Contributor: Taxing remittances is a big risk for very little reward
A proposal to tax remittances sent by individuals without Social Security numbers has passed the House and is now before the Senate. At 3.5%, the levy was initially expected to raise $26 billion over the next decade.
Changes made by the Senate on Saturday greatly narrowed the scope, so the tax would be 1%, and the yield only $10 billion over the next decade. However, the goals have remained the same: deter undocumented migration and recoup funds from those working outside legal status who send money to their families back home.
It might seem like easy money to tax migrants, but that doesn’t make it smart policy. The proposed tax risks undermining both financial transparency and national security. The policy would push billions of dollars into unregulated channels such as cryptocurrency exchanges, make law enforcement’s job harder and ultimately hurt the very communities the United States seeks to stabilize abroad for geopolitical reasons.
The U.S. is the world’s largest source of remittances, and Mexico has the highest dependency on them; 97% of the money Mexican expats send back home comes from the States ($64.75 billion in 2024). A 1% tax on remittances to Mexico alone could take much-needed funds away from migrants and their families and divert it to the state. While this might sound like a straightforward revenue win, the real-world impacts are more complicated and the slippery slope of allowing for remittance tax can have unintended negative consequences for everyone.
First, Mexican President Claudia Sheinbaum has already condemned the measure and said the government will “mobilize” against it. Other countries across Latin America and Southeast Asia, where remittances account for as much as 25% of GDP, are sounding alarms. The U.S. has long relied on economic diplomacy to build goodwill, and taxing remittances could erode that, making it harder to partner on border security, anti-trafficking efforts and the war on drugs.
Next, taxing formal transfers doesn’t stop people from sending money home, it just changes how they send it. And often, the next-best option is far worse. In states like Oklahoma, even modest fees led to a surge in informal money transfers. Similarly, the proposed federal tax, which some lawmakers have said should be up to 15%, is going to push migrants to remit through alternative systems including Chinese- or Russian-owned fintech companies, crypto platforms and cash-based means that operate outside the formal financial system. These underground methods are notoriously difficult to monitor and are exploited for money laundering, organized crime and terrorism financing. While most migrants are simply trying to support their families, moving funds through black market systems exposes them to the risk of being unknowingly entangled in illicit activity.
Federal agencies and academic experts have long cautioned that informal remittance systems complicate efforts to track illicit financial flows. When remittances are pushed out of the formal system, it becomes significantly harder to enforce safeguards designed to prevent money from being diverted to criminal or extremist actors. A federal remittance tax risks accelerating this shift underground, weakening oversight and inadvertently expanding a shadow market where the lines between legitimate and illegitimate transfers are increasingly blurred.
Meanwhile, enforcing such a policy brings its own set of problems. To begin, it outsources immigration enforcement to banks and wire services. A clerk at Western Union could soon be legislated to ask whether a sender has a Social Security number, flag suspicious transfers and carry out new compliance systems. These are all new responsibilities that might lead to an increase of transfer fees, which in the U.S. are already around 6%, increasing the burden on senders. Thus, the tax is a costly and complex undertaking — one that will affect legal residents and U.S. citizens, who even though not subject to the federal tax would still be paying the higher fees to subsidize companies’ compliance.
None of this excuses illegal migration. The U.S. has a right and responsibility to enforce its laws and protect its borders. But not every enforcement tool is effective, and they all deserve scrutiny.
Take the hypothetical example of a grandmother living in Arroyo Seco, Mexico, where one in four households receives U.S. remittances and remittance flows supersede the annual municipal budget. Her son, an undocumented migrant in the U.S., sends $400 a month to help with rent, medication and her grandchildren’s basic needs. An almost 10% levy (combining the proposed tax and transfer fees) would claw back $40 monthly, enough to force her to skip medication for herself or meals for the children. Multiply this story by millions, and you begin to see that this kind of economic destabilization doesn’t just erode household resilience but also weakens entire communities, fuels migration pressures and creates openings for criminal networks and authoritarian states to exploit financial desperation.
Taxing remittances won’t reduce undocumented migration but could fuel more. And it will drive flows underground, forcing families to rely on riskier and less accountable financial channels — such as unlicensed money transmitters operating through apps like WeChat Pay, which lack consumer protections and operate under opaque governance frameworks tied to foreign state interests. It will also burden and disincentivize the very institutions that make lawful transactions possible.
While the remittance tax might score political points, the long-term risk as well as geopolitical and institutional damages might not be worth the $10 billion.
Yvonne Su is the director of the Centre for Refugee Studies and an assistant professor of equity studies at York University in Toronto.
