One of the most audacious proposals made by President Trump during his campaign was the plan to build a wall along the southern border and have Mexico finance its construction. Amidst all the commotion during Trump’s initial months in office, the border wall has not attracted nearly as much scrutiny as have other issues. However, a new law has been presented in Congress to help finance the building of the wall.
It is called the Border Wall Funding Act of 2017, which was presented on March 30 by Rep. Mike Rogers, R-Ala. The law would place a two percent tax on all person-to-person transfers to Mexico, the remainder of Latin America and the Caribbean. The law would only be implemented with respect to personal transfers and not to businesses shifting funds outside the United States to places such as Mexico or the Cayman Islands. Understandably, those who habitually send remittances are troubled by the prospect of paying a tax on funds they send abroad.
Prominent Houston immigration attorney Annie Banerjee states, “The border wall, if it does happen, will be known as the most idiotic use of taxpayers’ money in the history of the United States. And that will be Trump’s legacy.”
One person who is understandably opposed to the tax on personal transfers is Rafael Villalobos, Jr., a community college administrator in eastern Washington State who routinely sends money to his parents in Mexico. He expressed anxiety about any extra costs of sending money. He recently changed his method of sending funds from the use of firms such as MoneyGram and Western Union to a new mobile app called Remitly because it charges lower fees on each transfer. When he previously sent money using the wire transfer firms, the fee was usually $10, which can pay for food to last a couple of days in Mexico, depending on the products that someone is purchasing.
Remittances are extremely important for developing countries, some of which derive most of their foreign capital from such payments. In Haiti, for instance, remittances comprise over $2 billion, and account for 28 percent of the nation’s gross domestic product. In Mexico, remittances create an influx of $28.5 billion annually, which exceeds the amount of income that its large oil fields yield.
Over $60 billion in remittances is transferred out of the United States annually. This amount is in excess of two times the $26 billion that the American government expands on aid to developing countries. Those who advocate for stricter border control state that a tax on such funds has been needed for quite some time.
According to Mark Krikorian, executive director of the Center for Immigration Studies, which supports more stringent restraints on migration to the United States, it is fitting that illegal immigrants finance a portion of the enforcement to put an end to illegal immigration. He claims that a remittance tax is a likely source of funding for the border wall. Krikorian says that this is because those who would be paying the tax do not have the right to vote; they do not have citizenship in the United States.
However, a remittance tax would impact anyone who sends money regardless of whether or not they are citizens. Villalobos, for instance, is a U.S. citizen. The tax would also affect legal permanent residents.
Krikorian is in favor of a tax that is comparable to the one that Oklahoma implemented in 2009. Oklahoma imposes a $5 tax on personal wire transfers up to a maximum of $500 exiting the state and an extra one percent on amounts exceeding that figure. The sender can receive a refund of the tax the following year provided that the sender keeps the wire transfer receipt and files state taxes in Oklahoma.
The fee raises about $12 million annually for Oklahoma because only few people claim a refund. In Krikorian’s view, this is evidence that a considerable number of remittances are transmitted from Oklahoma by individuals who are illegal immigrants. An alternative explanation is that it is too inconvenient to file for the refund.
In contrast, an international tax attorney and a professor at Georgetown Law School, Itai Grinberg, stated that it is rather unconventional for governments to impose a tax on funds leaving the country. There are generally tax levies on goods, services or income, but not on the transfer of funds from one nation to another.
The World Bank is opposed to the idea of such taxes, claiming that they will harm some of the most indigent countries by curbing the inflow of cash that is greatly needed. Furthermore, a report issued by the World Bank states that there are challenges in the administration of remittance taxes.