As part of the budget reconciliation process, the U.S. Senate is currently considering a 3.5% tax and citizenship verification requirement on personal money transfers sent abroad. This provision – known as a remittance tax – is a massive invasion of privacy that would harm everyday Americans – including service members stationed overseas and people studying, working, or living abroad – and impede efforts to combat transnational crime. It is an unprecedented government attempt to double-tax payments between two private individuals.
The Financial Technology Association (FTA) urges Congress to remove this harmful proposal from the reconciliation bill. Here are five reasons why the Senate should prevent this intrusive and ill-conceived provision from becoming law:
- Invasion of Privacy and Civil Liberties: Under the proposal, American citizens would be required to submit additional and sensitive personal information – such as a passport or birth certificate – to financial institutions and the Internal Revenue Service (IRS) in order to verify citizenship and avoid paying this new tax on remittances.
- Burdensome Tax: This proposal would effectively double tax everyday Americans engaging in private payments transactions, who would be forced into more complicated tax treatment for sending money abroad or potentially miss out on the tax break when filing a return.
- Increased Government Surveillance: This proposal would be a significant overreach of federal government power and surveillance. It would mean creating a government-mandated registry of people who use legal, regulated channels to verify their citizenship and ensure they are not paying a remittance tax.
- Harm to Military Families, Faith Groups, and Legal Residents: The provision would have broad, unintended consequences for all Americans. It would impose a tax on people sending money to a service member stationed abroad, a son or daughter studying or serving on a mission in another country, and legal residents of this country.
- Step Backward in Efforts to Combat Transnational Crime: The proposal is at odds with the Trump Administration’s efforts to combat transnational crime. Imposing a tax on legal cross-border transactions could prompt these transactions to shift to unregulated channels, making it more difficult to track criminal activity.
What Privacy, Tax, Security, and Conservative Leaders are Saying
Privacy, tax, security, and conservative leaders agree that the remittance tax would increase government surveillance, add a burdensome tax, and jeopardize Americans’ privacy.
- The Committee to Unleash Prosperity calls this an “unfair double tax that will hurt the poor the most, and will likely lead to under-the-table payments to get around the tax.
- Scholars at the Cato Institute classify this as a measure to “increase government surveillance.”
- Jim Harper, non-resident Senior Fellow at the American Enterprise Institute, writes: “This remittance tax has it all: More forms to fill out, more data to hand over to private companies, more private companies acting as tax collectors or law enforcers, and more complexity in our tax forms . . . These kinds of proposals have been pressed for decades right along with the growth of administrative government.”
- Stan Veuger and Kyle Pomerleau, Senior Fellows at the American Enterprise Institute, concur, arguing that the remittance tax is a form of “financial repression.”
- Alan Viard, a Senior Fellow Emeritus at the American Enterprise Institute, argues that, “Perversely, the tax might increase illegal immigration. To be sure, the tax could discourage people from illegally immigrating to the United States in order to send money back home. However, if the tax caused immigrants (including legal immigrants) in the United States to send less money back, economic strains could deepen in their home countries— illegal immigration rises when economic conditions abroad worsen.
- Ananya Kumar, Deputy Director at the Atlantic Council, points out that “taxing remittances leads to increased use of underground or informal channels for sending money. That is, senders seek out alternatives—less regulated, less transparent, and less safe ways of transferring their money abroad. In fact, countries that have enacted punitive measures on cross-border payments and currency exchange have often undermined their own ability to combat financial crime, thereby weakening their economies and diminishing their foreign influence.”
- Senior Economist Alan Cole and Patrick Dunn of the Tax Foundation say that the tax “will be hard to enforce” and “will impose extra ID-verification and reporting hurdles on American citizens and financial institutions, not just the intended tax base of remittance senders without citizenship. The process for recouping erroneously collected tax will be cumbersome.”
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The Financial Technology Association (FTA) is a network of fintech leaders shaping the future of finance. We champion the power of technology-driven financial services to catalyze innovation and advocate for modernized policies and regulations that reflect the digital transformation.