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“The 5% Remittance Tax in the U.S. Would Affect 50 Million Migrants”

Manuel Orozco: “The potential impact on Nicaragua includes a 10% drop in remittances and private consumption, and a 1% drop in GDP”

Una ciudadana muestra unos billetes de uno, cinco, diez y veinte dólares en una casa de cambio en Ciudad Juárez, México. // Foto: EFE/ Luis Torres

Carlos F. Chamorro

18 de May 2025

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The U.S. House of Representatives will debate on Monday, May 19, 2025, a Republican-backed bill that proposes a 5% tax on all remittance transfers made by all kinds of migrants—whether undocumented, permanent residents, work visa holders, or anyone under any form of immigration protection. Only U.S. citizens would be exempt from this tax.

Political scientist Manuel Orozco, a researcher on migration, remittances, and development at the Inter-American Dialogue, estimates that around 50 million migrants who already pay taxes in the U.S.would be affected by this proposed 5% tax.

In an interview on Esta Semana airing Sunday, May 18 at 8:00 p.m. on CONFIDENCIAL’s YouTube channel,due to television censorship in Nicaragua, Orozco said that the new tax could reduce remittance flows from the U.S. to Nicaragua by 10%, leading to decreased private consumption and a 1% drop in the country’s GDP.

On Monday, May 19, the U.S. Congress begins debating a Republican bill to impose a 5% tax on remittances sent by migrants living in the U.S. Can we estimate how many people might be affected?

The debate centers on an amendment to the tax code that would impose a 5% fee on remittances sent by anyone who is not a U.S. citizen. We’re talking about nearly 50 million people who would be affected. While there is a significant number of naturalized citizens in the U.S., it’s nowhere near 50 million—only about 15 million. Overall, there are around 65 million migrants in the country.

The impact is significant, as it includes people who are in the country without legal authorization, as well as those with a range of legal statuses—from Green Card holders to individuals with various types of work permits.

Double taxation for migrants

But migrants living and working in the U.S.—even those without legal status—already pay taxes. Would this be an additional tax, specifically targeting non-citizens?

Correct. The legal justification does not exist. The bill does not say why it is targeting non-citizens, regardless of their legal status in the United States. It’s a legal imposition for being a foreign national, a non-citizen, rather than for being someone who doesn’t pay taxes. And that’s creating a big debate, because it really includes a lot of people who do pay taxes.

Even undocumented migrants are paying taxes—it’s estimated that between 50% and 75% of them do so using an Individual Taxpayer Identification Number (ITIN). Broadly speaking, only around 20% of the migrant population isn’t paying any kind of income tax.

By focusing on this universe of migrants, can it be deduced that this law is also a control mechanism to locate migrants in the face of possible mass deportations?

The objectives of the bill aren’t entirely clear. On one hand, it seems to be part of a broader strategy aimed at cutting off immigration altogether and tightening control over those already in the country.

The tax is supposedly meant to discourage migration because it will be harder and more expensive to send money home. For those already here, the goal seems to be to make it so expensive that they consider leaving. And there are other legislative proposals, like ending birthright citizenship. So, they are really trying to limit the freedom of those in the United States who are not citizens.

If this law were to be approved, as it is currently written or with some amendments, what impact would it have on migrants sending remittances not only to Nicaragua, but also to the Dominican Republic, Haiti, Mexico, and around twenty other countries?

It’s very difficult to determine the exact impact. I’ve been working on migration and remittances for over 30 years, and one of the key issues we’ve focused on is reducing the rate of informality. One of the main causes of informality is the transaction cost. Currently, the average transaction cost is about 3%, but this would rise to around 8%.

Based on data I’ve collected since the 2000s on informality rates worldwide, a 1% increase in transaction costs leads to an 8% increase in informal transfers. People tend to “vote with their feet” by turning to informal channels when costs rise.

Another factor is that people send less money because they can’t afford the higher costs. For example, those sending money to Haiti or Cuba—where sending funds is already expensive due to local conditions—or in Europe, where only banks are authorized to process transfers, many resort to informal channels but still send small amounts. With an additional 1% cost, people could end up sending as much as $150 less—almost 40% less than what is currently being sent.

Manuel Orozco
Manuel Orozco, director of the Migration, Remittances and Development program of the Inter-American Dialogue. Photo: File

The impact on migrant families

With this law, could families who receive remittances be affected? What about the formal remittance companies providing these services, and the economies of the countries receiving these remittances?

The moment is really quite critical because migration trends had been sharply declining, and with deportations, you were already seeing a slowdown, a decrease in remittances. What happened in the first quarter of 2025 had to do with migrants thinking, “I better send as much as I can now because I don’t know what the future holds.”

With this tax, we could be looking at at least a 10% drop, depending on different scenarios. But for a country like Nicaragua, for example, where about 800,000 transactions are sent monthly per person — actually more than 950,000 monthly transactions, since people send money over 12 times a year — that drop would be at least 10%. In Nicaragua’s case, only 14% of Nicaraguans in the U.S. are citizens. So the impact would be quite significant.

What impact would this have on the economy, particularly on how remittances affect consumption and government tax revenue?

The impact would be huge because for a country like Nicaragua, dependence on remittances for private consumption is very high. Over 30% of private consumption comes from remittances. The Nicaraguan economy is about 80% private consumption, government spending is around 16%, and the rest comes from other external sector income. But it’s private consumption that drives the economy, and in Nicaragua, more than a third of consumption transactions rely on remittances. So a 10% drop in remittances would reduce private consumption by the same amount. That would translate into at least a 1% decrease in GDP.

The increase in informality

What’s the current climate around this legislative debate in the U.S., and what are remittance companies saying?

The remittance industry is very concerned because they understand the impact. These companies know when they have to compete with the informal economy. Back around 2000, about 30% of remittances were informal. There was a push to reduce that through competition and lowering costs, and now informality is down to 2%.

There is great concern about the drop in income, on the one hand, but also the most worrying issue is the effect it has on financial risk, because when people go to informal mechanisms, illicit transfers can also occur.

So, you can use a shipping platform that is also laundering money in that same mechanism. And that reflects a very big impact on the national security of the United States.

There is concern within Congress, both Democrats and Republicans, and an important fact about remittances is that they reduce the intention to migrate, since people who receive remittances tend to formalize their savings.

Another interesting impact relates to consumption: remittances are statistically closely correlated with the import of American goods. So if you reduce remittances, fewer American products are purchased. In that sense, this measure unexpectedly undercuts U.S. exports.

We’ve seen how other countries have reacted to the possibility of this legislation being approved, as in the case of Mexico. But domestically, in the United States, do migrants have a chance to make their voices heard against this law? What are the chances it will actually pass?

The likelihood of it passing in the House of Representatives is very high. In the Senate, however, there’s going to be a major fight because it also affects state interests—when you take away some kind of revenue from the states, since there would be a drop in tax income from remittance companies. That impacts the tax contributions the states receive.

Migrant organizations are trying to mobilize on all fronts, and there is some level of solidarity. Public opinion in general is very supportive of remittances. So there will definitely be opposition. The law under debate includes several issues, including state taxes, which makes it very controversial, and so it will be very difficult for it to pass in the Senate.

But these bills have full support from President Trump, who still enjoys popularity on migration issues.

Public opinion has declined regarding deportations and has been divided on migration overall. Regarding Congress, it’s actually the opposite. Republican congress members are essentially giving the president a vote of confidence by introducing legislation focused on immigration restrictions, and they are betting everything they can on this. It’s quite complicated for Republicans both in the House and Senate. Their reputations are very much at stake, and the midterm election process is just around the corner, so they’re taking quite a risk.

What is the political deadline for the possible approval of this law? Are we talking about something imminent in the coming weeks, months?

The debate is to try to get this approved before July 4, before the end of the year recess.

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