Remittances are more than just financial transactions—they are lifelines. These flows of money, sent by migrants to their families in developing countries, sustain millions of people, empower communities, and drive economic resilience. In 2024, remittance flows exceeded $700 billion globally, surpassing foreign direct investment and official development assistance combined. They offer hope, opportunity, and survival for families in low- and middle-income countries, particularly in fragile economies where remittances often account for over 20% of GDP.
Yet, this lifeline is under threat. The U.S. government has proposed a 3.5% tax on remittances sent by non-citizens—part of a broader agenda to curb illegal migration. While the policy may appear straightforward, its implications are profound. This tax threatens to undermine financial inclusion, reverse years of progress in reducing remittance costs, and obstruct the achievement of the United Nations Sustainable Development Goals (SDGs). Most concerning of all, it unfairly burdens the poorest and most vulnerable populations, turning a critical lifeline into an unnecessary liability.
A Tax That Hurts the Poor the Most
For millions of families, remittances are a vital source of income, covering essentials like food, education, and healthcare. In Central America, remittances make up over 20% of GDP in countries such as El Salvador, Honduras, and Guatemala. These funds are not luxuries—they are survival. Migrants often send between $1,800 and $4,800 annually to their families, amounts that can make the difference between poverty and stability.
The proposed tax would increase the cost of sending money, diverting a significant portion of remittances into informal and risky channels. Many migrants, already stretched financially, may resort to hand-carrying cash, using informal couriers, or leveraging unregulated methods. While these alternatives might bypass the tax, they carry serious risks of fraud, theft, and financial exclusion, undoing years of progress in integrating underserved populations into formal financial systems.
The World Bank estimates that the global average cost of sending remittances is currently 6.2%—already far above the SDG target of 3% by 2030. This tax would exacerbate the problem, pushing costs even higher and making it harder for families in developing countries to receive the full benefit of these critical funds. Studies show that a 1% increase in remittance costs can reduce remittance volumes by 0.09%. For a 3.5% tax, this could result in a loss of $772 million in remittance flows to developing countries—a loss that would be devastating for the families who rely on them.
Undermining Global Progress and the SDGs
The United Nations has long recognised the transformative power of remittances in reducing poverty and driving development. SDG target 10.c explicitly aims to reduce the cost of remittance transfers to 3% by 2030. Achieving this goal is critical for increasing financial inclusion and enabling migrants to send more of their hard-earned money to their families.
The proposed U.S. tax runs counter to this global effort. By increasing the cost of remittances, the tax directly obstructs progress toward the SDG target. It not only undermines years of work by policymakers, financial institutions, and industry leaders to reduce fees, but it also sends a troubling signal to other countries that taxing remittances is an acceptable policy. If other nations follow suit, the global cost of remittances could rise even further, disproportionately affecting the poorest and most vulnerable populations.
Minimal Revenue, Maximum Harm
While the tax’s stated purpose is to generate revenue and deter illegal migration, its actual impact is likely to be minimal. Estimates suggest that the tax would raise less than $1 billion annually—an insignificant amount for the U.S. economy, but a significant burden for the families who depend on remittances. The administrative costs of implementing the tax, including the additional paperwork required for remittance providers, would likely offset much of the revenue generated.
Moreover, the tax is unlikely to achieve its goal of discouraging illegal migration. The primary motivation for migration is economic—a desire to provide for families back home. A minimum-wage job in the United States can earn a migrant over $24,000 per year, four to thirty times what they might earn in their home country. For these migrants, sending money home is not optional—it’s a necessity. A 3.5% tax, while burdensome, is unlikely to deter remittances or migration. Instead, it will push transactions into informal channels, making them harder to regulate and monitor.
Ripple Effects Beyond Borders
The implications of the U.S. remittance tax extend far beyond its borders. If implemented, it could set a precedent for other countries to impose similar taxes, creating a domino effect that would further increase remittance costs and drive more transactions underground. This would destabilise global financial systems, reduce transparency, and hinder efforts to promote financial inclusion.
The tax also risks straining relationships between the United States and remittance-receiving countries. For nations like Mexico, which received $65 billion in remittances in 2024 (equivalent to 4% of its GDP), these funds are a vital source of foreign exchange and economic stability. Policies that restrict or tax remittances could damage diplomatic ties and undermine international cooperation on migration and development.
A Misguided Policy That Threatens Financial Empowerment
At its core, the proposed U.S. remittance tax is a short-sighted policy that prioritises minimal revenue gains over the well-being of millions of people. It threatens to undo years of progress in making remittances more accessible and affordable, obstructs the achievement of global development goals, and disproportionately burdens the world’s poorest populations.
Remittances are not just financial transactions—they are lifelines. They empower families, strengthen communities, and build resilience in the face of economic hardship. For millions of people around the world, they represent hope, opportunity, and survival. Policies that threaten this lifeline must be carefully scrutinised for their broader implications—not just for migrants and their families, but for the global economy and society as a whole.
