A tax reform proposal under discussion in the United States Congress that includes a 5% tax on remittances sent by individuals who cannot prove U.S. citizenship has raised concerns in Mexico. This initiative, which has been rejected by both the Mexican government and various political actors, poses two main effects on Mexico’s economy: one macroeconomic and the other distributive.
Although the House of Representatives Budget Committee rejected the proposal in an initial vote, according to economist Gerardo Esquivel, given the effects such a measure would have on Mexico, the Mexican Senate has issued a statement calling the measure an unfair and arbitrary tax.
The macroeconomic effect at the national level is considered “relatively limited.” Mexico received nearly $65 billion in remittances in 2024, the majority from the United States. Although this makes Mexico the second-largest recipient of remittances worldwide, behind only India, this amount represents only 3.5% of the country’s Gross Domestic Product (GDP). Compared to other nations, Mexico ranks 69th worldwide in terms of remittances as a percentage of GDP, suggesting that, for the national economy as a whole, the direct impact would not be massive.
While a potential reduction in remittances could put pressure on the exchange rate, this effect would also be limited, given that the volume of remittances is relatively low compared to daily foreign exchange flows in the foreign exchange market.
However, the distributional effect would have significant consequences in various parts of the country where remittances are vital. A recent note from the Center for Latin American Monetary Studies (Cemla) shows that remittances constitute a significant percentage of GDP in at least five states: Chiapas (14.3%), Guerrero (13.6%), Michoacán (11.2%), Zacatecas (10.6%), and Oaxaca (9.8%).
These states, which are among the poorest in the country, would be the most affected, as the tax would have a “very regressive effect,” directly impacting the population of these regions, where remittances could finance up to 44% of the consumption of households that receive them. Therefore, the tax would directly reduce the disposable income of these families, affecting their consumption capacity and well-being.
In short, while the overall macroeconomic impact in Mexico appears manageable, the effect of the remittance tax would be deeply regressive and detrimental to the households and states most dependent on these flows, located mainly in the south and center of the country.
This constitutes yet another of Trump’s numerous threats to the Mexican state and will force President Sheinbaum to issue a formal response.