Republicans Propose 5% Tax on Remittances, Sparking Debate

The Republican Party has introduced a plan targeting remittances sent by immigrants, which has sparked significant debate and concern among affected communities. In the small town of Cajola in western Guatemala, Israel Vel's entire livelihood depends on the money sent back by his three children working in the United States. The funds they earn from construction work cover the costs of the two-story white house where Vel currently resides, which would also be their home if they were deported. The 53-year-old Vel has used part of the remittances to invest in a local food store, which helps sustain his family's livelihood. In towns like Cajola, the entire economy is often dependent on remittances sent by migrant workers.

The Republican-controlled House of Representatives has included a provision in Donald Trump's key legislation to impose a 5% consumption tax on remittances, affecting over 40 million people, including green card holders and non-immigrant visa holders such as those with H-1B, H-2A, and H-2B visas. U.S. citizens are exempt from this tax. Trump has also announced plans to issue a presidential memorandum to "halt" remittances sent by undocumented immigrants. However, the White House and Treasury Department officials have not responded to requests for comment on the specifics of the memorandum or its implementation.

Experts, local leaders, and former immigrants have expressed concerns that prohibiting, restricting, or taxing certain remittances could harm communities that rely on these funds, impose additional burdens on U.S. citizens and businesses, and paradoxically lead to an increase in illegal immigration. The inflow of funds provides a crucial economic lifeline for residents of often impoverished towns with limited job opportunities and income. Experts argue that remittances offer opportunities for people in their home countries, making them less likely to risk migrating to the United States.

"Any measure that reduces remittances will have a negative impact on U.S. national interests," said Manuel Orosco, director of the "Immigration, Remittances, and Development Project" at the Americas Dialogue. "This will affect the home countries of migrants."

Supporters of measures targeting remittances argue that it is an effective way to tax undocumented immigrants and could generate revenue for the U.S. government. Mark Krikorian, executive director of the Center for Immigration Studies, which advocates for reducing immigration, acknowledges that restricting, prohibiting, or taxing remittances would make the situation more difficult for undocumented immigrants in the United States. "One of the main reasons people come here is to work and send money back home," Krikorian said. "If this becomes more difficult, the attraction of coming here will decrease."

Over the past few years, 18 states have proposed legislation to control remittances by taxing international and domestic transfers. Almost all of these efforts have been voted down. Oklahoma is an exception, having passed a remittance tax in 2009: a 5-dollar fee for wire transfers under 500 dollars and a 1% tax for amounts over 500 dollars. Steven Yates, now a senior researcher at the Traditional Foundation, wrote for the "America First Policy Institute" that every state should adopt this policy to address the impact of illegal immigration.

Other high-ranking officials in the Trump administration also support strengthening controls on remittances. Vice President JD Vance, while serving as a senator from Ohio in 2023, co-sponsored the "WIRED Act," which proposed a 10% fee on remittances sent from the United States. The bill allowed individuals who could prove their citizenship to reclaim the fee as a refundable tax credit, with the aim of "punishing illegal activities such as drug and human trafficking." However, the bill did not pass the committee.

"This legislation is a sensible solution that can deter illegal immigration and weaken the economic power of drug cartels," Vance said when the bill was introduced. Remittances are a significant factor in the global economy, often sent through remittance service providers in the United States rather than banks and credit unions. According to the World Bank, the total amount of remittances sent back to home countries in 2023 was approximately 656 billion dollars, equivalent to the GDP of Belgium. In 2023, remittances sent by Mexican immigrants to their relatives grew by 7.6%, reaching a record 633 billion dollars for the year.

Orosco, who is also a senior researcher at the Harvard University Center for International Development, stated that some remittance senders might find alternative, unauthorized channels to send money, while others might reduce the amount they send. "A decrease in remittances will affect the families receiving them, limiting their savings and potentially increasing their desire to migrate," Orosco said.

In Cajola, local leaders have stated that the inflow of remittances has prevented young people from migrating, as they see new economic opportunities. Vel expressed that losing this lifeline would be devastating for families like his, potentially leading to the closure of his small business. "People are filled with fear," Vel said. "They worry that, with businesses closing, there will be no job opportunities for those living in Guatemala." Vel has struggled with his business since Trump took office, with sales of items like eggs, beans, and sugar declining.