Background on the Tax Package and Its Proponents
In Washington, the House Budget Committee continued its efforts to approve Donald Trump’s ambitious tax package. Although it was rejected last Friday due to internal division among Republicans, House Speaker Mike Johnson expressed confidence in reaching an agreement on Medicaid work requirements and passing the so-called “beautiful and great” tax package before Veterans Day, November 26.
Key Provisions of the Tax Package
The proposed package extends the 2017 tax cuts, including reducing the corporate tax rate from 35% to 21%. It eliminates taxes on tips and overtime pay, imposes a 5% tax on remittances from non-citizen migrants, tightens Medicaid access, and prohibits state regulation of artificial intelligence for a decade.
Experts’ Concerns on Fiscal Impact
Experts warn that this package could increase U.S. debt by $3 to $5 trillion over the next decade. Moody’s has already downgraded the U.S. credit rating, and Treasury Secretary Scott Bessent attempted to downplay the impact by asserting that economic growth would offset the deficit. This increase, combined with the current debt of approximately $36.2 trillion, would elevate the debt-to-GDP ratio to 134% by 2035.
Mexico’s Immediate Concerns
- Remittances: In 2024, remittances exceeded $64.7 billion (approximately 1.26 trillion pesos). A 5% tax could reduce this flow by $63 to $126 billion. Approximately 4.9 million Mexican households would lose around $19,000 annually, impacting their ability to afford basic necessities and causing a significant drop in national consumption.
- Higher U.S. Deficit and Global Interest Rates: The increased deficit will raise global interest rates, causing Mexico to pay more for its public and private debt.
- Competitiveness of Mexican Businesses: Lower corporate taxes in the U.S. could make Mexican businesses less competitive, potentially causing nearshoring projects to migrate north.
- AI Regulation and Technology Risks: If a federal regulatory framework for artificial intelligence is permissive, Mexico might import technologies without proper controls. This could lead to privacy risks, biased automated decisions, and technological dependence without legal safeguards.
Political Controversy: Ricardo Monreal’s Claims
Mexico’s representative Ricardo Monreal claimed that the initial rejection of the tax plan was partly due to Mexico’s “firm position.” Asserting that Mexico influenced an internal U.S. Congressional decision on a trillion-dollar package is as absurd as assuming the U.S. Federal Reserve consults Mexico’s central bank before adjusting interest rates. Monreal’s statements are seen as self-serving and lacking proportion or shame.
The Trump tax package remains alive, and Mexican politicians like Monreal should prepare the country for potential consequences since U.S. ideologically-driven legislation often has significant effects on Mexico, where economic maneuvering room is shrinking.
