 Cash is dispensed in local currency at a remittance center in the Philippines after being exchanged for funds sent by a Filipino migrant working abroad. |
Buried near the end of the ludicrously named "One Big Beautiful Bill Act" approved by the House Budget Committee over the weekend is a new 5 percent tax on remittances, the gifts of money that tens of millions of foreign-born US workers regularly send to family members abroad.
As a rule, Republicans promote themselves as the party of lower taxes. Indeed, a key goal of the "big, beautiful" legislative package is to permanently extend the tax cuts passed by Congress in 2017 and signed by President Trump during his first term. The bill would also establish new forms of tax relief, such as making tips and overtime pay tax-free and adding a deduction for car-loan interest. White House press secretary Karoline Leavitt declared Monday that the bill, if passed as written, would "give Americans the largest tax cuts in our nation's history."
But it's a different story for immigrants sending some of their hard-earned wages to loved ones in their homelands.
Tax cuts may be important to the GOP brand, but these days so is ill will toward migrants. A new tax on remittances would generate some revenue for the federal government, but as with so many of the administration's actions, its primary purpose is to make life more difficult for immigrants. In nativist circles, taxing remittances has long been advocated as a way to increase pressure on undocumented foreigners who are working at jobs in the United States. In 2023, then-Senator JD Vance introduced a bill to impose a 10 percent tax on funds remitted abroad by workers in the United States. Vance made no secret of his motives. "This legislation is a common-sense solution to disincentivize illegal immigration," he said at the time.
Mark Krikorian, who heads the Center for Immigration Studies, a group that lobbies for restricting immigrants, makes a similar point.
"One of the main reasons people come here is to work and send money home," Krikorian said last week. "If that's much more difficult to do, it becomes less appealing to come here."
Nativists also argue that remittances drain money from the United States — that dollars earned here should stay here. "Remittance-Senders (Mostly Illegals) Ship $25 Billion a Year Out of the U.S.," the Center for Immigration Studies argued in 2010. A few years later, the Federation for American Immigration Reform — an organization even more vehemently opposed to immigrants — was insisting that foreign-born workers send "roughly $150 billion each year in remittances" to recipients outside the United States, a financial flow that "represents a direct loss to our economy, siphoning off valuable capital."
All this is bad economics and bad public policy. Even from a MAGA perspective, taxing remittances is counterproductive and unwise.
The easier it is for workers in the United States to send money to relatives and friends in other countries, the less inclined those relatives and friends will be to risk migrating to the United States unlawfully. In many poor communities, from Central America to India, remittances from expatriates are a crucial source of financial support. According to the World Bank, a billion people worldwide depend on remittances to help pay for food, housing, and medical care. To the extent Washington makes it difficult for workers in America to send remittances to those who need them, it induces even more foreigners to migrate in order to make money.
In short, Vance and Krikorian have it exactly backward: Squeezing remittances doesn't "disincentivize illegal immigration." It encourages it.
Equally wrongheaded is the notion that remittances represent a loss of wealth from the United States.
As most economists will confirm, dollars sent abroad — as remittances, to pay for imports, or to buy foreign currency — are not "lost" to the US economy. In almost every case, they make their way back. Foreign entities generally cannot use dollars domestically within their own countries. So when businesses or banks abroad accumulate US currency, they can only use it to buy American goods and services or to invest in American assets. The bottom line: No matter how many billions of dollars Americans send abroad, virtually all those dollars must ultimately return to the United States.
A party that claims to uphold limited government, free markets, and low taxes shouldn't be micromanaging the private finances of individual workers. Taxing remittances isn't sound economics or sound conservatism — it's just a way to punish people for sharing what they earn with their families. Targeting the wages immigrants send home won't protect Americans, won't strengthen border security, and won't boost the US economy.
Republicans will gain nothing from a tax hike that is both ineffective and mean-spirited. There may be admirable provisions in the GOP's "big, beautiful bill." This isn't one of them.
Jeff Jacoby is a columnist for The Boston Globe.
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