A reader wrote to me recently, a Kansan wanting his state to have roughly the same kind of fee on migrant remittances that nearby Oklahoma uses to help control illegal drugs. What strategies could be used to replicate that program — which produces about $12 million a year for Oklahoma — for his state?
As background, both legal and illegal aliens (as well as some drug dealers) send massive amounts of money to their homelands every year; one recent estimate was that the United States lost $75 billion in the year 2021 in this manner. Some taxes have probably been collected on some part of that flow, but everyone assumes that most of these payments are being made outside the tax systems.
As the number of illegal aliens working in the U.S. climbs, so does the amount of remittances.
Why not put a modest fee on these outward flows of money? Oklahoma is the only state that levies such a fee, 1 percent in that instance, and it has opted to dedicate the receipts to fighting illegal drugs. A state could collect the money and add it to its general revenue. Those who file a tax return can count the fee against their taxes, so that it functions as withholding rather than a tax. Only those who do not file tax returns ending up actually paying.
Why not pass such legislation? All the forces, such as chambers of commerce, that want to preserve a flow of illegal aliens into the work force, regard such a program as discouraging illegal migration, and thus oppose it. Most GOP-controlled state legislatures are opposed to raising any kind of taxes, anyway. Further, the banks and wire services do not like the idea for two reasons: It might lower the profits on these transactions, and it might reduce the number of them. The GOP-dominated state legislature in Oklahoma overcame these obstacles about 10 years ago and has collected something like $100 million as a result.
My reply to this inquiry (a condensed version) is shown below:
Here are some thoughts about how to raise money from this untapped source, remittances, either for the state’s general fund, or, as you suggest, to fight the fentanyl scourge. Were the receipts to be used against the drug trade it might be confined to law enforcement, or it might be used both for those expenditures and treatment — your choice! Here are some specifics:
The Provisions. I would suggest that the Oklahoma model should be used as a useful precedent, but not copied exactly.
A fee of 2 percent (Oklahoma has 1 percent) would be levied on all out-of-nation wired remittances from individuals (Oklahoma has all out-of-state remittances as well as international ones). Commercial transactions are not subject to the program. I think you can get 2 percent; if not, a compromise at a lower figure is possible.
I am not sure why Oklahoma covers in-nation remittances, they may have a good reason, but this makes the proposal more difficult to pass. You might talk to Oklahoma state officials about this.
This is key: The fee can be used to reduce one’s state income tax payments. This is important because you want to be able to say “the wire transfer fee is not a tax; no law-abiding Kansan will ever pay a penny.” The Oklahoma experience is that most of these fees are not used as tax payments so that the fee actually captures untaxed income (and narcotics payments), which is a very good thing.
Another key element — one that Oklahoma did not handle well — is the provision of an adequate fee to the middlemen who will handle the paperwork. The main opponents of the Oklahoma plan were the wire transfer companies, and I think their opposition could be muted if they got a fee they regarded as acceptable. This would be part of the 2 percent and would not be seen by the remitter.
Focus of the Debate. The argument for the fee would center on what the money would be used for — avoiding drug deaths — rather than anything else. Keeping Kansans alive is a more politically powerful argument than taxing the incomes of illegal aliens, which is also useful, but less powerful.
Sponsors of the Bill. You will want to keep this out of partisan politics if you can. You will want to make sure that the (Democratic) governor is quietly on board as well as the majority leadership of the legislature, who are Republicans.
Ideally, the sponsors of the legislation would be the committee or subcommittee chairs of the panels that handle tax legislation; or the majority leaders of the legislature. If this is not possible, you might look around for (preferably GOP) members who have lost a relative or two to the drugs in question. A Democratic co-sponsor might be helpful, but not absolutely necessary.
If there is to be a hearing, line up some witnesses who will stress the need to save lives, including people who are the survivors of drug deaths in the family.
Mexico. The government of Mexico took a stand against the Oklahoma law, which backfired. Some Mexican legislators threatened a boycott of all Oklahoma products unless the bill were killed. You might suggest that Kansas would face the same kind of opposition. This would take some finesse.
As background, you should know that a not-so-recent estimate put the number of illegal aliens in your state at 69,000, as opposed to 90,000 for Oklahoma. So, if Oklahoma is now getting $12 million a year, at 1 percent, that would translate to a Kansas estimate of $18 million at 2 percent.
Please feel free to ask questions, and good luck!
David North, Center for Immigration Studies