Trump's proposed ‘immigrant worker tax' will drive money transfers underground, experts warn

Telegraph

a day ago

Donald Trump's proposed tax on immigrant workers sending money home from America will take billions out of poor economies and drive the transfers underground, aid and industry experts have warned.
The US president wants to impose a 3.5 per cent tax on remittance transfers sent by anyone who is not an American citizen, as part of his 'big beautiful' tax bill currently passing through Congress.
The new tax would apply to an estimated 40m people in the US, including those with green cards or on working visas, and would include Britons working in America.
The tax comes as part of broader legislation to cut down on illegal migration, and will make America the most expensive G7 country for workers to send money home from.
The measure would effectively cut the amount of money being sent back home, experts say, hitting families that rely on remittances as an economic lifeline.
Some countries in Latin America stand to lose as much as one per cent of their Gross National Income from the measure, research has estimated, with more money sent home from the United States than any other country in their world.
The proposed tax also comes on top of sweeping cuts to US foreign aid which has already left large holes in the government budgets of many poor countries.
Mexico stands to lose the most money in absolute terms, or around $2.6bn (£1.9bn) annually, according to modelling from the Centre for Global Development, a Washington-based global development think tank.
But in terms of the proportion of their income, the worst hit will be El Salvador at just over 1 per cent, Honduras at 0.9 per cent and Jamaica at 0.7 per cent.
Several African countries will also be badly hit, including the Gambia and Liberia.
The centre said: 'For many countries, the remittance tax would be a further crushing blow after the recent cuts to US aid.
'For example, Liberia is a country heavily reliant on both foreign aid and remittances: a quarter of the country's foreign assistance came from the US, and remittances totalled more than three times Liberia's bilateral foreign aid in 2023.
'The US aid cuts were already projected to remove the equivalent of 2 per cent of GNI; even though it is small, the remittance tax will remove another 0.2 per cent.'
Remittances sent back to Mexico have already fallen sharply, as Mr Trump has vowed to toughen up immigration enforcement and enact mass deportations.
Mexico earlier this week said it had received 12 per cent less in April from a year earlier. Economists said the fall was due to a slowing US labour market and fear of deportation among immigrant workers.
Gabriela Siller, director of economic analysis at Grupo Financiero Base, told Bloomberg: 'This was due to the fact that migrants in the United States are afraid to go out to work and send remittances because they could be deported.'
Remittances are a huge part of the global economy, with the World Bank estimating that some $656bn (£484bn), equivalent to the GDP of Belgium, was sent home by workers abroad in 2023.
The flow of money is deemed so important for development, that the United Nations has targets to bring the cost of remittances down by 2030.
World Bank figures show that in the third quarter of 2024, the global average cost of sending a remittance of $200 (£148) was 6.62 per cent.
The majority of that cost was taken up by fees to the provider, such as a bank, mobile phone app, or transfer firm like Western Union. The rest of the cost was due to foreign exchange margin.
Looking at the G7 richest countries alone, the average cost to send money home was an average of 6.14 per cent, including 6.03 per cent in the US and 5.75 per cent in Britain.
Mr Trump's new tax would put the US cost close to 10 per cent.
Under the legislation, the tax would start in 2026 and hit anyone who is not a US citizen or US national, including green card holders and those visiting for work.
Banks and money transfer services would collect the tax for every transaction and hand it on to the US Treasury, according to FXC Intelligence.
Yet experts said the measure risked instead forcing large sums out of heavily regulated financial channels and into more informal underground routes which have no safeguards against money laundering, or criminal financing.
The Atlantic Council this week said: 'Countries that have enacted punitive measures on cross-border payments and currency exchange have often undermined their own ability to combat financial crime, thereby weakening their economies and diminishing their foreign influence.'
An original version of the bill wanted the tax to be set at five per cent, but it was cut back at the last minute.
The current version is heading to the Senate and is expected to still face stiff opposition from transfer companies.
Payments-industry trade groups representing companies like Western Union and Visa have written to Congress members saying the measure would hit migrants sending money back to relatives, on top of posing a greater money-laundering risk.
The letter said: 'This provision would create a dangerous new precedent with respect to government overreach by invading the privacy of Americans, harming American businesses, and - for the first time - intruding on payment transactions between private individuals.'
'Everyday Americans would be asked to turn over sensitive identification information in order to use a regulated and licenced financial services provider to conduct ordinary, everyday financial transactions.'