Congress's Remittance Tax Will Increase The Cost Of Staying In Mexico

Forbes

a day ago

Crispin Agustin Mendoza is mayor of Alcozauca in Mexico. He's also a builder of dream houses for Mexicans presently living and working in the United States, but who plan to return to Mexico. In his words to the New York Times, 'I build their dream houses. That means I depend strictly on the U.S. economy.' Stop and think about that for a bit.
Specifically contemplate Mendoza's explanation of how he makes money while thinking about the proposed 3.5% tax on remittances stuffed away in the 'Big, Beautiful' bill. Assuming what's challenging, that banks and other financial institutions could become tax collectors in addition to financial intermediaries, would it be worth it?
For one, a 3.5 % tax is significant. Since it is, it's inevitable that producers rich, poor and in-between will strive to get around the tax. In other words, instead of moving their money in the safest way possible, it's no reach to say that markets of the underground kind will form to meet the needs (and sometimes thieve from) of those for whom 3.5% is a substantial, double-tax on their earnings. And there's more.
Think again of Mayor Mendoza in Alcozauca, and what drives his business: Mexicans working in the U.S., but who aim to get back to Mexico. Think about it alongside the popular narrative about immigrants from south of the border crossing into the U.S. to vote in the U.S. and allegedly change the makeup of our nation. It's more realistic to say that Mexicans come to the U.S. to work, and in the process boost our economy while paying taxes, all with a goal to get back to Mexico. Call the remittance tax a tax on the return of Mexicans to Mexico.
Which unearths an implied truth in the proposed remittance tax. Another popular excuse for keeping workers from south of the U.S. out of the U.S. has to do with welfare and other benefits offered by local, state and national governments. Opponents of immigration are prone to say that the existence of the welfare state makes the inflow of workers from Central America a non-starter. The mere proposal of a remittance tax rejects the notion.
Really, why would Congress propose such a tax unless the money earned and subsequently remitted by immigrants were substantial? As evidenced by over $60 billion worth of remittances to Mexico in 2023 alone, the primary occupation of immigrants from south of the border is work. Considering the $60 billion again, and its outsize impact on consumption in Mexico, stop and think about how many citizens in Mexico can afford to live there exactly due to the productive nature of their relatives in the United States.
Unknown is whether Republicans eager to levy such a large tax on tens of billions worth of remittances are doing so while aware of the implications. With so many claiming a desire to keep the borders empty and to limit the inflow of greater numbers of desperate people from the south, have they stopped to consider what this tax, or more realistically, what this penalty on remittances will mean for those not presently living and working in the U.S.?
As Republicans have long noted correctly, economic activity takes place on the margin. If Republicans raise the cost of remitting money outside the U.S., they'll lower the cost of migrating to the U.S. all the while increasing the relative desperation to get to the U.S. It's just a comment that one of the world's cruelest taxes is also one of its most foolish.