Last month, the US House of Representatives passed a significant tax and spending bill that is a key legislative priority for President Donald Trump.
One of the lesser-known provisions included in this sweeping bill is a proposed 3.5 percent tax on remittances sent by individuals who are not US citizens or nationals.
Currently, remittance senders already pay income tax on their earnings before transferring money abroad, making a separate tax on these transactions a form of double taxation.
This proposed tax would not only affect US households sending money but would have broader ramifications for low-income countries, where remittances can represent more than 30 percent of gross domestic product (GDP).
Economists and policymakers warn that such a tax could also undermine key national security and foreign policy objectives of the United States.
If the Senate also passes this Republican budget bill, the impact will be felt most by remittance senders and receivers, who are already coping with high fees for such transactions.
In 2024, the global average cost of sending $200 across borders was an alarming 6.4 percent, significantly higher than the United Nations’ sustainable development goal of 3 percent and the Group of Twenty (G20) target of 5 percent.
Experts argue that reducing remittance volumes is likely, and this could adversely affect US remittance service providers—the companies that facilitate these transactions—due to new compliance burdens added by the proposed legislation.
These companies will need to verify sender citizenship, enforce new fee structures, and implement additional reporting mechanisms, which will drive operational costs up and ultimately increase consumer prices.
The dominance of US companies in the remittance sector means that portability and efficiency standards could be compromised, leading to reductions in competitiveness and profitability.
As a result, a tax-driven shift could have far-reaching implications for US economic interests.
Furthermore, taxing remittances could drive transactions underground, which poses national security risks.
The existing regulatory framework in the United States is robust and designed to monitor financial flows, making remittance companies vital partners in tracking suspicious transactions.
When countries impose punitive measures like taxes on remittances, there is a marked increase in the use of less regulated and informal channels for sending money.
Historically, countries that have pursued similar policies have faced significant setbacks in their ability to combat financial crime, leading to economic instability and diminished global influence.
Argentina serves as a cautionary example.
Previous administrations unleashed foreign exchange and capital controls that forced transactions into underground networks, complicating the tracking and regulation of illicit activities.
President Javier Milei is now actively reversing these policies in order to promote open and transparent financial flows—fostering economic stability and bolstering law enforcement capabilities.
In the case of the proposed remittance tax in the United States, it is estimated that the generated revenue would amount to less than 0.1 percent of the national budget.
Simultaneously, the tax could reduce remittance volumes and push these transactions into informal networks, which goes against broader US national security efforts and works counter to the competitiveness of US firms.
Policymakers are thus urged to reassess the implications of the proposed tax and recognize that stable, transparent remittance services serve the interests of the United States.
Additionally, remittances are vital in foreign policy contexts, providing essential support to global development initiatives, particularly as public-sector aid declines.
Private remittance flows often bypass bureaucratic government controls, reaching communities and individuals more directly and efficiently than official governmental assistance.
Typically, US senders are relatives or friends of the recipients, alongside humanitarian organizations.
These monetary transfers play an important role in stabilizing fragile economies and mitigating the financial pressures that can lead to illegal migration.
Moreover, remittances also assist in empowering citizens and fostering democratic movements in recipient countries, all while diminishing the influence of autocratic regimes that depend on citizen resources being controlled by the state.
Remarkably, remittances constitute one-sixth of all global cross-border payments, reinforcing the dominance of the US dollar.
A significant portion is denominated in US dollars, thereby strengthening the currency’s role in the global financial architecture and enhancing visibility into foreign transactions.
This visibility is crucial for the enforceability of anti-money laundering (AML) regulations and counter-terrorism financing (CFT) efforts, as well as sanction enforcement against illicit flows.
Recognizing these strategic benefits, the United States should take steps to harness remittances as a national security and foreign policy advantage.
To begin with, policymakers should not only protect but actively promote legal remittance channels to facilitate smoother and safer funds transfers.
Instead of imposing new tax structures, the focus should be on fostering collaboration between law enforcement and well-regulated remittance providers to support compliance efforts.
This partnership could enable the advancement of innovative technologies designed to better detect illicit financial activities.
Additionally, reducing costs associated with remittance transactions should be a priority.
This means granting compliant US remittance providers direct access to national payment systems and updating AML and Bank Secrecy Act regulations to adapt to the growing digital transactions landscape.
Emerging technologies could significantly enhance financial crime detection, but clear regulatory guidance and support for such technologies is necessary.
Finally, leveraging its G20 presidency in 2026, the United States should convene an international working group dedicated to addressing the complexities of remittances within the context of foreign policy and national security.
The G20 has set targets for remittance costs in the past, and a US-led initiative could foster better global coordination to monitor illegal financial flows and explore synergies between remittances and official aid, particularly during periods of fiscal constraints.
By elevating the importance of remittances, US policymakers have the opportunity to incorporate a powerful and undervalued asset into their broader foreign policy strategy, promoting both domestic economic prosperity and global stability.
image source from：https://www.atlanticcouncil.org/blogs/new-atlanticist/a-tax-on-remittances-could-hurt-us-households-and-national-security/
