The United States is the main provider of remittances to Mexico, but the growth recorded in recent years is going to slow down. If in 2023 the money that migrants sent to their families increased by 8% compared to the previous year, this year the growth is expected to be only 3%. Despite this, with an expected amount of 65 billion dollars for 2024, remittances from the United States will continue to be a fundamental part of the economy of many families in the neighboring country.
A study by Manuel Orozco and Patrick Springer for the Inter-American Dialogue highlights that one of the reasons why capital transfers will be lower is inflation. “Even so, the volume of issuance will continue and will play a central role in relations between the United States and Mexico,” they point out.
Immigration is at the centre of political debate ahead of the general elections in the United States and the Republican Party has put forward several initiatives, not all of them successful, to tax remittances. In December last year, Donald Trump’s vice-presidential candidate, JD Vance, presented a proposal to impose a tax on sending money to other countries.
Vance’s proposal
With the proposal of Law on the Withholding of Illegal Income Entering Drug Markets (WIRED), Vance wants to impose a 10% tax on remittances. According to the Ohio senator, much of the money that Mexicans send home is not to alleviate the precarious situation of their families but to swell the funds of criminal groups. “This legislation is a common-sense solution to discourage illegal immigration and reduce the financial power of the cartels,” he justified in his presentation. The money collected from these taxes would go to a fund to protect the border from immigration, according to the proposal, which has been submitted to the United States Congress.
Vance’s initiative mirrors the only legislation on the matter currently in effect in the state of Oklahoma. Since 2009, the state has levied a $5 fee on remittances under $500 and 1% on amounts above that.
The idea of charging immigrants to send money back home is not new to the Republican Party. Trump also tried it in 2017, with a 2% tax on transfers that would be used to build the border wall. His anti-immigrant rhetoric from that time continues in the current campaign, equating illegal immigrants with criminals. The initiative did not go ahead, but it has remained in the Republican orbit and several conservative governors have promoted similar measures.
Florida Gov. Ron DeSantis revived the proposal last year when he ran for president. DeSantis criticized Trump for failing to make Mexicans pay for the wall, a signature promise of his 2016 election campaign, and pledged to fund it by taxing remittances. The grand jury he set up in his state to assess the migration crisis as irregular arrivals at the southern border were at a high said in its report that remittances were being used to pay smuggling networks. coyotes that smuggle migrants into the country. “Mexican criminal groups have appropriated remittances sent through U.S. banks for their own benefit,” the report states, stating that “the rise in remittances coincides with higher prices for synthetic drugs and an increase in drug overdose deaths,” which is why they recommend charging a 1.5% tax on transactions made from Florida.
Other states have followed Oklahoma’s lead. Similar initiatives have ended up in the trash bin in Georgia, Iowa, Nebraska and Pennsylvania. This year, Ohio, Pennsylvania and Arizona have started new procedures to approve the tax, which would range from 7% to 30%, which the state bordering Mexico wanted to tax on illegal immigrants who send money to their country.
The approval of a tax on remittances would have negative consequences for the Mexican economy. “Given that the dependence on remittances is relatively high compared to the last two decades, any tax applied will greatly negatively affect the Mexican economy,” the report states.
Mexican President Andrés Manuel López Obrador has included remittances in his economic plans and during his term, migrant remittances rose from 2.8% of GDP in 2019 to 4.2% in 2023.
Of all the remittances Mexico receives, 96% come from the United States. Between 2017 and 2022, the money sent from our northern neighbor has experienced double-digit growth, and during times of pandemic (2020-2022) it reached 41%.
The social and economic inequality suffered by millions of Mexicans pushes them to seek better conditions in the United States and, once they have income, they send part of it to help their families who have remained in their country of origin.
The growth in remittances in recent years is due to several factors, but above all to the increase in migration and a greater frequency of remittances. In the last five years, the number of Mexican immigrants living in the United States has grown by 18%, from 11.5 million to 13.6 million people. The increases have occurred both in the form of irregular entries and authorized migration.
20,000 new senders per year
Mexicans have also been spending more time in the United States. In 2010, the average stay was 12 years, but it is expected to reach 23 years by 2024. Longer stays by those already in the country and the arrival of more migrants have contributed to 20,000 new remittance senders each year. Last year, more than 10 million people sent money to Mexico from the United States.
In terms of frequency, while in past decades between 10 and 12 shipments were made per person per year, in 2023 there were 15, with an average of $487 per transaction.
Experts predict that remittances will continue to increase in the coming years, albeit at a slower pace, just as the arrival of migrants, whether legal or illegal, is expected to increase. For remittances to continue to rise, “continued emigration, constructive relations between the United States and Mexico on issues related to migration and remittances, and macroeconomic health in the United States will be required,” Orozco and Springer point out. These factors will depend on who wins the race for the White House on November 5.
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