Remittances To Mexico Drain Dollars From American Pockets

One of the least-discussed aspects of U.S.-Mexico immigration policy is the potential taxation of remittance payments being sent from the United States to Mexico. Remittances are monies earned in the United States that are then transferred to relatives, friends, or business associates who reside abroad.

According to a recently-released study by FAIR, in 2017, Mexico was the top recipient of remittances from the United States, getting a hard-currency injection of just over $30 billion directly from our economy. Mexican nationals in the U.S. remitted more money to their home country than all Chinese and Indians in America combined. China and India are the second and third highest recipients, respectively, of U.S. remittances. 

That $30 billion figure represents untaxed cash fleeing the U.S. economy and entering the Mexican economy every year. It comes from both legal and illegal Mexican nationals, as well as naturalized U.S. citizens originally from Mexico. And that money very rarely makes its way back to the United States.

The failure to tax remittances represents a massive loophole in America’s otherwise comprehensive scheme of levying fees on international financial transactions. Moreover, the fact that this loophole has not been addressed, especially at a time when it might help further U.S. interests abroad, is mindboggling.

Currently, Oklahoma is the only state that taxes remittances, but if the United States placed a mere 1 percent federal remittance tax on all Mexican remittances from the U.S., it would bring several advantages:

• First, the tax could reduce the number of Mexicans illegally entering the U.S. in search of employment, as remittance revenues would decrease.
• Next, the tax decreases the disparity between public services consumed and taxes paid by Mexican nationals living in the United States. A remittance tax wouldn’t ensure that Mexican nationals pay for all the services they consume but it would help reduce the burden on the American taxpayer, who is forced to make up for the tax revenues lost when remittance money exits the U.S. economy.
• Additionally, the tax encourages more participation in the Mexican labor force, which helps improve its developing economy.  Many Mexican households rely solely or primarily on remittances from the U.S., which discourages them from participating in the domestic labor force and entrepreneurial activity. If this externally-generated capital is reduced, more Mexican individuals will seek employment at home, increasing the amount of wealth generated in Mexico.
• Lastly, the collected tax revenue from the remittances could improve societal and physical infrastructural in the United States, including potentially the southern border wall.

The massive transfer of U.S.-earned cash to Mexico is just another way that our lax immigration policies are hurting average Americans. The revenue raised from money retained in the U.S. that is subjected to consumption taxes is used to pay for schools, roads, jails and other infrastructure. It’s bad enough that some Mexicans are entering the country illegally and showing profound disrespect for American law. What’s even worse is that they don’t appear to be paying for the public services they are using.  A remittance tax would be a good first step in alleviating that problem.