OPINION:
The House-passed One Big Beautiful Bill Act 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 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. That’s just for starters.
It also has a few bad tax policy changes. One of the worst is the 3.5% tax on noncommercial “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 legal transactions isn’t the solution. This measure will only drive more financial transactions underground, and it may, therefore, end up costing more money than it raises.
The tax may also greatly discourage foreigners from investing in the United States. 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 in 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 major beneficiaries.
For America to retain its 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 bill eliminates this tax on financial institutions and foreign investors in the United States. The House should agree to this revision.
However, both the House and Senate bills create a tax on remittances made by hardworking immigrants from poor countries who send money to loved ones back home who desperately need it. 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 “nongovernmental 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, disproportionately affecting people who send money to support family members, charitable causes or religious missions.
About half these remittances are made to relatives in India or Mexico. Another big portion goes to loved ones in poor countries such as El Salvador. The federal government won’t raise much money from this tax, and it will discourage the most, if only, effective foreign aid program we have.
If Congress needs revenue to offset the tax cuts in the One Big Beautiful Bill Act, it could raise more than this unfair tax does by imposing an excise tax on the nearly $1 trillion of university endowments, a giant stockpile of money that has never been taxed. It makes a lot more sense to tax this endowment money once than remittance money twice.
Immigrants contribute substantially to the U.S. economy while helping raise the living standards in developing economies. Those benefits are in the clear national interest of the United States, and both would be jeopardized by this shortsighted 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.”
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