The House-passed Big Beautiful tax bill is a tremendous achievement and a giant spark plug for growth. The bill extends all the Trump tax cuts of 2017, thus heading off a $4 trillion tax INCREASE next year. It expands health savings accounts, includes expensing of major capital and research expenditures by businesses, allows more money for school choice and includes “no tax on tips,” and no tax on overtime pay.
And that’s just for starters.
But there were also a few bad tax policy changes. One of the worst is the 3.5% tax on non-commercial “remittances” – which are payments typically made by foreigners from U.S. financial institutions to parties outside the United States. Certainly, we need to tighten rules to make sure that money stored in the U.S. does not find its way into the hands of criminal syndicates, drug cartels or other bad actors.
A tax on the legal transactions isn’t the solution. This measure will only drive more financial transactions underground. It may therefore end up costing more money than it raises.
The tax may also greatly discourage foreigners from investing in the United States. And that disincentive will undermine the Trump economic goal of attracting trillions of dollars of overseas funds to be invested and create jobs here in America.
Every year, about $800 billion of remittance payments are made from U.S. financial institutions to foreigners, on trillions of dollars of investment capital parked here. Most of that money goes to Mexico with El Salvador and Vietnam as major beneficiaries.
For America to retain our status as the hub of the financial world, global investors need to know that dollars invested in U.S. financial institutions will not be subject to intrusive government regulation and taxation and that their financial privacy will be protected.
The good news is that the Senate version of the tax bill eliminates this tax on financial institutions and foreign investors in the United States. The House should agree to this revision.
But both the House and Senate bills create a new tax on remittances made by hard-working immigrants who came from poor countries and then send money back home to loved ones who desperately need funds. If there was ever a form of foreign aid that works and gets help to those in need, it is this. The money goes straight into the hands of the people in poor countries without any corrupt “Non-Governmental Organization” middlemen helping themselves to a share of the money. Now, that’s humanitarianism!
Taxing these payments is unfair given that the immigrants have already paid income and payroll taxes on these earnings. The measure is also punitive in that it disproportionately affects individuals who are sending money to support family members, charitable causes or religious missions.
About half of these remittances are made to relatives living in Mexico, with another big portion going to loved ones living in poor countries like El Salvador. The federal government won’t raise much money from this tax, and it will discourage the most, if not only, effective foreign aid program we have.
If Congress needs revenue to offset the Big Beautiful tax cuts, they could raise more than this unfair tax does by imposing an excise tax on the near $1 trillion of university endowments – a giant stockpile of money that has never been taxed at all. It makes a lot more sense to tax this endowment money once than remittance money twice.
Immigrants make substantial contributions to the U.S. economy while also helping raise the living standards in developing economies. Those benefits are in the clear national interest of the United States – and both will be jeopardized by this short-sighted tax measure. The Senate should ditch it immediately.
Stephen Moore is a co-founder of Unleash Prosperity and co-author of the book: The Trump Economic Miracle.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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