Trump to tax remittances

First, they dismantled USAID and obliterated foreign aid. Then they indiscriminately imposed higher tariffs that placed impoverished countries on edge. Now they want to tax remittances of workers that make poverty-stricken lives in the Third World bearable. What’s happening to the America we know?

Trump and the House Republicans want to tax remittances to raise money to fund more tax breaks for wealthy Americans, and reduce the deficit.

The proposal is part of Trump’s “One Big, Beautiful Bill.” It imposes a five percent tax on remittance transfers sent by individuals in the US who are not citizens, including green card and visa holders.

That would cover over 40 million people in the US.

Republican leaders hope to get the House to pass the tax bill by Memorial Day and forward it to the Senate and get it to Trump’s desk by their Fourth of July recess. But the latest word is that the draft bill was voted down in the committee so it may take more time. Expect Trump to push it.

Trump also recently announced that he is finalizing a presidential memorandum to “shut down remittances” sent by illegal immigrants in the US to discourage illegal migration. White House and Treasury officials have not provided specifics of the presidential memorandum that Trump previewed in an April 25 Truth Social post.

But taxing and/or shutting down remittances as a strategy to address illegal immigration in the US may not work and may also have unintended consequences, like remittances going underground and making these more difficult to monitor and regulate.

The US is known to be the largest worker remittances sender globally. In 2023, remittances from the US to the Philippines reached approximately $13.7 billion, accounting for about 40.9 percent of the total cash remittances of $33.5 billion sent through banks.

In 2024, the trend continued with cash remittances rising to $34.49 billion, a three percent year-on-year increase.

Remittances from the US play a crucial role in supporting Filipino households and significantly contribute to the Philippine economy.

Overseas workers’ remittances are one of only two legs supporting the Philippine economy.

In 2023, worldwide remittances of OFWs totaled $37.2 billion, accounting for 8.5 percent of the gross national product.

The proposed five percent tax rate may not seem much from a macro perspective but every dollar, every peso counts for OFWs and their families.

The tax would be in addition to charges that banks and other financial institutions charge for remittances.

Banks charge an average of 11.8 percent in transfer fees. Money transfer operators like Western Union and MoneyGram charge around 5.4 percent per transaction. Digital platforms such as Wise and Remitly offer around 4.5 percent per transaction. 

And, with the depreciation of the US dollar in recent months, there will be even less pesos for families back home.

Overseas workers sending remittances is better than foreign aid. In 2023, the Philippines received approximately $198.2 million in non-military aid from the US. In comparison, 2023 worker remittances from the US to the Philippines reached approximately $13.7 billion. And it emphasizes the dignity of work: overseas Pinoys provide services (nurses, doctors, technicians, teachers) that American society needs but lacks.

It is not clear if the proposed tax covers all remittances that pass-through New York or only those that were earned in America. Local bankers think the tax will be at the point of transaction. So even if the share of remittances from the US is smaller than actual, remittances coursed through SWIFT and the major correspondent banks like Citibank, JPMorgan, Chase are still classified as US under the “last touch rule.”

The BSP admits there are some limitations on the remittance data by source. A common practice of remittance centers in various cities abroad is to course remittances through correspondent banks, most of which are located in the US.

Also, remittances coursed through money couriers cannot be disaggregated by actual country source and are lodged under the country where the main offices are located, which, in many cases, is the US.

Additionally, there are concerns that this tax could drive remittance activities into cryptocurrencies and informal channels. Such channels might pose risks related to fraud, security and compliance with anti-money laundering regulations.

As it is, cryptocurrencies already offer several advantages that make them attractive for remittances such as lower transaction fees of less than two percent compared with 6.4 percent for traditional remittance services.

Crypto transactions can also be processed quickly, often within minutes, compared to the days it might take for traditional methods.

In fact, as of 2024, approximately 23 percent of global remittances involved some form of cryptocurrency, with higher adoption rates in regions like the Asia-Pacific. Countries such as the Philippines, India and Vietnam saw crypto accounting for 30 percent of total remittances.

Experts warn that the shift to informal and crypto could harm both the US and foreign economies. Remittances play a significant role in global financial flows. In total, remittances from the US reach over 100 countries, meaning it has widespread international implications.

Besides, the effectiveness of remittance taxes as a deterrent to illegal migration is questionable. It may not significantly influence migration decisions. Making lives more miserable in such countries also increases the impetus to illegally enter the US by making the risk of illegal entry worth the try.

From the perspective of geopolitics, imposing taxes on remittances and making it more difficult to send remittances to home countries may prove more trouble than it is worth for the US.

It reduces their soft power in Third World countries and effectively allows rival powers like China to gain ground.

I hope they give this proposal some more thought.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco