Why President Trump’s tax on remittances is a bad idea
The “One Big Beautiful Bill Act” that the House of Representatives passed on May 22 includes a 3.5% tax on outbound remittance money sent primarily by immigrants to their families abroad. At first glance, this may seem like an easy way to generate revenue. But in reality, it’s a short-sighted, harmful policy that will hurt the very people who can least afford it, push money transfers into the shadows and ultimately damage the state and U.S. economy.
I can say this with confidence based on research I conducted for my book, “Remittances and International Development: The Invisible Forces Shaping Community” (Routledge, 2020). In the five years since the book was published, the negative impacts are even more apparent. The importance of remittances to migrant families has only grown due to COVID-19 and its aftereffects. Migrant workers in California sent about $25 billion to Mexico in 2024.
Here are the reasons why the outbound remittance tax would harm California residents and the U.S. economy:
1. A Cruel Tax on the Poor
This is not a tax on Wall Street or corporate profits; it’s a tax on survival. The average migrant worker struggles to make a decent wage in California with its high cost of living, yet they still send approximately $300 a month to their struggling families — money that pays for food, medicine and school fees.
Consider that sending money already comes with steep fees, often 10% or more of the transfer amount. Adding a 3.5% federal tax means that a worker sending $300 would pay $40.50. It may not sound like a lot of money, but this amount could feed a family for days.
During my research in Oaxaca, Mexico, I met families who relied on remittances to build homes, start small businesses or simply to survive. A remittance tax would punish these families twice, first because migrant workers throughout the U.S. are underpaid and then by taxing what little they can send home. Meaning it’s not just bad economics; it’s morally indefensible.
2. Driving Remittances Underground
The World Bank estimates that nearly half of all remittances flow through informal channels: cash carried by hand, hawala networks (an informal system for transferring money abroad without physically moving it) or even cryptocurrencies. Why? Because high fees and bureaucracy make formal transfers too expensive.
A 3.5% tax will only push more transactions into the shadows, making them harder to track and regulate and riskier for senders. Lawmakers claim they want to curb illegal financial flows, yet this policy would do the exact opposite.
3. A Self-Inflicted Wound on the U.S. Economy
Remittances don’t just help families abroad; they strengthen the state’s and nation’s economy. Countries like Mexico, El Salvador and the Philippines rely on these funds to stabilize their economies, which enables Mexican consumers to buy American goods. In 2023, Mexico received $63 billion in remittances, a majority of which were spent on U.S. exports like corn, machinery and consumer goods. Our American farmers and manufacturers depend on this demand, so if remittances shrink, it will impact U.S. sales and jobs.
While this tax might raise a few million dollars initially, the long-term economic damage would outweigh any gains due to lost trade, weakened diplomatic ties and reduced consumer spending.
A Better Path Forward
If lawmakers want to raise revenue, they should tax wealth, not wages. If the goal is immigration control, lawmakers need to find alternative legal or policy fixes, not penalize families.
Remittances are a testament to the hard work and global connections of immigrants, not a loophole to exploit.
Congress must reject this short-sighted policy before it hurts the people who keep California and America running and their families abroad.
Sabith Khan is the author of “Remittances and International Development: The Invisible Forces Shaping Community” (Routledge, 2020) and an associate professor in the Public Policy and Administration program at California Lutheran University.