Abstract
This brief draws on the case of Mexican immigrants, the most populous and constant remitting immigrant group in the United States, to show how remittances are a blind spot for US agencies, like the Census Bureau and IRS. Failing to account for remittance expenses likely leads to the overestimation of income and under-estimation of poverty rates in Mexican immigrant communities. Income and poverty figures of other consistent remitting immigrant groups, like other Latin American and Caribbean immigrants, may also be misestimated. There are two accessible ways to capture the impact of remittances: 1. the Census Bureau should alter the Supplemental Poverty Measure to account for international medical and childrearing expenses and 2. the IRS should allow foreign-born people to claim foreign-bound transactions of any sum that support caretaking, healthcare and education as deductions and account for them when adjusting taxable income. These changes would create a better economic portrait of immigrant communities and facilitate access to safety net programs.
Overview
Remittances, the money that immigrants send back to their countries of origin, are a fundamental economic support in middle-low income countries. This brief draws on the case of Mexican immigrants, the most populous and most constant remitting immigrant group in the United States, to show how remittances are an economic blind spot for US agencies, like the Census Bureau and the IRS.
Failing to account for remittance expenses likely leads to the overestima-tion of the income and under-estimation of the poverty rate in Mexican immigrant communities. This implies that income and poverty figures of other consistent remitting immigrant groups, like other Latin American and Caribbean immigrants, may also be misestimated.
The U.S.-Mexico relationship is the world’s most consistent and abundant remittance corridor. About 40% of the remittance dollars leaving the United States are Mexico-bound, and virtually all remittance money that arrives in Mexico originates in the United States. Despite the importance and resilience of this economic pathway, as evidenced by immigrants like Mr. Bruno, U.S. national surveys and administrative records seldom record monetary remittances.
There are two accessible ways to capture the economic impact of remittances on immigrants in the United States: 1. the Census Bureau should alter the Supplemental Poverty Measure to account, not only for domestic medical and childrearing expenses, but also international ones and 2. the IRS should allow foreign-born people to report foreign-bound transactions of any sum that support caretaking, healthcare, and education costs as deductible expenses and account for these expenses when adjusting the taxable income of foreign-born people.
These changes would not only create a more accurate economic portrait of immigrant communities, they would facilitate access to social safety net programs that are based on income and poverty figures.
Introduction
In April 2020, the New York Times profiled a series of Mexican transnational families to illustrate the unique challenges that the COVID-19 pandemic triggered for immigrant families. The profiles focused on the family members of Mexican immigrants in the United States who had remained in Mexico and detailed how these family members struggled to survive without receiving remittance dollars from the United States. One of these families, the Alejandre family, is spread from Michoacán, Mexico, to the state of Indiana. Ms. Alejandre discussed her mounting economic anxiety as the biweekly remittance dollars from her husband dried up: “If the economy gets any more difficult, well, we don’t know how we’re going to eat,” she said. Ms. Alejandre’s experience was a symptom of a global issue.
Following shelter-in-place measures, the World Bank projected remittance drops averaging 20% globally and called the impending plummet the “sharpest decline in recent history.” Banco de Mexico, the country’s central bank, estimated an even steeper remittance drop of about 28%. Panic ensued. Unexpectedly, remittance sums around the world rebounded to pre-pandemic highs. While the NYT prof i les focused on the struggles of those receiving the remittances, the remittance rebound begged the question of how those sending the remittances had managed to continue remitting. In their September 2020 article, “Even When They Lost their Jobs, Immigrants Sent Money Home,” the New York Times interviewed immigrant remitters in the United States and deduced that immigrants’ sense of duty and urgency explained the remittance rebound. One of the NYT respondents, Mr. Bruno, a Mexican immigrant living in Florida, summarized his struggle to provide for his family in Mexico: “We are struggling here, but it’s worse in Mexico. You have to make every sacrifice to feed your family.”
Remittances, the money that immigrants send back to their countries of origin, are a fundamental economic support in middle-low income countries.
Tim Samuel, Pexels
The US-Mexico relationship is the world’s most consistent and abundant remittance corridor. About 40% of the remittance dollars leaving the United States are Mexico-bound, and virtually all remittance money that arrives in Mexico originates in the United States. Despite the importance and resilience of this economic pathway, as evidenced by immigrants like Mr. Bruno, US national surveys and administrative records seldom record monetary remittances. This means that estimates of income and poverty rates fail to account for remittances and ignore the transnational nature of immigrant families and their expenses.
Two Agencies, One Blind Spot
American income measures predominantly come from the Census Bureau and IRS administrative tax records. Though each agency collects income information differently and uses its records for different aims, neither agency accounts for the remittance expenses of immigrants in the United States.
There are two accessible ways to alter the U.S. measures to account for the remittances that immigrant households send abroad…. the U.S. Census Bureau should expand the SPM expense criteria to include medical and child-rearing expenses outside of the United States and within it…. Second, the IRS should allow foreign-born people to report foreign-bound transactions of any sum if they support caretaking, healthcare, and educational costs.
The Census Bureau collects income, expense, and social program participation data to produce the poverty measures that policymakers use to “determine the distribution of food, healthcare, job training, housing, and other assistance.” These measures, the Official Poverty Measure (OPM) and the Supplemental Poverty Measure (SPM) account for the variation in resources across families in different ways. The OPM, a measure created in the 1960s that has long been criticized for failing to account for basic factors such as variation in cost of living, only refers to pre-tax income. While the SPM accounts for work, medical and child support expenses as well as taxes within the United States. If the same expense criteria were expanded to these expenses outside of the United States, the measure would account for the bulk of remittances. Pew’s National Survey of Latinos found that 89% of Mexican remitters in the United States sent money home to help cover ordinary household expenses or family emergencies. Mexican remitters are not the exception. The United Nations found that 75% of global remittances covered food, medical, educational, and housing costs. If the SPM included medical and child support expenses abroad as well as domestically, poverty rates would account for a sizable portion of remittance expenses.
Similarly, IRS income reports drive access to crucial parts of the American safety net, like eligibility for popular income tax credits such as the Earned Income Tax Credit (EITC) and other social mobility programs like the Federal Student Aid program. Despite the potential of these administrative records to facilitate economic support, the IRS, like the Census Bureau, is not structured to capture the economic realities of immigrant families. The agency does not account for foreign-bound expenses unless the amount sent abroad exceeds 10,000 USD. Remittance sums are too low to make them noteworthy for American administrative records, but they are substantial for immigrant remitters. Foreign-born Mexican people—those most likely to remit—have a median income of about 26,000 USD and send about 1,525 USD or 6% of said income abroad.
“Accounting for remittance expenses would increase access to programs that promote the well-being and mobility of immigrant communities. It would also allow federal and state governments to better understand the economic needs of their population, target support, and yield long-term benefits for subsequent U.S.-born generations.”
There are inherent difficulties in accounting for remittances as they are often sent via informal means, making them difficult to track and measure.
Pixabay
Moving Forward
There are two accessible ways to alter the US measures to account for the remittances that immigrant households send abroad. First, the US Census Bureau should expand the SPM expense criteria to include medical and child-rearing expenses outside of the United States and within it. Based on the reasons immigrants report for remitting, this would account for a sizable subsection of remittance spending. Second, the IRS should allow foreign-born people to report foreign-bound transactions of any sum if they support: caretaking, healthcare, and educational costs. These are the kinds of domestic costs for which taxpayers receive tax credits and deductions already—allowing immigrants to report these remittances as expenses would demand that the IRS recognize the transnational nature of the responsibilities and expenses of immigrant communities in the United States.
Natalia Vaitkevich, Pexels
There are also inherent difficulties in accounting for remittances to better measure immigrant income. One of the main difficulties of recording remittance sums has always been that they are often sent via informal means, making them difficult to track and measure. This is a difficulty that can only be overcome with time and incentives. By allowing immigrants to report transnational medical, educational, and caretaking expenses and deducting these from their taxable income, the US would not only build a more complete economic picture of immigrant households—but would also provide immigrants a tax incentive to remit via formal methods. Over time, this incentive can yield more and higher quality data on remittance flows and further build our understanding of how remittance spending impacts income, inequality, and social mobility in the United States and globally.
There is also the question of how better accounting for remittance flows could provide an outlet for policymakers aiming to economically penalize immigrants. The Trump administration famously proposed blocking remittance money from reaching Mexico to coerce the Mexican government into providing funds to “build the wall.” In 2017, an Alabama Congressman proposed levying a tax on remittance transfers to do the same. The ideology of government administrators is always a factor in poli-cymaking and implementation. However, just as providing a tax incentive would encourage remitters to remit via formal methods and report their remittance expenses, if the U.S. government taxed remittance transfers at higher rates than other forms of spending, remitters would likely shift back to more informal means of remitting and stop reporting these expenses.
Both the Census Bureau and the IRS have altered how they measure income and calculate poverty in the past to better reflect societal realities. Incentivizing the reporting of remittance expenses can benefit immigrant communities and the US government. Accounting for remittance expenses would increase access to programs that promote the well-being and mobility of immigrant communities. It would also allow federal and state governments to better understand the economic needs of their population, target support, and yield long-term benefits for subsequent U.S.-born generations.