Each year more than $42,000,000,000 is transmitted internationally (remittance transfers) from the United States to other countries. This particular amount, while stated in U.S. government studies, may be understated by as much as 10 to 20 percent. According to the Inter-American Development Bank (IADB), the largest source of development financing for Latin America and the Caribbean, it is estimated that Latin American immigrants alone sent approximately $46 billion abroad to their families in 2008.
The money that is transmitted abroad is money that is not returned to local domestic businesses, does not generate any sales tax revenue and does not encourage the economic development of communities in the United States. These international money remittances are used to pay for consumer goods, automobiles, utilities and services that help create jobs in other countries.
Above and beyond the failure to create a money-multiplier effect through consumption in local communities, the sales tax impact of this lost money robs states and local governments of more than $2.5 billion in revenue each year. These sales tax revenues could have been used at the state and local level for enhanced infrastructure, education, emergency services and other programs that are critical for the development of strong communities.
It is therefore recommended that a direct tax of 5% to 10% be levied on the dollar amount of the outbound international remittance transfer. Using the minimal estimate of $42 billion in funds transmitted, a 5% tax could yield $2.1 billion in new revenue. Using the 10% rate, we could raise $4.2 billion in new funds without cutting any programs or reducing services.
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