Background on Remittances and Their Importance
Remittances, the funds sent by migrants to their home countries, play a crucial role in the economies of many nations. For Mexico, these financial contributions represent a significant source of income, accounting for billions of dollars annually. The initial proposal to reduce the remittance tax from 5% to 1% sparked discussions about its implications and the motives behind it.
Who is Donald Trump and Why He Matters
Donald Trump, the former U.S. President, is known for his self-proclaimed image as an unyielding negotiator. In this context, conceding to the Mexican government’s request for a reduced remittance tax might not align with his political narrative, especially since the issue does not garner widespread public attention.
The One Big Beautiful Bill Act and Its Fiscal Implications
The proposed One Big Beautiful Bill Act, which includes the remittance tax cut, threatens to add a $3.3 trillion hole to the U.S. budget deficit, already considerable. While many citizens might not grasp the magnitude of this problem, the ongoing feud between Donald Trump and Elon Musk or his new threat to deport a South African entrepreneur has captured more public attention.
The Mexican Negotiation Effort and Its Impact
If the Mexican government’s negotiation efforts led to the 1% tax on cash or physical instrument transfers, it would be a reasonable concession by the Trump administration. Discretion in this matter is wise, especially given other necessary ongoing negotiations in trade, finance, migration, and security areas.
However, introducing a populist element, such as subsidizing cash or physical instrument transfers, seems unnecessary and counterproductive. According to the Mexican central bank, only 390,000 out of 63.5 million remittance transactions between January and May 2021 were in cash or physical form. The majority (over 99%) of these transactions occurred through electronic transfers, which would remain tax-free under the proposed legislation.
Fiscal and Anti-Money Laundering Perspectives
From a tax collection or anti-money laundering standpoint, financial channels are more manageable than cash transfers. Supporting these measures rather than promising subsidies for reversed taxes would be more beneficial.
Lost Opportunity for Financial Inclusion
The reduced tax on cash transfers, if achieved through rational thinking in the U.S., is a positive development for Mexico. However, celebrating this “Trump-style” in silence with populist embellishments seems unnecessary. This situation presents a missed chance to promote financial inclusion in Mexico, encouraging cash remittance transfers to enter the formal banking system and avoid the 1% tax.
