By Cesar Antonio Nucum Jr

SAN FRANCISCO – Underdeveloped and developing countries like the Philippines rely heavily on foreign remittances sent by their compatriots working abroad as they money contribute immensely not just to their loved ones they left behind but ultimately also to the economies of their motherland that are dependent for 30% of their gross domestic products (GDP).          

The choice of staying and working abroad are usually better choice financially for these foreign workers as they have to seek greener pasture as their children back home grow together with the needs that accompany this growth. Indeed, these much-needed earnings are what is depended on to the last cent it is worth.

In the Philippines, they are commonly referred to as overseas Filipino workers (OFWs) who are looked up to as the economic savior heavily depended on to the extent that it makes students about to enter the work force aspire to rather work abroad than start work locally.

OFWs in the US sent home a record-breaking $38.34 billion back home in 2024 according to the Bangko Sentral ng Pilipinas, a 3% increase from the previous year and represents a substantial 8.3% of the country’s GDP that in turn play a vital role in supporting families, boosting private consumption, and contributing to foreign exchange reserves. 

Current developments in the U.S., however, may not favor easing the lives of foreign workers, including OFWs as President Donald Trump’s “big, beautiful” spending package, includes a proposal to impose a 3.5% tax on remittances that in 2024 amounted to more than $220 billion that US residents sent to families and friends in other countries. More than half of this amount went to Latin America with Mexico logging as the largest recipient of US remittances, while India is the top recipient of remittances from around the world.  

One major objection to the proposal is that it is a form of double taxation as senders — including millions of undocumented immigrants — already pay income tax on their earnings and could also adversely impact the US economy.

These projections and their effects were discussed in the recent American Community Media national media briefing “Taxing Remittances—A New Assault in the War on Immigrants” participated on by  Senior Policy Analyst, Migration Policy Institute Ariel Ruiz Soto, Policy Fellow and Assistant Director for the Migration, Displacement, and Humanitarian Policy Program at the Center for Global Development Helen Dempster, Director of the Migration, Remittances, and Development Program at the Inter-American Dialogue, and Senior Fellow at Harvard University’s Center for International Development Dr. Manuel Orozco, and President and CEO of the Latino Donor Collaborative Ana Valdez.

Soto presented that in total, in 2024, the World Bank estimated that there were about $905 billion sent in remittances worldwide, the majority of about $ 695 billion went to lower or middle-income countries. In those regions, the biggest recipients were India and México far ahead of any other country in the world receiving remittances. Philippines China and a few other countries are close following.

“What remittances has done for decades, it has become an instrument for development within themselves. They usually provide benefits and access to services, especially for daily expenses like utility bills, food, and in some cases, hospitals,” Soto enumerated.  

Soto concluded that remittances have been for decades a vehicle of development for this middle- and low-income countries, and by reducing the remittance amount, or making it more difficult to send that amount could actually backfire and produce irregular migration in the future if those remittances are decreased.

Dempster summarized recent findings by the Center for Global Development as to which countries will be hardest hit by Trump’s tax on remittances, remittance percentages as a portion of a country’s overall GDP, and how remittances often make up more of a country’s overall income than foreign aid and foreign direct investment.

“The decades remittances have outstripped both official development assistance, or aid, and foreign direct investment. 2023 is the last year for which we have data, but predictions show the continued importance of remittances. The World Bank estimates that remittance flows to low- and middle-income countries increased by 5.8% in 2024, and will increase by 2.8% in 2025 to reach a total of approximately $704 billion US dollars per year,” Dempster mentioned.

The Center for Global Development looked at the impact of the proposed 3.5% remittance tax on different countries around the world and using the World Bank’s 2021 remittance estimates and updated them to reflect a 14.1% increase between 2021 and 2024 and then looked at US Census Bureau data on migrant citizenship status to estimate the proportion of each country’s migrants that would be affected by the tax.

“Overall, we found that if the new tax raises the sending costs of remittances by 3.5%, it could lead to a 5.6% drop in remittance sending.  For many countries, the remittance tax will be a further crushing blow after the recent cuts to USAID.  With aid cuts, remittances are becoming relatively even more important,” Dempster surmised.

Orozco focused on the challenges to implementing the tax on remittances, the impact to geopolitical relations, along with the specter of double taxation as he started by pointing out at least three of the main challenges that this proposed amendment to the tax code in the United States poses to U.S. citizens, to national security, and to the national interest and its implications for geopolitical landscape.

“The first one is that the amendment explicitly establishes that the tax is to be paid by the foreign-born individuals who are authorized or in irregular status in the United States. And that U.S. citizens and U.S. nationals are tax exempt, but in order to be exempt from the tax, they have to provide proof of U.S. citizenship and proof of the taxpayer.  To do that money transfer companies that include banks, cryptocurrency companies and other non-banking financial institutions, like the remittance service provider or operator have to register before the U.S. Treasury, in order to integrate their platforms to verify citizenship, and tax status,” Orozco presented.  

Orozco emphasized that not only are the foreign-born citizens or not, naturalized or not send money abroad as basically 25% of U.S. citizens are contributing to philanthropy, and a lot of that philanthropy goes in the way of money transfers to other countries, to friends, to churches, to charitable activities, etc. making the legislation really shooting at the foot in many ways against U.S. citizens thus not only posing a hurdle, but it also opening a vulnerability in national security because it allows, basically the opportunity for hackers and other financial criminal activities, criminal organizations to break into their systems and collect information about individual’s privacy, not only under taxpayer status, but preliminarily under citizenship status can lead to fraud, can lead to identity fraud, or can lead to create ghost U.S. citizens making it a national security problem.

“The second problem is financial risk as a money transfer is performed by a U.S. citizen and the financial risk is significant, because what the data shows is that transaction costs typically have an effect in the use of unlicensed mechanisms,” rued Orozco.  “It’s just a very backwards equation, but the financial risk is that it will drive people into unlicensed mechanisms.  

Valdez discussed Latino American pushback to the remittance tax using the newly found political muscle developed during the last election cycle doubling down that what is going on is double taxing.

“Everything that has been said here is correct, but this people are sending money that has been taxed not two times, but sometimes three times. So, this is a penalty on the American dream, because immigrants are the American dream. And this is the penalty on something that is an institution in this country. So, you know, remembering always that immigrants are the economic engine, and these are families that are crossing the border, so it’s a profoundly bad idea,” Valdez stressed. “But more importantly, the irony is that taxing the remittances won’t stop the money from leaving as you only takes a bigger cut away unfortunately, from the poorest people in the United States.  Most of the people that are voting on this bill are not very concerned about the well-being of these foreign countries. I don’t think they have their well-being at heart.”

Valdez’s group has been informally polling on the higher tax on remittance subject and found that people that are sending remittances are not going to stop whatever it takes and unfortunately, probably what it will take from the families is to stop spending in the United States.