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A multibillion-dollar push by US President Donald Trump to tax money sent from the US abroad is likely to hurt poor Central American families the hardest while driving migrants to use informal, underground routes to send cash back home.
The “big, beautiful” tax bill passed by the US House of Representatives on Thursday included a 3.5 per cent tax on remittance transfers made by anyone who is not a US citizen or national.
The levy comes as part of a broader plan to try to halt illegal migration and deport more of the roughly 11 million undocumented migrants already in the country.
The US is the largest origin country for remittances in the world, with more than $656bn sent overseas in 2023, according to the World Bank.
Experts said there were several ways the tax could be circumvented. Migrants could ask a US citizen friend or family member to send the money, use cryptocurrencies or even drive the black market of informal cash services — like “mules” who move money physically.
The tax would add to the costs of remittances, though, reversing years of effort by policymakers to make formal channels for sending money more competitive.
“It is essentially a tax on the very poor,” said Andrew Selee, president of the Washington-based Migration Policy Institute. The measure could also be an irritant for US citizens who send money abroad, he added — since they would now be required to affirm their nationality in order to claim a tax refund under the rules.
One of the largest beneficiaries of remittances sent from the US is Mexico, where the $65 billion received last year is equivalent to around 4 per cent of GDP, more than all foreign direct investment. Mexico’s president Claudia Sheinbaum has pushed back multiple times against the US tax, calling it discriminatory, and sent a delegation of lawmakers to talk to US counterparts about it earlier this month.
For Mexico, though, there would only be a very small impact on the current account, economists at bank BBVA estimate. Mexican migrants also tend to have a greater ability to afford any additional cost than those from other countries, said Jesús Cervantes González, head of economic statistics at the Center for Latin American Monetary Studies.
“The tax could be absorbed by Mexican migrants without a significant impact on remittances sent,” he said.
In Central America, though, politicians have not taken up the cause publicly in the same way, despite El Salvador, Guatemala and Honduras all relying on transfers for at least one-fifth of GDP.
“Those are really staggering numbers,” said William Jackson, chief emerging market economist at Capital Economics.
The likely result would be “lower domestic incomes and consumer spending, and cause current account positions to deteriorate”, he warned.
Initially the tax had been expected to be levied at a rate of 5 per cent. At that level it would have raised around $22bn by 2034, according to estimates from the Joint Committee on Taxation. But the real aim appears to be making it more difficult to be an illegal immigrant in the US.
“The most serious problem is for Guatemalans and Hondurans because they send a much higher proportion of their income and are economically much more stretched,” Cervantes González said, adding that a higher percentage of migrants from those countries are undocumented.
The impact of the tax could be hard to measure. Several experts said that there were many factors that would affect remittances, from the economic slowdown in the US, front loading of remittance-sending as Trump took office, and any significant step up in mass deportations.
“There may be an impact, but I’m not sure if it’ll be noted at the macro level,” said Ricardo Barrientos, executive director of the Central American Institute for Fiscal Studies.
New illegal border crossings into the US have plummeted to the lowest in decades, but so far, Trump has deported people at a lower rate than his predecessor Joe Biden. The biggest question hanging over migrant money flows is whether he is able to implement the mass deportations he promised.
“So long as a migrant stays in the US, that person will find the way to send the money because it’s their lifeline,” Barrientos said.
Additional reporting by Claire Jones in Washington
