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New legislation filed by Republican Congressman Nathaniel Moran would place a 37 percent transaction fee on remittance transfers that are sent to five specified countries.
The purpose of the bill is to provide funding for border security at the US-Mexico border to better fight illegal immigration.
The new funding would come from a 37 percent user-based transaction fee that the lawmaker intends to impose on remittance transfers made via money services businesses, where the remittance originates in the US and is sent to one of the top five nations of origin for illegal immigration into the United States.
The list of those five countries would be updated annually.
Currently, Mexico, El Salvador, Guatemala, India and Honduras are the top five countries where most illegal immigrants come from, according to the nonpartisan Migration Policy Institute. Mexicans account for almost half of the unauthorised population.
If the requirement was in place last year, it would have meant a roughly $20bn extra fee paid on remittances sent to Mexico after the country received a total of $55.8bn in remittances from the US in 2022.
Based on World Bank and central bank data, VIXIO estimates that India received around $20bn in remittances from the US in 2021. A 37 percent fee on those remittances would have cost an extra $7.4bn for the sender.
The Federation for American Immigration Reform (FAIR), a supporter of the legislation, justifies the 37 percent fee by saying that the total $150bn that immigrants send home in remittance payments is lost to the US.
“These international transfer payments are money not spent on goods and services in this country, and not subject to taxes by either the federal government or the vast majority of states.”
A 37 percent remittance fee would be equivalent to the current top income tax bracket.
However, the proposal may have unintended consequences, not only by increasing remittance costs for everyone, including non-illegal immigrants, but could also affect businesses that built their business models on providing cross-border payment services.
According to Western Union, “a tax on remittances would hurt consumers, businesses, and the larger economy”.
“Remittances serve as a critical lifeline for access to basic needs like food, medical care, and education,” the company’s spokesperson told VIXIO.
In addition to hurting both consumers and businesses, “a measure like this could push money out of the formal money transmission network and into informal and underground markets, which would be counter to national security goals”, the spokesperson explained.
“Western Union spends a large amount of time and investment on compliance with anti-money laundering (AML) laws. If transactions were to go underground, these protections would not be in place.”
The company said it continues to monitor these legislative efforts and urges policymakers to recognise the importance of remittances and legislate accordingly.
A Wise spokesperson told VIXIO the company is aware of the bill and it believes "that money should travel as cheaply and quickly as email”.
The bill is the first legislative proposal introduced by the freshly-elected Texas Congressman.
The chances of Congress passing such a bill is likely to be slim as immigration is a highly partisan issue and comes at a time when world policymakers are pushing for reducing remittance costs.
In 2016, G20 economies set the goal to reduce the cost of remittances to less than 3 percent and to eliminate corridors with costs higher than 5 percent by 2030.
Although those targets have not been reached yet, the global average cost for sending remittances had dropped from 9.3 percent in 2011 to 6 percent by 2022, with digital remittance costs standing at 4.80 percent.
