A Proposed New Tax, Mainly On Latinos, To Pay For Trump's Border Wall

May 25, 2017
Originally published on May 25, 2017 2:55 pm

One of President Trump's boldest, most ambitious proposals on the campaign trail was to build a wall along the Southern border and get Mexico to pay for it. Amid the tumult of Trump's first few months in office, the border wall hasn't gotten as much attention as some other things. But new legislation has been introduced in Congress to help fund it.

It's called the Border Wall Funding Act of 2017, introduced on March 30 by Rep. Mike Rogers, R-Ala.

And it would put a 2 percent tax on all person-to-person wire transfers to Mexico, the rest of Latin America and the Caribbean.

It's not the only bill targeting remittances. An earlier proposal in the Senate, which didn't advance out of committee, would have placed a 7 percent "fine" on remittances unless the sender can prove he or she is in the U.S. legally.

It should be noted that these proposals would only apply to personal transfers and not to businesses moving money abroad to say, Mexico or the Cayman Islands.

As you might expect, people who send remittances are not happy.

"I've already earned my money and paid taxes on it," says Rafael Villalobos Jr., a community college administrator in eastern Washington state who regularly sends money to his parents in Mexico. "The whole thing with this administration is about not having to pay more taxes, yet I have to pay an extra tax on money that I've already earned when I give it to my parents just because they are coincidentally on the other side of the border."

Villalobos says he's very concerned about any additional costs for sending money. He recently switched from using traditional wire transfer firms like MoneyGram and Western Union to a new mobile app called Remitly because it saves him a few bucks on fees per transfer.

"When I used to send money through those other means, it was typically a $10 sending fee, and instead of sending $400, I'd send $390," he says.

That 10 bucks, he says, goes a long way in Mexico.

"That is essentially another couple of days worth of food sometimes, depending on what you're buying," he adds.

Remittances are hugely important for the developing world.

For some countries, they're the leading source of foreign capital. In Haiti, they add up to more than $2 billion and represent 28 percent of the country's overall gross domestic product. For Mexico, remittances bring in more cash each year — $28.5 billion — than its vast oil fields do.

More than $60 billion in remittances are sent out of the U.S. each year, more than twice the $26 billion that the American government spends on foreign development aid. Advocates for tighter border controls say a tax on those funds is long overdue.

"There is a certain symmetry in having illegal immigrants underwrite part of the enforcement to prevent illegal immigration," says Mark Krikorian, executive director of the Center for Immigration Studies, a D.C. think tank that advocates for stronger limits on migration to the U.S.

He says a remittance tax is an obvious place to look for new money for the border wall.

"Because the people who would be paying it are people who don't vote," Krikorian says. "I mean they're not even citizens."

But a remittance tax would affect anyone sending money regardless of their immigration status. Villalobos, for instance, is a U.S. citizen. Legal permanent residents would also be hit by the tax.

Krikorian would like to see a tax similar to one that Oklahoma put in place in 2009. Oklahoma slaps a $5 surcharge on personal wire transfers up to $500 leaving the state and an additional 1 percent on higher amounts. Technically, the tax is fully refundable as a tax credit the next year so long as the sender retains the wire transfer receipt and files state taxes in Oklahoma. The fee raises roughly $12 million a year for Oklahoma because hardly anyone claims a refund. To Krikorian, this is proof that a significant amount of remittances sent out of Oklahoma are from people who aren't in the country legally.

Or it might be that it's too much of a hassle to file for the refund.

Itai Grinberg, an international tax lawyer and a professor at Georgetown Law School, says it's fairly unusual for governments to tax outflows of cash. This is not something you'd normally see, he says, from Europe or Japan or the U.S.

"From the perspective of a major developed economy, it would be very unusual," says Grinberg. Taxes are usually levied on goods or services or income but not on the movement of money from one place to another.

Taxing cash transfers is usually a strategy employed by leftist autocrats, like Venezuela's Hugo Chavez, when their currency has gone in to a nosedive, he says.

But the idea of taxing remittances is gaining support in some wealthy countries that rely heavily on migrant labor. Bahrain, Kuwait, Saudi Arabia and the United Arab Emirates have recently proposed remittance taxes.

The World Bank has blasted the idea of these taxes, calling them a "bad idea." The World Bank says they hurt some of the poorest countries by reducing the inflow of desperately needed cash. In addition, a World Bank report on the subject last month says remittance taxes are difficult to administer.

Even if the taxes are put in place, the report notes, migrants are likely to find some other way to get their money sent without paying a tax.

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STEVE INSKEEP, HOST:

Let's follow up on one of President Trump's signature campaign proposals. When he was running, he said that if elected he would build a wall along the southern border of the United States and get Mexico to pay for it.

New legislation has been introduced in Congress not to do precisely that, not to make Mexico pay but to make migrants pay. It's a proposal to tax remittances, money that migrants send back to their home countries. NPR's Jason Beaubien reports.

JASON BEAUBIEN, BYLINE: Remittances are hugely important for the developing world. For some countries, remittances are the leading source of foreign capital. In Haiti for instance, they represent 28 percent of the country's overall gross domestic product. For Mexico, remittances bring in more cash each year than Mexico's vast oil fields.

RAFAEL VILLALOBOS JR.: When I send remittances to Mexico, it's typically to my parents.

BEAUBIEN: Rafael Villalobos Jr., who lives in eastern Washington state, says he sends a few hundred dollars each month to Mexico. His father, who's in his late 60s, has a small farm in the Mexican state of Michoacan. The farm generates some income, but Villalobos says the money he sends gives his parents stability.

VILLALOBOS JR.: It keeps them afloat, and it keeps my mom healthy. She is a type 2 diabetic, and so she has routine supplies that she has to purchase to continuously check her blood sugar and her prescription that she takes daily.

BEAUBIEN: A bill introduced in Congress by Representative Mike Rogers of Alabama called the Border Wall Funding Act of 2017 would put a 2 percent tax on the money Villalobos sends to his parents each month in Mexico. Another proposal in the Senate would place a 7 percent fine on remittances unless the senders can prove they're in the U.S. legally.

A tax of 2 or 7 percent might not sound like a lot, but Villalobos says he recently switched from using Moneygram to a remittance app called Remitly because it can save him about $10 on a $400 transfer. And he says 10 bucks goes a long way in Mexico.

VILLALOBOS JR.: That is essentially another couple days' worth of food sometimes depending on, you know, what you're buying.

BEAUBIEN: Villalobos is one of millions of people in this country who send remittances each month. Proposals to tax remittances are often framed as a way to tax immigrants who are in the country illegally. Villalobos, however, was born in the U.S. and is an American citizen. In the 1970s, his parents came up from Mexico to do agricultural work. Of their four children, Rafael and two of his siblings were born here. Villalobos says he grew up picking fruits and vegetables across much of the U.S.

VILLALOBOS JR.: When we were in Florida, it was tomatoes, melons, bell peppers, nothing with thorns. My dad despised the idea of going to pick limes and oranges.

BEAUBIEN: He finds the proposed remittance tax is offensive, particularly given that candidate Trump promised to lower taxes and cut government regulation.

VILLALOBOS JR.: I've already earned my money and paid taxes on it. And the whole thing with this administration is about not having to pay more taxes, but yet I have to pay an extra tax on money that I've already earned to give it to my parents just because they are coincidentally on the other side of the border.

BEAUBIEN: The 2 percent remittance tax being proposed by Congressman Mike Rogers applies to money being sent to Latin America and the Caribbean but nowhere else. China, India and the Philippines, which all actually take in more remittances each year than Mexico, aren't hit with a tax.

Congressman Rogers' office didn't respond to repeated requests for an interview about the bill. But Mark Krikorian at the Center for Immigration Studies, a D.C. think tank that advocates for tighter border controls, says a remittance tax is long overdue.

MARK KRIKORIAN: There is a certain symmetry to having illegal immigrants underwrite part of the enforcement to prevent illegal immigration.

BEAUBIEN: And he says such a tax is an obvious place to look for new money for the border wall.

KRIKORIAN: Because the people who would be paying it are people who don't vote. I mean, they're not even citizens.

BEAUBIEN: It's fairly unusual for governments to tax outflows of cash. And these proposals do not apply to businesses moving money abroad. Itai Grinberg, an international tax lawyer at Georgetown Law school, says taxing outflows of cash is something that's usually done by leftist autocrats like Venezuela's Hugo Chavez when the value of their local currency goes into a nosedive. A tax on cross-border payments, he says, is not something you'd normally see from a country like the U.S.

ITAI GRINBERG: From the perspective of a major developed economy, it would be very unusual.

BEAUBIEN: Several Gulf countries that rely heavily on migrant labor, however, have recently proposed remittance taxes, including Saudi Arabia, Bahrain, Kuwait and the United Arab Emirates. The World Bank has blasted the idea of these taxes, saying they hurt some of the poorest countries on the globe.

In addition, a World Bank report on the subject last month says remittance taxes are difficult to administer. And even if they are put in place, migrants are likely to find some other way to get their money home. Jason Beaubien, NPR News.

(SOUNDBITE OF JON HOPKINS' "LOST IN THOUGHT") Transcript provided by NPR, Copyright NPR.