One of Donald Trump’s boldest, most ambitious proposals on the campaign trail was to build a wall along the southern border and get Mexico to pay for it. Amid the tumult of Trump’s first few months in office, the border wall hasn’t gotten as much attention as some other things. But new legislation has been introduced in Congress to help fund it.
It’s called “The Border Wall Funding Act of 2017,” introduced on March 30 by Rep. Mike Rogers, R-Ala.
And it would put a 2 percent tax on all person-to-person wire transfers to Mexico, the rest of Latin America and the Caribbean.
It’s not the only bill targeting remittances. An earlier proposal in the Senate, which didn’t advance out of committee, would have placed a 7 percent “fine” on remittances unless the sender can prove he or she is in the U.S. legally.
It should be noted that these proposals would only apply to personal transfers and not to businesses moving money abroad to say, Mexico or the Cayman Islands.
As you might expect, people who send remittances are not happy.
“I’ve already earned my money and paid taxes on it,” says Rafael Villalobos Jr., a community college administrator in eastern Washington state who regularly sends money to his parents in Mexico. “The whole thing with this administration is about not having to pay more taxes yet I have to pay an extra tax on money that I’ve already earned when I give it to my parents just because they are coincidentally on the other side of the border.”
Villalobos says he’s very concerned about any additional costs for sending money. He recently switched from using traditional wire transfer firms like Moneygram and Western Union to a new mobile app called Remitly because it saves him a few bucks on fees per transfer.
“When I used to send money through those other means, it was typically a $10 sending fee, and instead of sending $400 I’d send $390,” he says.
That ten bucks, he says, goes a long way in Mexico.
“That is essentially another couple of days worth of food sometimes, depending on what you’re buying,” he adds.
Remittances are hugely important for the developing world.
For some countries, they’re the leading source of foreign capital. In Haiti, they add up to more than $2 billion dollars and represent 28 percent of the country’s overall gross domestic product. For Mexico, remittances bring in more cash each year — $28.5 billion — than Mexico’s vast oil fields.
More than $60 billion in remittances are sent out of the U.S. each year, more than twice the $26 billion that the American government spends on foreign development aid. Advocates for tighter border controls say a tax on those funds is long overdue.
“There is a certain symmetry in having illegal immigrants underwrite part of the enforcement to prevent illegal immigration,” says Mark Krikorian, executive director of the Center for Immigration Studies, a D.C. think tank that advocates for stronger limits on migration to the U.S.
He says a remittance tax is an obvious place to look for new money for the border wall.
“Because the people who would be paying it are people who don’t vote,” Krikorian says. “I mean they’re not even citizens.”
But a remittance tax would affect anyone sending money regardless of their immigration status. Villalobos, for instance, is a U.S. citizen. Legal permanent residents would also be hit by it.
Krikorian would like to see a tax similar to one that Oklahoma put in place in 2009. Oklahoma slaps a $5 surcharge on personal wire transfers up to $500 leaving the state either for other states or other countries, and an additional 1 percent on higher amounts. Technically the tax is fully refundable as a tax credit the following year so long as the sender retains the wire transfer receipt and files state taxes in Oklahoma. The fee raises roughly $12 million dollars a year for Oklahoma as hardly anyone claims a refund. To Krikorian, this is proof that a significant amount of remittances sent out of Oklahoma are from people who aren’t in the country legally.
Or it might be that it’s too much of a hassle to file for the refund.
Itai Grinberg, an international tax lawyer and a professor at Georgetown Law School, says it’s fairly unusual for governments to tax outflows of cash. This is not something you’d normally see, he says, from Europe or Japan or the U.S.
“From the perspective of a major developed economy it would be very unusual,” says Grinberg. Taxes are usually levied on goods or services or income but not on the movement of money from one place to another.
Taxing cash transfers is usually a strategy employed by leftist autocrats, like Venezuela’s Hugo Chavez, when their currency has gone in to a nosedive, he says.
But the idea of taxing remittances is gaining support in some wealthy countries that rely heavily on migrant labor. Bahrain, Kuwait, Saudi Arabia and the United Arab Emirates have recently proposed remittance taxes.
The World Bank has blasted the idea of these taxes, calling them a “bad idea.” The World Bank says they hurt some of the poorest countries on the globe by reducing the inflow of desperately needed cash. In addition a World Bank report on the subject last month says remittance taxes are difficult to administer.
Even if they are put in place, the report notes, migrants are likely to find some other way to get their money home without paying a tax.