Background and Key Players
The US House of Representatives has approved the implementation of a 3.5% tax on remittances sent from the United States as part of the upcoming fiscal year’s budget package. This decision has sparked discussions about its potential impact on remittances, a crucial financial lifeline for many families in Latin America.
Joan Domene, Senior Economist at Oxford Economics, cautions that the effect on remittance flows in the US will not be a one-to-one reduction due to the tax. He explains that remitters might seek alternative, unregulated channels for sending money.
Carlos Serrano, Chief Economist at BBVA México, suggests that immigrant remitters are likely to absorb the tax without reducing the amount sent to their families in their home countries.
Pamela Díaz, Economist for México at BNP Paribas, highlights that the integration of Mexican workers in the US labor force and its diversification since the pre-pandemic era make remittances more resilient.
The Budget Package and Timeline
As per federal regulations in the United States, the budget package has been forwarded to the Senate for approval. Legislators have until September 30 to confirm this tax on remittances.
Potential Impact on Remittances
Remittances are a vital source of income for millions of families in Latin America and the Caribbean. In 2020, these transfers amounted to $80.6 billion, with Mexico receiving the largest share.
- Impact on recipients: The 3.5% tax may reduce the net amount received by families in Latin America, although the exact impact remains uncertain.
- Alternatives for remitters: Immigrants may explore unregulated channels to send money, potentially exposing them to higher fees or risks.
- Resilience of remittances: The strong integration of Mexican workers in the US labor force and diversification of remittance sources could mitigate some negative effects.
Expert Opinions and Historical Context
Joan Domene emphasizes that remitters have historically shown their commitment to sending money despite high fees. Carlos Serrano points out that immigrants have absorbed increased costs in the past, ensuring their families continued to receive funds.
Pamela Díaz underscores the resilience of remittances due to their deep integration into the US economy and diversification among various sending groups.
Key Questions and Answers
- What is the proposed tax rate on remittances? The US House of Representatives has approved a 3.5% tax on remittances.
- Which body of Congress must now approve this tax? The Senate must confirm the tax by September 30.
- What are potential impacts on remittance flows? Experts suggest that the effect may not be a one-to-one reduction, with remitters possibly seeking unregulated channels or absorbing the tax without reducing transfer amounts.
- How resilient are remittances to economic changes? The strong integration of Mexican workers in the US labor force and diversification of remittance sources contribute to their resilience.
