There are a few issues with remittances, but it's not what Trump thinks. In fact, Trump's bill is based on flawed assumptions, and taxing remittances is likely to have a negative impact not only on the families who receive them, but also on the US economy. The bill also ignores the important economic, social and cultural contributions immigrants make to the United States.
But immigrants are not passive victims of the crisis, they are already thinking about their options. The tax debate on remittances offers us a moment to consider how migration and remittance-related policies can have ripple effects and counterproductive effects, and rethink what they need to do to reduce poverty and financial development.
What is Trump enacted?
The passed tax is part of Trump's “Big Beautiful Building” Act, a budget package that funds his second term agenda, including an estimated $170 billion dedicated to immigration enforcement and border-related work. Taxes were originally 5%, but as proposed in the first version of the bill, they were then reduced to 3.5%, and now the Senate version is 1%.
Previous versions of taxes apply only to non-US citizens, but taxes passed apply to all senders of cash transfers, mail orders and cashier checks. This is added to already 6% of immigrants pay as fees to remittance service providers (such as Western Union and MoneyGram), banks and transfer apps. It is more than twice the 3% of the remittance transfer costs set as part of the United Nations Sustainable Development Goals, and is a global compact for safe, orderly and regular migration.
The tax applies to an estimated 23 million green card holders, 14 million non-immigrant visa holders, and 12 million fraudulent immigrants, leading to a drop in remittances of around 1.6%. It is also the first time the US federal government has implemented remittance taxes on individual transfers. The US Congress narrowly passed the bill one day before the July 4 deadline, a day before Trump requested him to sign him. This approval means remittance tax will apply to remittances starting January 1, 2026.
How does the 1% tax affect immigration in the United States and its families?
A recent analysis of the financial costs of proposed taxes for countries sending immigrants to the US shows that Mexico's biggest hit could significantly reduce official remittances, exceeding $1.5 billion a year. Other countries that are heavily affected include India, the Philippines, China, Latin America, and the Caribbean countries such as Guatemala, the Dominican Republic and El Salvador.
Remittance costs have long been a global policy interest field as they have a major impact on families. ODI research shows that family remittances tend to have a greater impact on poverty reduction than other cash flows (such as cash transfers) as they reach a greater share of population and poor households. Low-income families also use migration as a form of insurance. It helps them diversify income across family members, reducing family vulnerability to shocks like family loss or sudden illness. ODI research found that immigrant households are more likely to invest a portion of their income in assets such as land and businesses. These positive effects can be significantly at risk if immigrants fail to send remittances or reduce the amount.
Taxes on remittances are unlikely to provide Trump's migration agenda and could hurt the United States. It is based on four flawed assumptions…
Assumption 1: Taxes will discourage future immigrants from moving to the US
This flawed belief assumes that people will migrate just to send money. However, there are many reasons to support your migration decision. ODI research shows that beyond cash, other subjective and intangible factors are also important – feelings of hope, a sense of adventure, a desire to join a partner/family. Although migration to the US is currently declining for other reasons (e.g., broadening border enforcement, ending access to asylum at the southwest border), taxes on remittances are unlikely to block future migration.
Further research shows that remittances can reduce recipients' immigration intentions as income and saving ability increase. Thus, potential reductions in taxable remittances could have the opposite impact of Trump's migration agenda and increase migration intentions.
Assumption 2: Taxes will encourage immigrants to “self-swap”
Again, the decision to return is beyond cash. Immigrants sending remittances, particularly those with undocumented children, but with US citizenship, are unlikely to be self-reported. American immigrant parents often express a strong desire to avoid family separation due to significant negative effects on both children and parents, such as mental health and poor academic achievement. Otherwise, many immigrant families have largely decided to return, as they have escaped their country's violence, persecution, or economic hardships. Also, immigrants may feel more deeply attribution or fulfillment in the United States, especially when they face discrimination and social exclusion in their home countries. For all these reasons, taxes on remittances are unlikely to motivate immigrants to “self-abolize.”
Assumption 3: Immigrants must pay tax if they want to send remittances
It is difficult to predict how immigrants will respond to a 1% tax. Some people reduce the amount and frequency of remittance, but others emphasize that they are “always looking for a way to send remittances,” even if it involves relying on informal channels. For example, immigrants from Nigeria or India send informal remittances through a variety of ways, including physically carrying cash, using friends and acquaintances as intermediaries, or relying on Hawaii, an informal remittance transfer system run primarily in the Middle East and other parts of Africa and Asia.
Mexicans in the US use Paqueteros (parcel airline). US companies are companies that provide cash such as electronics, clothing, shoes, documents, and even cash. African immigrants are increasingly turning their eyes to cryptocurrency to send their money home. However, despite offering alternatives, the informal method does not have challenges. Delivery to intended recipients is not guaranteed and there is a risk associated with fraud or joint selection from criminal organizations.
Assumption 4: Taxes contribute to the US economy
In fact, taxes can undermine the US economy. Estimates suggest that revenue generated from the intended taxes is only $10 billion over the next decade, or less than 0.1% of the national budget. The decline in remittances, coupled with increasing regulatory requirements for remittance service providers, flows through formal channels, negatively affects the profitability and competitiveness of businesses, and harms the broader US economic interests. Similarly, if migrants have to pay more to send remittances, the surplus they hold will be lower, reducing demand for goods and services and slowing economic growth.
How can transfers work well?
Remittances are positively and significantly related to positive economic and social outcomes in host and receiver countries. There are a variety of ways that states can cooperate or take individually to make the most of their potential benefits.
Taxable remittances are counterproductive and may miss out on opportunities for economic prosperity in countries that support immigration. This important policy issue concerns not only the dollar, but also the perception of dignity towards immigrants and the meaningful contribution that contributes not only to the country of origin but also to the host country.
