Across the world, remittances have helped millions of families reduce poverty, cope with financial shocks, and recover from natural disasters. Around one in nine people—about 800 million—rely on them. Despite their importance to global development, however, remittances are under threat.
The One Big Beautiful Bill Act, which was signed into law by U.S. President Donald Trump in July, has introduced a 1 percent tax on all cash-based remittances. While initially proposed to only apply to noncitizens, it now covers all remittance senders, including U.S. citizens, and no longer includes an option for remittance senders to claim a refund later.
The tax will have devastating and destabilizing effects on the world’s poorest countries—many of which have already been severely impacted by the Trump administration’s drastic aid cuts. Instead of cracking down on illegal immigration and cartel finances, this tax on the poor will increase global instability and the very incentives that drive emigration in the first place.
In low and middle-income countries, remittances were estimated at $685 billion last year, outpacing both foreign direct investment and overseas development aid. The tax will hit hardest in the poorest and most fragile countries, where remittances make up a large share of the economy and GDP, such as Nicaragua, Honduras, El Salvador, Guatemala, and Haiti.
Evidence suggests that even a 1 percent tax could lead to a 1.6 percent decrease in remittances. In Mexico—the largest recipient of U.S. remittances—household spending could drop by 25 percent, while El Salvador is projected to lose 0.6 percent of its gross national income. Remittances also bring in foreign money that helps governments pay for imports, stabilize their currency, improve creditworthiness, and attract investment. The importance of remittances to macroeconomic stability is clear—they make up at least 3 percent of the economy for 78 countries and represent over 10 percent for more than 29 countries.
The destabilizing effects of the tax are far-reaching as remittances do more than just boost consumption. They provide a critical social safety net, contribute to economic empowerment and development, and enable access to health care and education. In Mexico, for example, many families, particularly the uninsured and those in the informal economy, rely on remittances to pay for major medical expenses and support their pensions.
In many contexts, remittances also directly finance public services, like schools and clinics, as local governments or development partners team up with migrant groups to pool funds for public infrastructure. In Somalia, for example, an initiative supported by the International Organization for Migration mobilizes and matches diaspora fundraising to finance health care, education, and local infrastructure projects, even in the face of fragile state institutions.
The stabilizing and poverty-reducing role of remittances is particularly important in times of natural disasters or crisis. During the COVID-19 pandemic, for example, they played an important role in cushioning the impact where state support was absent. Despite the economic shock, remittance flows to Haiti—one of the poorest countries in the Americas—remained nearly stable, helping families weather the crisis, as they previously had during the 2010 earthquake.
Critically, by reducing economic grievances, remittances can also ease public discontent against the government, lower the risk of civil war and conflict, and thus decrease incentives to migrate in the first place. Undermining this vital source of resilience risks not only pushing families into poverty but also eroding the foundations of global stability.
While the tax has been explicitly framed by supporters as a tool to deter illegal immigration and cut money laundering by cartels, it might backfire and undermine global security and anti-money laundering efforts.
Evidence shows that taxing remittances can lead to increased use of cryptocurrencies or informal transfer systems—including encomendero, paquetero, or hawala networks—that can operate more easily without formal financial oversight. Global remittances using cryptocurrencies are growing quickly—increasing 900 percent in 2021 alone—already posing challenges for financial transparency. These risks are further compounded by the recent cuts to U.S. Agency for International Development programs that supported anti-money laundering training and efforts to combat illicit finance worldwide.
Importantly, while the remittance tax is ostensibly part of an effort to increase funds for border security and interior immigration enforcement, it will not raise much revenue. The Center for Global Development estimated that the 1 percent tax could raise up to $4.6 billion, depending on its effects on remittance-sending behavior, while the Joint Committee on Taxation estimated that it will raise $10 billion over the next decade. While this is not nothing, it only makes a small contribution to U.S. federal revenue and does nothing to address the massive increase in public debt that will be caused by the bill.
It’s also important to recognize that these revenue estimates are notoriously unreliable and fail to factor in increased costs of tax administration related to enforcement. And we’ve seen the limited revenue impact before for similar types of taxes. Since 2009, Oklahoma has imposed a 1 percent tax on wire transfers, including remittances. For the 2019 fiscal year, that tax brought in just $13 million, or about only 0.1 percent of the state’s total internally generated revenue.
More generally, as with other parts of the One Big Beautiful Bill Act, the unfairness is blatant. Rather than legitimately being about controlling migration or crime, the policy’s focus on cash-based transfers reinforces that it is a tax on the poor.
In countries with underdeveloped or broken banking systems, cash is often the only way to receive money. In sub-Saharan Africa, 51 percent of adults don’t have a bank account. In Haiti, 89 percent of adults operate without one. Women around the world are more likely than men to be unbanked and lack access to digital tools, meaning that a remittance tax will hit them and their families particularly hard. For those with bank accounts, meanwhile, transfers may become even more expensive, as remittance companies may increase fees to offset lost revenue from fewer transactions.
Many of the bill’s proponents have framed migrants as a burden on taxpayers and thus a justifiable target for additional taxation. This ignores the well-substantiated evidence that migrants—both documented and undocumented—already contribute significantly to public finances, often without receiving corresponding benefits. In 2022, undocumented immigrants paid almost $97 billion in federal, state, and local taxes. In 2023, Salvadoran migrants who sent remittances contributed more than $223 billion to the U.S. economy—around 1 percent of the United States’ total GDP. Many immigrants also pay Social Security taxes, despite being ineligible to claim those benefits in some cases. Their tax compliance rates are comparable or even higher than those of U.S.-born citizens in similar income brackets.
Similarly, remittance recipients also pay a range of taxes in their home countries. Research from Latin America and sub-Saharan Africa even shows that households receiving remittances pay more in property taxes and local fees than non-recipients. The real issue isn’t that these families don’t pay taxes; it’s that they are being asked to shoulder more, even as the wealthiest individuals and corporations benefit from generous loopholes and exemptions. The same bill also delivers $3.8 trillion in tax cuts—highly skewed toward high-income earners—while placing new burdens on low-income remittance senders and recipients.
World leaders, development experts, and human rights advocates alike have already voiced alarm. Mexican President Claudia Sheinbaum has condemned the tax as an “injustice” and a burden on “those who have the least.” Meanwhile, an alliance of more than 120 organizations called the levy “morally wrong” and “economically counterproductive.”
These concerns come at a particularly precarious time for the global economy, already rattled by the ongoing uncertainty surrounding the U.S. government’s trade and tariff agenda.
The remittance tax will do far more harm than good. It will devastate some of the world’s poorest populations, hurt immigrant communities in the United States, and sow economic and political instability at home and abroad. Remittances are not a loophole—they are a lifeline. Taxing poverty makes no one stronger, safer, or more secure.
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