Tax on Remittances Will Increase Hunger

In a time of turmoil in the international humanitarian and development community, every dollar counts for efforts that reduce poverty and increase well-being in communities. While Bread for the World typically focuses on Official Development Assistance (ODA), which is aid provided by governments and multilateral agencies to lower-income countries, ODA is not the only form of foreign assistance. Remittances, which are funds transferred from individuals who emigrated for work to families in their home country, are another significant source of funding.

In recent years, global remittances have been nearly three times as much as ODA. For example, in 2023, the World Bank Group estimated that total remittances to home countries were $656 billion, whereas total ODA was $224 billion. Remittances are even more important at a time when ODA budgets are being cut in the United States and other donor countries. The money sent back home can be used to meet basic needs like food, education, and health care.

“At first, it was hard for me to buy food. But now they send money each and every month for me to buy food,” said a widow in Mzuzu, Malawi who participated in a discussion of food security with researchers from the University of Waterloo. “[Before] I wouldn’t even afford to buy fertilizer. Of course, this year I didn’t cultivate maize, but they have already started sending money for me to buy maize at the market. So, I don’t have food problems right now.”

Research has shown that remittances can have a greater impact on reducing poverty than, for example, cash transfer programs, because they can reach a greater share of the population. In 2024, more than an estimated $200 billion in remittances was sent from the United States alone.

The new tax on remittances in the U.S. will add to the 6 percent in fees people already pay to send money home. This cost is twice as high as the target set in the Sustainable Development Goals of a 3 percent limit on remittance transfer costs. The tax will apply to a total of nearly 50 million people—23 million people with green cards, 14 million people with non-immigrant visas, and 12 million undocumented people.

There is also the risk that remittances will decrease in response to the sharp increase in U.S. immigration actions. While a projection of the impact on total remittances is not yet available, the Center for Global Development analyzed remittances sent by foreign-born U.S. residents and identified the hardest-hit countries, based on the anticipated lost remittances relative to their Gross National Income (GNI):

The dismantling of the U.S. Agency for International Development (USAID) has already created a sudden interruption in resources to these countries. This means families in places like Guatemala and Haiti are depending even more than before on remittances to meet their basic needs. A one percent tax on remittances will further diminish these countries’ capabilities to reduce hunger, food security, malnutrition, and poverty.

Promoting economic resilience calls for sustainable, long-term approaches. Remittances, while they provide critical lifelines, are not a substitute for systemic development. ODA remains a critical component of global development alongside countries’ own investments in their communities’ well-being.

Additionally, communities are developing and implementing creative ways of increasing their incomes and improving their livelihoods. For example, the U.S. government, alongside other donors, has invested in Village Savings and Loan Associations (VSLAs) for years. VSLAs are groups of people who act as an informal community bank, pooling their financial resources together and offering each other small, low-interest loans. These loans are often used to respond to emergencies, grow businesses, or pay school fees. Once established, they can operate without external funding.

CARE International, the global nonprofit organization that developed this approach in 1991, has seen that VSLAs strengthen families’ finances and improve their well-being. Notably, VSLA members are up to 60 percent less likely than other community members to face food shortages.

Ending hunger and reducing poverty requires a holistic approach that includes resources such as remittances, VSLAs, ODA, and other potential sources. U.S. policy should reflect this.

Jordan Teague Jacobs is senior international policy advisor with Bread for the World Institute.