How the US Remittance Tax Could Quietly Hurt T&T’s Economy

In an era where policy debates often focus on tariffs, interest rates, and capital markets, a seemingly minor fiscal proposal is flying under the radar but it could have outsized consequences for small, open economies like Trinidad and Tobago. The US House has revived discussions around a 3.5% remittance tax on outbound money transfers. While framed as a mechanism to fund domestic enforcement or reduce deficits, the implications abroad are far-reaching. For countries like T&T, this is not a technical policy tweak, it’s a quiet tax on survival.

The 3.5% remittance tax included in the Big Beautiful Border Security Act (BBB) is designed as a politically symbolic and fiscally pragmatic tool to fund US border enforcement. It targets outbound money transfers, especially those sent by undocumented immigrants, as a way to offset the cost of immigration processing, detention, and deportation. By taxing remittances, the bill seeks to create a self funding mechanism for border infrastructure, while also reinforcing the “America First” narrative by penalizing money leaving the country. Though framed around Central American and Mexican migration, the tax applies broadly, impacting all remittance corridors, including smaller ones like Trinidad and Tobago. The logic is simple, "if individuals are sending money abroad, they should help pay for the border they bypassed." Politically, the tax is attractive because it doesn’t directly raise income taxes, and it’s collected at the source by money transfer operators. However, it disproportionately affects low income, law abiding migrants and their families, while increasing the cost of financial flows that many countries rely on for household income and foreign exchange.

What Are Remittances Worth to Trinidad?

Trinidad and Tobago receives approximately USD $345M in personal remittances, according to the Inter American Development Bank’s 2024 data. These inflows:

• Account for 1.2% of GDP,

• Exceed tourism receipts in some years,

• And help finance imports, education, rent, medical bills, and debt payments.
  

But the true story lies in the source. Over 50% of these personal remittances come from the United States, where a large Trinidadian diaspora contributes to households back home.

Source - World Bank, IDB

They sustain households, stabilize consumption, and quietly bolster the country’s foreign exchange base. A tax on these flows would hit not only wallets, but the core of Trinidad’s social and economic safety net.

A 3.5% tax on $345M equals $12.1 million in lost transfers, disproportionately affecting working class families.

In the first half of 2024, Trinidad and Tobago recorded a 5.0% increase in remittances, one of the fastest growth rates among Caribbean nations, according to the IDB. This growth outpaced larger economies like the Dominican Republic (+1.3%) and Jamaica (+0.1%), and was nearly on par with Haiti (+5.1%). The surge highlights T&T’s growing reliance on remittance inflows as a source of household income and foreign exchange during a tight regime.

Source: IDB

Added to this , according to the World Bank’s Remittance Prices Worldwide database, the cost of sending money from the United States to the Caribbean remains high by global standards. Sending USD$200 to Jamaica averages 7.4% in total fees, while corridors to Guyana and Haiti often exceed 8 to 9%, driven by transfer fees, FX spreads, and delivery methods. Although T&T is not directly listed, regional comparisons suggest that sending funds to Trinidad likely costs between 6.5% and 7.5%. This already places T&T above the UN's SDG target of reducing remittance costs to below 3%. If the proposed 3.5% US remittance tax is implemented, the effective cost of sending money to Trinidad could surge to 10 to11%, pushing it into the ranks of the most expensive remittance destinations in the Americas. Such a steep increase could discourage formal transfers, erode the value received by households, and push more senders toward informal or cash based channels, undermining both financial inclusion and foreign exchange stability.

Source - World Bank

This isn’t just a household issue, remittances are a vital source of US dollar inflows for both the Central Bank and commercial banks in T&T. As shown in the chart below, secondary income receipts , which include personal remittances, have been rising steadily since 2021, reaching over $127M in Q4 2023, before moderating slightly in 2024. This upward trajectory highlights just how crucial these flows are in a country grappling with volatile energy revenues and rising import demand.

Source - CBTT

If the proposed 3.5% US remittance tax causes even a modest decline in formal remittance activity, the ripple effects will extend beyond family income. It would shrink available foreign exchange at a time when goods imports are surging, intensify pressure on the parallel (black market) exchange rate, and potentially undermine government efforts to mobilize diaspora capital through diaspora bonds or patriotic savings schemes.

To put it in perspective, a 10% drop in formal remittance flows, roughly $35 million, would erase nearly a full year’s worth of net growth in personal transfers, based on recent trends. For a small, open economy like Trinidad and Tobago, that’s not just a soft blow, it's a strategic vulnerability.

Diaspora remittance senders are highly sensitive to cost, and history shows that when fees or taxes rise, behaviors shift quickly, and often in ways that undermine policy goals. Research and global experience confirm that when formal remittance costs increase, senders often respond by:

• Switching to informal channels, such as sending money through friends, travelers, or courier services to avoid official fees,

• Reducing the frequency or size of transfers, particularly in non emergency months,

• Delaying or canceling planned support, especially for non essential spending like school supplies or utility bills.
  

Ironically, the very tax intended to raise government revenues or enforce border policy may end up pushing remittance flows out of visibility, reducing transparency, limiting financial inclusion, and making it harder for governments and central banks to track capital flows or design responsive policy. This shift would have real consequences for:

• Low and middle-income households, who depend on remittances for food, rent, healthcare, and education,

• Pensioners, students, and single-parent families, many of whom lack other income buffers,

• Local financial institutions, such as credit unions and banks, who benefit from the deposit base and activity that remittances generate,

• And the broader foreign exchange ecosystem, which relies on these steady, non-commodity inflows to help balance the current account and stabilize FX supply.

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To protect remittance flows, Trinidad and Tobago can take three key steps. First, its government should engage diplomatically, through CARICOM and its foreign ministry, to seek clarity or exemption from the proposed US tax, especially if it targets undocumented senders. Second, T&T should deepen engagement with its diaspora, by fast-tracking plans for diaspora bonds or partnering with digital platforms to keep money flowing through formal channels. Third, local banks and agencies must work to lower fees and FX spreads, so that senders see them as affordable alternatives to companies like Western Union or Xoom. At the end of the day, a 3.5% tax might look like smart US policy, but for a Trinidadian family, it’s a tax on medicine, school fees, and groceries. For the country itself, remittances are more than personal , they’re lifelines for the economy.