Buried in the House Republicans’ budget reconciliation bill is a tax provision long sought by immigration hawks in the U.S. Under the plan, foreign workers who send portions of their income back to their home countries will pay a five percent tax on the transfer. Notably, U.S. citizens who make foreign transfers can recoup the five percent tax through a credit when filing their taxes.
President Donald J. Trump attempted to institute a tax on remittances, the act of foreign workers making non-commercial transfers of money or goods to their families in their country of origin, during his first term in office. However, the measure was sidelined by the COVID-19 pandemic.
Notably, remittances from the United States comprise a significant portion of Mexico’s gross domestic product (GDP). In 2022, remittances made up about four percent of Mexican GDP. Remittances from the U.S. to Mexico constitute the latter’s largest foreign income source.
The measure will effectively punish an economic behavior that removes dollars and consumption from the U.S. and transfers that economic activity to Mexico. Trump has repeatedly worked to end unearned benefits that Mexico enjoys from the U.S. unless it ramps up efforts to stymie the flow of fentanyl and other drugs into the U.S. and moves to end the influence and power of drug cartels.