Trump Brings Up Question of Remittances to Mexico

In his usual oafish way, Donald Trump has brought a usually ignored aspect of immigration economics to the fore: the outward flow of remittances to Mexico and other nations, and how those transfer payments harm the American economy.

Trump has proposed to block all such transfers to Mexico until Mexico agrees to pony up $5 billion to build his wall. He sets the amount at about $25 billion a year to Mexico; about an equal amount goes to other nations.

While it is useful that The Donald has raised the remittances issue, he has used a sledgehammer when a more precise tool would be more effective.

The notion of blocking all wire transfers of money from Mexican nationals here to their relatives in Mexico is a non-starter. There are plenty of less convenient ways to transfer money, such as travelers carrying cash, sending moneys by mail, or figuring out tri-cornered schemes. (In the last mentioned, one would send money to a middleman in, say, Panama, and that person would forward the money to Mexico.) All of these techniques would be used immediately if Congress voted to block the wire transfers.

As we suggested in a blog post earlier this year, it would be far better to tax the remittances, at say a 2 percent rate, with the transfer fee being a potential income tax credit, as Oklahoma has done (at a 1 percent rate). This is something that actually could be done, and it would bring a billion dollars a year into the Treasury while setting up a series of records that state and federal tax officials could use to collect the income taxes that should be paid by illegal aliens and other remittance senders.

In turn, if more illegal aliens had to pay their income taxes, fewer of them would stay in the United States, so a 2 percent fee on remittances would not only help the Treasury, it would have other useful outcomes as well.