Trump move to tax money sent abroad could devastate Latin America, Caribbean economies

Miami Herald

19-06-2025

A proposed tax on the money sent by immigrants in the United States to friends and families back in their home countries could have unintended devastating consequences for US. national security and for receiving countries, especially those in Latin America and the Caribbean that have come to heavily rely on the funds, experts warn.
The 3.5% tax on remittances, which are not currently taxed, is among several provisions tucked inside President Donald Trump's 'One, Big, Beautiful Bill' tax and spending plan that House Republicans narrowly passed last month. Senate Republicans are now trying to agree on a version before sending it to the floor for a vote ahead of July 4, the deadline Trump has set for it to hit his desk.
While there are some notable differences between what the House passed and what the Senate Finance Committee published on Monday, the proposed tax on remittances still risks pushing migrants to use unregulated and unlicensed networks to send money to their home countries and plunging countries like Haiti, where the money represents a key source of family income, deeper into economic hardship. It also requires U.S. citizens, green-card holders and anyone with a Social Security number to provide that information before they can send money abroad.
'We did a conservative estimate of the impact of these flows and it will have an effect of reducing transfers by at least 5% in the next year,' said Manuel Orozco, director of Migration, Remittances and Development Program at the Inter-American Dialogue in Washington.
Orozco said that will have a devastating effect for countries in Central America along with the four nations — Cuba, Haiti, Nicaragua and Venezuela — that were recently part of a Biden-era humanitarian parole program now being targeted by the Trump administration. Earlier this month the Supreme Court ruled that the Department of Homeland Security can deport beneficiaries of the program that had allowed them to temporarily stay and work in the U.S. for up to two years, while Trump's decision to end the program is being litigated in the courts.
Last week, the administration began sending revocation letters to about 500,000 recipients of the program, urging them to leave the U.S. on their own. Many of those targeted are also enrolled in Temporary Protected Status, another benefit that the administration is seeking to end after rolling back their end dates.
'On the one hand, the Temporary Protected Status and the humanitarian parole is being discontinued for people from these four nationalities,' Orozco said. 'On the other hand, you have the tax increase for those nationalities who happen to be much less likely to have a social security number because they arrived recently, they escaped their home country for political reasons or due to state fragility or state failure as in the case of Haiti.'
In the case of Haiti, which has become highly dependent on remittances, 'you're dealing with a time bomb,' said Orozco, who found that for every $10 dollars remitted to Haiti in 2020 — when the country received $3.8 billion from abroad — at least $8 came from the U.S.
'The impact of this tax on Haiti will be devastating because there are 500,000 Haitians' at risk of losing their legal right to stay in the U.S. in August., Orozco said. 'Haiti's dependence on remittances is significant in a moment where … the state has already collapsed, and income basically depends on remittance flows. So the implications of these are far more complex.'
But Haiti's remittance flows, which surpassed $4 billion last year according to its central bank, are not the only ones that risk taking a hit should the tax provision pass.
Central American nations with economies weakened by years of instability and insecurity also will be hurt. Orozco cites the case of Guatemala, where he recently examined 15 years' worth of data through 2024. A 1% increase in remittances, Orozco said, led to a 15% increase in the country's GDP.
'Remittances have increased an average of 13% for the past 15 years,' he said. 'If remittances were to fall 10%, you will have an economic recession in Guatemala, because a 1% decrease will decelerate the Guatemalan economy substantially for more than four months.'
The decline, he said, would be much more severe in Honduras, where a 1% increase in remittances increased the GDP by 33%. In both Central American nations, remittance income accounts for 30% of private consumption and any decline will have a direct effect on gross domestic product, GDP, Orozco said.
'You will have a big blow in these countries' economies,' he said.
On Wednesday, Orozco was part of a conversation about the effects of the legislation on family remittances. Fellow panelists Kathy Tomasofsky, the executive director of Money Services Business Association, and Marina Olman-Pal, chair of the Legal & Regulatory Affairs Committee of the Financial & International Business Association, said many questions that remain about the legislation.
The Senate version appears to focus on cross-border transfers that are initiated in cash and being sent to family members, Olman-Pal said. Transfers funded with debit or credit cards appear to be excluded in the Senate version.
The original tax got scaled back from 5% to 3.5%. While the House version required senders to be U.S. citizens, the Senate version expands the universe to include those with social security numbers that allow them to work. It also offers more exemptions ,such as individuals using debit and credit cards to transfer money abroad.
In the version released by the Senate Finance Committee on Monday, the tax must be collected by the remittance company and paid quarterly to the Treasury Department.
'For an American citizen, a green card holder that has that Social Security information, you are going to now have to complete a form and hand over that information to your cashier in order to affect the transfer,' said Tomasofsky. 'The business company, that small business, is going to have to set up a procedure to collect the information, to store that information. There are concerns about privacy.'
Tomasofsky said the industry has made significant strides in the last 20 years, but the new reporting system could have an adverse effect on small grocery stores and businesses. For example, a company that only does 500 transactions a month may opt to get out of the business after deciding it's not worth the extra compliance.
'I'm not certain that it's going to provide any benefit to anyone in the long run because of it,' she said.
Olman-Pal said while social security numbers are protected under federal and state law, there is a risk associated with increased collection. She agrees with Tomasofsky that the cost of banking could also go up as a result of the legislation's new requirements.
29 bills on taxing remittances
The motivation for such legislation varies depending on the proponent. Some say it's intended to discourage unauthorized migration. Some others say it's a means to raise revenue, while some proponents accuse migrants of not paying taxes and say it's a way to tax them indirectly. Orozco and the others caution against all of these assumptions, noting that studies show that migrants, regardless of immigration status, do file taxes and in some cases the money they send home has discouraged migration to the U.S.
Still, this past year, 18 states have proposed 29 different bills on taxing remittances, Tomasofsky said. In all but one instance, Tomasofsky said, the industry was able to push back 'by demonstrating how many unintended consequences there are in this bill, and the states have not moved those bills forward.'
But this is the first time that the push to tax remittances, which already come with high fees, has reached a level where there appears to be political appetite for approving it.
'The motivations may be political, but everything is about the fine print, the content of what you try to come up with, and the adverse effect that it can have, the backfiring effect,' Orozco said.
To underscore his point, he brought up the case of Ghanaians living in Europe and an analysis of the global money transfer market and the relationship between stiff regulations and higher transaction costs. As a result of the stiffer controls on the origination and destination of remittances, nationals of Ghana in Europe, for example, turned to informal channels, Orozco said.
'Statistically, for a 1% increase in the transaction cost the use of informal fund transfers will increase by 6% but also, there is a cost element to it,' he said. 'Immigrants don't have an infinite amount of resources. They have a very limited income capacity that in the U.S. averages to about $3,300 a month.'
'If your transaction cost goes from 3 to 6% or 6.5%, you're actually spending 1% of your monthly income just to pay those costs. And what typically people do is send less money,' Orozco added. 'So you will see one side going informal, and another side who may pay the tax but send less money.'