Mexicans living in the United States are on pace to send more than $50 billion in remittances to people still living in Mexico, according to data from the World Bank and Bank of Mexico. Border Report noted that this is a record amount of money sent back to Mexico, despite the ongoing COVID-19 pandemic and economic issues in the United States.
Remittances are money sent to countries overseas, often using money-wire services such as Western Union and MoneyGram. Remittances account for a significant quantity of some countries’ gross domestic product, including those in Central and South America. Immigration analyst Andrew Arthur noted that “remittances significantly subsidize the economies in those countries, and each would be hard pressed to replace the lost GDP if its nationals were to stop migrating, or even worse, return to those countries.”
In 2020, remittances accounted for 24.1 percent, 14.7 percent, and 23.5 percent of the GDP of El Salvador, Guatemala, and Honduras respectively. Other countries dependent on remittances in the Americas also have a large number of nationals residing in the U.S. such as Haiti (23.2 percent), Jamaica (22.2 percent), and Nicaragua (14.7 percent).
The federal government does not tax remittances flowing out from the United States to foreign countries. This leaves billions of dollars of potential tax revenue on the table. An additional and significant harm of large-scale remittances is that it represents money that does not remain in local economies, creating businesses and jobs and generating recurring revenue flows to local governments.
This is a colossal error on the part of our government, and one that Congress could – and should – address.
Look no further than the state of Oklahoma. Oklahoma is the only state in the country that taxes wire-transfer fees, at a rate of 1 percent. In a 2018 post on the subject, Center for Immigration Studies analyst David North noted that the state’s collections from this tax increase each year by about 10 percent.
Imagine if Congress levied a tax on wire transfers, the majority of which are remittances flowing out of the United States. A mere 1 percent tax on remittances to Mexico this past year alone would yield $500 million dollars. According to the World Bank, $69.9 billion flowed out of the U.S. as remittance payments in 2020. Taxing that figure at 1 percent would yield almost $700 million in revenue for the U.S. Treasury, with the possibility that revenues continue increasing year after year.
During the 2016 presidential election, then-candidate Donald Trump proposed using a remittance tax (or the threat of one) to encourage Mexico to pay for his promised Southwest border wall. Authors pointed out that taxing remittances and using it on wall construction could fund most if not all of the proposed construction. The Center for Immigration Studies estimated that preventing 160,000 to 200,000 illegal crossings over 10 years would offset projected costs to build the wall over a 10 year period.
Using remittances to build the wall never ended up happening, and President Trump resorted to using an emergency declaration to build sections of it. When President Joe Biden took office in January 2021, he ended that emergency order and halted construction of the wall.
A future policy taxing remittances need not limit itself to the construction of a border wall. Even with a wall in place, asylum abuse will continue to be the top driving factor contributing to the illegal alien population in the United States. Instead of proposing a remittance tax to chase a specific construction project, Congress should install a remittance tax to raise funds in order to address changes to our immigration system in a broad sense.
Funds from a remittance tax could go towards an “immigration enforcement fund.” The government could use such a fund to hire more immigration judges and enforcement agents, build facilities needed to detain illegal aliens, and fund needed sections of the wall where necessary. Because this fund would be the result of legislation – rather than executive action – it would be much harder to end through executive fiat. This is a common sense and low-impact proposal that would go a long way in helping secure our southern border.