Remittances: Illegal Immigration’s $30 Billion ‘Hidden Tax’

Paris. The year is 1788. The air is heavy with the scent of impending revolution. Some praise the king in hushed whispers, others shout “Liberté! Egalité! Fraternité!” in the streets. Either way, the time for talk is over. How did it get to this point?

The hopeful specter of radical liberalism played its part, as the father of modern conservatism Edmund Burke observes in his masterpiece Reflections on the Revolution in France. But most men aren’t dreamers. Most live parochial lives and think parochial thoughts—there’s no time to dream when you’re working to put bread on the table.

For the average Parisian, the revolution was about bread: why should they starve while the king eats his fill? Necessarily tied to this was a broader question: why should Parisians pay exorbitant taxes so that the king can live like, well, a king? This is a good question, one which the French answered (regrettably) with blood.

As bad as the Parisian tax regime was, at least everyone knew they were getting taxed. Nowadays, many of our biggest taxes are hidden, disguised as “user fees” or “mandatory contributions.” Think Obamacare or Social Security contributions. Likewise, at least money collected in Paris tended to stay in France, employing French harlots and French maestros. It could have been worse.

Imagine how mad the French would have been if their taxes flowed instead into the Russian Czar’s Winter Palace, employing Russian harlots and Russian maestros. In the end, paying domestic taxes is always preferable than paying tribute to a foreign land.

Redistribution is bad, elimination is worse.

Therein lies one of illegal immigration’s biggest, yet routinely ignored, problems: illegal aliens hop the border, work (often without paying taxes), and send a large chunk of their earnings back home via remittances. Basically, remittances are a hidden tax Americans pay for the privilege of hiring artificially cheap illegal labor—and it adds up. In fact, illegal immigrants may remit around $30 billion annually.

Finding the Right Ballpark
To be clear, it’s impossible to know exactly how much money illegal immigrants remit annually. There are three reasons for this. First, we don’t know how many illegal immigrants actually reside in America. Second, the term remittance itself is ambiguous: should we include money stuffed in a birthday card in our calculations? Third, we cannot track the location of every dollar even if we wanted to (if we could, black markets wouldn’t exist).

Nevertheless, I think we can apply a set of reasonable assumptions to a reasonable dataset, and reach a reasonable conclusion as to just how much money illegal aliens remit annually—although we cannot hit a home run, we can at least bat in the right ballpark. Let’s step up to the plate.

First, assume that all of America’s remittance outflows are either sent by first-generation legal immigrants or illegal aliens. Next, assume that these two groups send equal amounts of money home per person. Although legal immigrants earn more per capita, they likely send a much smaller proportion of their pay abroad (if they send any at all). I think these are fair assumptions.

Now, let’s apply those assumptions to the numbers. According to Pew Research’s 2018 remittance outflow data, America lost $138.2 billion in remittances in 2016. And given that there are some 40 million first-generation immigrants, and (at least) 11.1 million illegal aliens, this means that there are roughly 51.1 million people sending remittances abroad.

Of course, the number of aliens is debatable: a recent study from Yale University found that there were at least 22.8 million illegals residing in America. That being said, let’s go with the low number for the sake of argument.

Dividing the total remittance outflows by immigrant proportions reveals that illegal aliens likely remit some $30 billion per year. That’s a lot of money. For context, it’s as much as the entire annual GDP of Vermont. And of course, the figure would be higher if we used Yale’s population estimates.

But it’s not just about the money—it’s what’s happening to it. Remember when I said earlier that no matter how bad Paris’s taxes were, at least the money paid for French (rather than Russian) harlots and maestros? Remittances are worse. Every dollar remitted by illegal aliens is a dollar ejected from the local economy, never to recirculate or be reinvested—it goes directly to Russia, or more likely Mexico, China, and Guatemala. This reduces the velocity of money and causes liquidity problems, particularly in small towns.

Functionally, there’s little difference between remittances and federal taxes: taxes skimmed from small towns pools in Washington D.C., while remittances sent by aliens line Carlos Slim’s pockets. It’s that simple. And yet allegedly anti-tax organizations like the Cato Institute routinely argue in favor of open borders, not seeming to grasp the necessary implications.

It’s time we stopped speaking in jargon. Let’s call out remittances sent by illegal aliens for what they actually are: a tax.

Photo credit: Don Bartletti/Los Angeles Times via Getty Images

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About Spencer P. Morrison

Spencer P. Morrison is a writer and author of Bobbins, Not Gold. He is the editor-in-chief of the National Economics Editorial. Follow him on Twitter @SPMorrison_.

Photo: August 22, 2005. Panindicuaro, Mexico. Guadalupe Vidales, 74, kisses the Mexico Express money order that just arrived from her son in Bakersfield, CA. Most of the families in this pueblo and in the surrounding countryside have sent their young to work in the United States. The elderly, like Vidales who is a widow, depend on remittances for their survival. (Photo by Don Bartletti/Los Angeles Times via Getty Images)