Background on the Proposed Remittance Tax in the US
The Republican lawmakers, including President Donald Trump’s party, aim to raise $22 billion over ten years through a tax on remittances.
Expert Opinions from Banamex and Banorte
Economists from Banamex and Banorte concur that achieving this figure is unlikely due to potential distortions once the tax is implemented.
The Banorte economists explained in a written interview that these taxes could reduce business volume across industries benefiting from immigrant-related economic activities, as well as employment levels, impacting fiscal contributions from businesses and consumers.
Banamex economists specified in a research note that the tax implementation would result in a 0.1% reduction of PIB in remittance shipments and tax collection on the smaller base.
Allocation of Funds from the Proposed Tax
According to the bill under discussion in the US Congress, $4.9 million from this tax would go to border security and narcotics control, while $49.7 million would fund the construction of the border wall and improvements to border security facilities.
However, experts from both Banamex and Banorte emphasize that these funds would be insufficient to cover the projects outlined in the proposal.
Potential Impact on Remittance Senders
Banorte experts predict that taxing remittances might lead senders to explore alternative, formal or informal channels for sending money, or even reduce the amount sent.
Banamex experts added that, as proposed, taxes on remittances sent abroad by US citizens could be claimed in their income tax declarations.
“This implies that the taxes collected from this source would be refunded, thus limiting the initially anticipated government income.”
Limited Negative Impact on Mexico
Banorte’s analysis team acknowledges the significant role of migrant remittances in supporting Mexican households, describing them as “an invaluable source.”
They noted that even before the potential tax implementation, they anticipated a modest annual decline of 1.5% in remittance flows due to challenging economic and migration contexts.
Banamex economists, however, stated that the tax’s impact on Mexico’s economic growth would likely be limited under various scenarios.
“It is unclear whether the proportion of remittances would decrease proportionally to the tax paid and non-deductible amount, as using informal channels for sending remittances seems plausible under a tax scenario.”
They emphasized the complexity of migration flows and the ties between migrants/US-born Mexican citizens, necessitating multiple scenarios for analysis.
Key Questions and Answers
- What is the proposed remittance tax in the US? Republican lawmakers aim to raise $22 billion over ten years through a tax on remittances.
- What do experts predict about achieving this revenue target? Economists from Banamex and Banorte believe it’s unlikely to reach this figure due to potential distortions.
- How would the tax affect remittance senders? Banorte experts suggest that senders might explore alternative channels or reduce the amount sent.
- What would be the impact on Mexico’s economy? Banamex and Banorte experts suggest a limited negative impact on Mexico’s economic growth.
