House should follow Senate in slashing BBB’s remittance tax–or eliminate it entirely

President Trump has made it clear that he wants a budget reconciliation package on his desk by July 4. In its final version of the legislation unveiled this weekend, the Senate wisely shrank an ugly provision of what’s being called the Big Beautiful Bill (BBB). That provision, a 3.5 percent tax on many transactions that send–or “remit”–money from the US to foreign nations–was included in the House bill that passed in May and has attracted criticism from even some of the strongest proponents of the BBB.

Steve Moore, an economic advisor to the president in the first Trump administration, praised the House BBB in a column as a “tremendous achievement and a giant sparkplug for growth.” Moore hailed the bill’s extension of the 2017 Trump tax cuts as well as its expansion of free market health savings accounts. He also had some criticism, however, calling the bill’s new tax on remittances a “bad tax policy change.”

The justification for this provision is ostensibly to discourage illegal immigration, as sending money home to relatives is said to be a prime motivator for crossing the border into the US. Yet the House BBB defines remittances broadly as any money sent by a noncitizen–including legal permanent residents and foreign nationals cleared to work here by the US government–to individuals in another country in a noncommercial transaction. This would include transfers from accounts that noncitizens hold in US banks, even if the account holder does not reside in the US and simply wants the security of the US financial system.

This provision in the House BBB conflicts with important stated objectives of the Trump administration on both boosting the dollar and attracting foreign investment. One of the main justifications Trump administration officials have used for accelerating the US issuance of dollar-based stablecoins is expanding the world market for the US dollar. In a Senate Appropriations subcommittee hearing, Treasury Secretary Scott Bessent said that increased issuance of this cryptocurrency tied to the dollar would “create a market that will expand US dollar usage via these stablecoins all around the world.”

Stablecoins would indeed expand the world market for dollars, but remittances are what built such a market and continue to build it. As Moore writes, “Every year, about $800 billion of remittance payments are made from U.S. financial institutions to foreigners,” both from noncitizens working in the US and from foreign capital parked in US financial institutions.

The heavy inflows of remittances denominated in US dollars make up a large share of GDP of some nations like Mexico and El Salvador. This steady flow of remittances likely enhances trust in holding USD deposits or reserves, thus increasing the demand for US dollars.

 So, if remittances were taxed, there would likely be a depressive effect on demand for dollars. And since the House BBB tax applies to US bank accounts for foreign owners as well, it would discourage capital inflows that Trump and many other politicians have hailed as an important funding source for US entrepreneurs.

The main justification for the longstanding tax exemption for interest earned on US bank accounts for nonresident aliens is to keep the US competitive with international money centers such as Switzerland in attracting foreign savings. The remittance tax again works at cross-purposes with this goal. As Moore writes, “For America to retain our 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.”

Fortunately, the final version of the Senate BBB would significantly narrow this tax, lowering the rate to 1 percent and exempting international money transfers sent from financial institutions such as banks, credit unions, and broker-dealers. It also would exempt international transfers from credit and debit cards issued in the US. The House should keep this Senate provision that significantly beautifies the BBB, or eliminate the destructive proposed remittance tax entirely.