America's 3.5% Remittance Tax Will Empower Informal Cartels

Expensive formal transfers will make space for hawala operators

- Mihir Sharma

Hidden on page 1,054 of US President Donald Trump's 'big, beautiful bill' is a threat to impose a 3.5% tax on all remittance transfers made by non-citizens to accounts outside the country. This is a dangerous, backward-looking provision, and will make Americans less safe without raising much revenue.

It is easy to understand why a measure like this would appeal to the current US administration. It makes migrants' lives harder and that's enough for it to be worth passing into law. And it certainly will create difficulties for millions of legal and illegal immigrants in the US, as well as for their families outside. Mexico's President Claudia Sheinbaum has been a vocal opponent, saying—correctly—that this is unjustifiable double taxation.

Her country, the largest destination for such transfers, has a lot to lose. But other countries are also worried. India is the third-largest destination for remittances from the US, receiving about $18 billion in 2024; the Philippines and China aren't far behind, at $14 billion each. According to Capital Economics, US-based remittances support 3% of the Philippines' GDP.

The impact on migration-dependent areas of the world will be severe. For some countries in Central America, national income might fall by almost 1% if this proposal is implemented.