the U.S. as well.
Even countries with large economies could feel the impact of lower payment flows. U.S. remittances to Mexico—which Mastercard's research has found to be the 'single largest remittance pipeline in the world"—totaled $67.7 billion last year, according to BBVA research. India and the Philippines also rank high in remittance flows.
The remittance tax would be on top of the high transaction fees that already exist when sending money across borders. Last year, the average cost of sending money from the U.S. was 6.03% during the third quarter, according to the World Bank's quarterly report.
It can be challenging to determine the effects of a tax on remittances because many times these payments go underground if taxed. That makes this a 'slippery tax space," says Alan Cole, senior economist with Tax Foundation's Center for Federal Tax Policy.
That could make it more difficult to administer and collect the projected tax revenues, but could also increase cartels' power as payment brokers.
'There's a U.S. national security interest in wanting to not create more friction from remittance payments," Kumar says. Americans need to stop viewing remittances as a 'burden" on the U.S. economy, but instead, should start viewing it as something that accrues advantages abroad, she adds.
Write to Megan Leonhardt at [e-mail]