The US administration has introduced a legislative proposal to impose a 5% tax on remittances sent abroad by non-citizens living in the United States. Strongly backed by President Donald Trump, the measure has drawn sharp criticism from several Latin American governments and raised concerns about its potential economic and humanitarian impact.

Though framed as a border security measure, the so-called “One, Big, Beautiful Bill”, unveiled by Republican lawmakers, is part of a broader package tied to tax cuts, immigration restrictions, and funding for border infrastructure. Central to this proposal is the idea of taxing money transfers — remittances — made by immigrants without US citizenship, including those holding legal work visas, green cards, and undocumented individuals. US citizens would be exempt.

According to AP and Infobae, the measure is aimed at discouraging unauthorised migration and raising revenue for Trump’s policy agenda. Yet experts argue that the move risks disproportionately affecting already vulnerable communities. Latin American countries are likely to bear the brunt of such a policy, as they are among the largest recipients of US remittances.

Data from the World Bank shows that in 2023, remittances from the US amounted to over $656bn globally. Mexico alone received more than $63bn — a 7.6% year-on-year increase — making it the second-largest recipient worldwide after India. In small Central American countries such as Nicaragua, Honduras, and El Salvador, remittances represent between 23% and 27% of GDP. Any reduction in these vital flows could have a catastrophic impact on local economies, where remittances fund everything from housing and education to small businesses and healthcare.

Claudia Sheinbaum, President of Mexico, has categorically rejected the proposal, calling it “unacceptable” and “unconstitutional,” arguing that many migrants already pay taxes in the US, regardless of their immigration status. “It would mean double taxation,” she said during a press conference. Mexico has since begun lobbying in Washington alongside other Latin American governments.

While this proposal may seem unprecedented, similar measures have been introduced at US state level. Oklahoma, for example, has imposed a fee on remittances since 2009. Seventeen other US states have considered comparable legislation over the past decade, though most efforts were unsuccessful, according to the National Conference of State Legislatures (NCSL). Still, the renewed push for a federal tax, tied explicitly to immigration control, marks an escalation in strategy.

A separate bill currently in Congress, known as S.3516, also targets remittances, proposing they be used to fund border security. However, as of now, it lacks specific details and has not yet been debated.

Critics warn that taxing remittances could backfire. Manuel Orozco, Director of the Migration, Remittances and Development Programme at the Inter-American Dialogue, told AP that such taxes are likely to drive migrants toward informal or unregulated channels. “This undermines transparency and raises risks for money laundering,” he said.

Similarly, Fintech México, a leading association of digital financial companies, has condemned the measure. In a statement, it warned that the tax would harm millions of families and encourage the use of unsafe transfer methods. The group also criticised the proposal to create a category of “qualified remittance providers” who would be allowed to verify the citizenship of senders in coordination with the US Treasury. According to the association, this would stifle competition and raise costs for users, irrespective of their legal status.

Some analysts argue that the economic resilience of migrant communities might blunt the impact. Jesús Cervantes of CEMLA (Centro de Estudios Monetarios Latinoamericanos), as quoted by El Financiero, believes migrants may absorb the additional cost or simply increase the amount they send, rather than reduce remittances. Economist Gerónimo Ugarte concurs: “They could cut back their own consumption in the US in order to maintain the support they provide to families back home.”

Others see danger in normalising such a tax and setting a blueprint for other countries to follow. Juan José Gutiérrez, director of the US-based Coalition for Full Immigrant Rights, warns that even a “modest” tax opens the door to future increases. “This is not about economics,” he told EFE, “it’s about weaponising policy against immigrants.”

Critics also note that the measure could exacerbate migration, rather than deter it. By restricting access to financial support, families in impoverished regions may feel compelled to send more relatives abroad. 

There are also technical limitations. While proponents argue that the tax could be deducted for those who file tax returns with a Social Security Number (SSN), many undocumented migrants use an ITIN (Individual Taxpayer Identification Number), which makes them ineligible. As José Iván Rodríguez-Sánchez of Rice University is quoted by El País, “the goal seems to be to leave undocumented migrants with no escape route.”

In the end, the proposal’s fate remains uncertain. It still requires passage in both chambers of Congress and would not take effect until 2026. But even in its current form, the 5% tax has already ignited a fierce debate. Not only about immigration, but about the very ethics of taxing survival.