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For years worldwide policymakers have pushed to make it cheaper for migrants to ship remittances residence. As with so lots of Donald Trump’s interventions, the US president has turned that logic on its head: he desires to make it costlier. Contained within the 1,000-plus pages of the “massive, stunning invoice” going by Congress is a mean-spirited measure to tax cash despatched overseas by non-US residents, together with visa holders and everlasting residents.
The typical payment to switch $200 overseas is 6.4 per cent, in accordance with the Migration Data Portal. The US levy would push that to almost 10 per cent, making the US — the world’s prime supply of remittance flows with annual transfers of no less than $80bn — the most costly G7 nation from which to switch cash.
Claudia Sheinbaum, president of Mexico, which receives remittances value 4 per cent of GDP, has referred to as the levy a tax on the poor. Nations in Central America, together with Nicaragua, Guatemala and Honduras, which depend on remittances for as a lot as 1 / 4 of GDP, are more likely to be far more durable hit.
Approaching prime of savage cuts to help and the specter of punitive tariffs in opposition to among the world’s poorest international locations, corresponding to Lesotho and Madagascar, the proposed levy on remittances is an extra blow to international locations in determined want of capital.
Trump’s remittance tax, after all, shouldn’t be a design flaw, however a part of a deliberate technique to flush out immigrants, authorized or in any other case. Individuals sending cash overseas should show they’re residents to keep away from the levy.
That might plausibly deter some unlawful migration to the US. Extra possible, remittances might be pushed into crypto and stablecoins or by underground hawala “belief” networks, making flows more durable to observe by tax and law-enforcement authorities.
The proposed levy is a part of a broader Trump technique to weaponise the tax system in opposition to perceived foes, whether or not teams such immigrants or, establishments corresponding to Harvard College.
Senators must oppose a punitive tax on hardworking individuals who ship a part of their wages residence, particularly at a time of tax giveaways for the wealthy. Numerous research have proven that such flows enhance well being and training outcomes in recipient international locations.
In 2024, remittances hit $685bn, dwarfing support flows of $212bn that 12 months, a niche that may solely widen with cuts to abroad support. Such flows have proved resilient to world shocks such because the 2008 monetary disaster and the Covid pandemic. Within the 10 years to 2024, in accordance with the World Bank, remittances rose 57 per cent whereas FDI fell 41 per cent. In 2019, they overtook overseas direct funding to growing international locations for the primary time.
From the attitude of recipient international locations, remittances then are a significant supply of finance. Probably the most remittance-dependent international locations embrace Tajikistan, at 45 per cent of GDP, and Lebanon, at 27 per cent. Liberia receives about $800mn in remittances a 12 months, almost the identical as its complete funds.
Confronted with swingeing debt repayments and an exorbitant value of economic capital, many growing international locations have come to depend on these transfers. That doesn’t make remittances a viable improvement technique. Growing economies ought to do all the things to create the circumstances for sustainable funding, the one long-term route out of poverty. Sending the very best and brightest overseas can solely take an economic system to this point.
Nonetheless, the fact is that, in an surroundings of shrinking entry to capital, remittances are a world security valve. Trump’s levy is a part of a a lot greater squeeze on capital flows to the poorest international locations. Little good is more likely to come of it.
