Remittances to Latin American nations, in absolute value and as a percentage of GDP, continue to grow. These flows have been noticed by Americans, who often perceive them as disloyalty and a loss of value from the United States.
Since a federal remittance tax is no longer theoretical—it has passed in the US House of Representatives—now is an opportune time to assess the impacts on the recipient nations. My contention is that remittances have become deleterious, since they divide families, foment a brain drain, leave domestic problems unresolved, and promote dependency.
I have witnessed these tragic outcomes, and I remember a thriving mall in Tegucigalpa, Honduras. A local noted to me that no one would be there without remittances that were being splurged on foreign goods.
Keep in mind, the Tax Foundation has correctly pointed out that the remittance tax will generate substantial paperwork and be incredibly difficult to enforce. That is especially the case in an age of cryptocurrencies.
Latin American political leaders, such as Mexican President Claudia Sheinbaum, have lobbied to reduce or eliminate this tax. As noted by the Center for Strategic and International Studies, in 2023 remittances to Mexico equated to US$63.3 billion, “accounting for roughly 7.5 percent of global remittance flows … the second-largest destination for such funds worldwide.”
Relative to the economy, the flows to El Salvador, Guatemala, and Honduras are even more monumental: between one-fifth and one-quarter of GDP. The fact is that these countries’ largest export is human capital.
With all this money flowing in, what is not to like? Unfortunately, plenty. The fundamental tragedy is the loss of a nation’s aristocracy. Countries export their most productive people, who send remittances back but often never return. Efforts to garner wages abroad are efforts not devoted to infrastructure and entrepreneurship at home. Sadly, a generation of children grow up without their fathers, even if they are working hard to provide for their progeny.
This has led to the brain-drain moniker. Consider the cases of Cuba, Nicaragua, and Venezuela: who is left to lead these nations? On a trip to Cuba in 2015, I observed the so-called middle class living off remittances. Since that time, the exodus has continued as the island has emptied out. Even members of the ruling clique now retire in Florida. Remittances have concealed the dysfunction of these nations, and precious little of the money has gone to capital formation.
My mentor during my early days of writing about Latin America was a member of the Venezuelan diaspora. A business leader who cares dearly about his country, he has put down roots and is raising his family in the United States. This goes for Alberta-based Marco Navarro-Génie, one of my intellectual heroes. He left Nicaragua in the late 1970s, and the nation lost one of her brightest individuals.
In the long run, a nation’s prosperity and attractiveness rest on her people: human capital mixed with technological innovation. Migrants, relative to the populations of their origin nations, tend to be better educated, more intelligent, working age, and more likely to take personal initiative. They are the ones who stand to gain the most from leaving, and my ancestral Ireland demonstrates such a loss over many generations. This portends a nation with an exoskeleton, a populace living outside her borders.
