What Happened: The United States was responsible for over $656 billion in global remittances in 2023, and the newly passed tax is applicable to all remittances made by individuals who are not US citizens or nationals, according to the Financial Times.

 While the tax was reduced from a previously proposed 5% rate, experts expect the new cost burden to fall heaviest on low-income Central American migrants. According to Andrew Selee of the Migration Policy Institute, "It is essentially a tax on the very poor." The U.S. citizens sending money wishing to send money abroad will have to provide proof of their nationality to receive a refund.

Mexico, which received $65 billion in remittances last year, entailing more than 4% of its GDP, has reacted promptly. President Claudia Sheinbaum has called the tax discriminatory and instructed lawmakers to raise concerns in Washington. However, analysts project that the economic impact on Mexico may be limited.

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Experts also note that the tax could end up promoting the use of informal transfer methods, like asking citizens to send money, relying on cryptocurrencies, or opting for black-market "mule" services. These workarounds could undermine years of policy progress targeted at improving formal remittance systems, making them safer and more accessible.

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