An "Ugly Tax" in Trump's "Big Beautiful Bill"

Conservative Boston Globe columnist Jeff Jacoby rightly decries a pernicious provision in Trump’s “Big Beautiful Bill”:

Buried near the end of the ludicrously named “One Big Beautiful Bill Act” approved by the House Budget Committee over the weekend is a new 5 percent tax on remittances [now reduced to 3.5%], the gifts of money that tens of millions of foreign-born US workers regularly send to family members abroad.

As a rule, Republicans promote themselves as the party of lower taxes. Indeed, a key goal of the “big, beautiful” legislative package is to permanently extend the tax cuts passed by Congress in 2017 and signed by President Trump during his first term….

But it’s a different story for immigrants sending some of their hard-earned wages to loved ones in their homelands.

Tax cuts may be important to the GOP brand, but these days so is ill will toward migrants. A new tax on remittances would generate some revenue for the federal government, but as with so many of the administration’s actions, its primary purpose is to make life more difficult for immigrants….

I would add that the GOP is also supposed to be the party of “family values.” Yet this tax targets people sending funds to their families, many of whom suffer from severe poverty in their countries of origin. Remittances are a valuable lifeline for millions of poor people, and targeting them for discriminatory taxation is cruel and unjust. Immigrant workers should pay the same taxes as everyone else, and should not be subject to additional taxation when they use some of their hard-earned pay to end remittances.

Jacoby rightly points out that the remittance tax may well incentivize rather than deter illegal migration. I would add that the vast majority of remittances are actually sent by legal migrants. Even if you think it’s just to punish illegal migrants in this way (I generally do not because the moral import of the legal-illegal distinction is vastly overblown), that’s no reason to harm legal ones.

Jacoby also highlights the flaws in the argument that remittances somehow drain money from the US economy:

Nativists also argue that remittances drain money from the United States — that dollars earned here should stay here. “Remittance-Senders (Mostly Illegals) Ship $25 Billion a Year Out of the U.S.,” the Center for Immigration Studies argued in 2010…

As most economists will confirm, dollars sent abroad — as remittances, to pay for imports, or to buy foreign currency — are not “lost” to the US economy. In almost every case, they make their way back. Foreign entities generally cannot use dollars domestically within their own countries. So when businesses or banks abroad accumulate US currency, they can only use it to buy American goods and services or to invest in American assets. The bottom line: No matter how many billions of dollars Americans send abroad, virtually all those dollars must ultimately return to the United States.

This is just basic Economics 101 of dollar-denominated remittances. Assume, however, that some family members receiving remittances just stuff the money in their mattresses or wallow in it, like Scrooge McDuck. Americans still benefit! By taking this money out of circulation in the US, the family members would cause a small amount of deflation at the margin, thereby marginally increasing the value of dollars held by everyone else – and most such dollars are held by Americans. This point also largely applies to the use of remittance dollars in countries like El Salvador, which has adopted the US dollar as its own currency.

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