Taxing U.S. remittances bad news for Trump and Cuba

Opinion

The last thing that U.S. President Donald Trump needs right now is another domestic political headache to go along with increasingly dangerous external crises.

But there lies a ticking time bomb within Trump’s bespoke “One Big Beautiful Bill” that was recently passed by the U.S. Congress. Tucked inside hundreds of pages of government spending cuts and new tax measures is a line that would impose a one per cent tax on U.S. cash sent abroad (paid by the sender and thus a disincentive to transfer funds). To be sure, this tax move (applied to all senders, including U.S. citizens) is going to have a significant impact on countries and peoples in Latin America and the Caribbean.

These financial payments sent from family members in the U.S. to their relatives and friends in places such as Haiti, Mexico, Guatemala and Cuba (and many others) are an absolutely critical source of income.

In fact, much of this cash goes to purchasing desperately needed supplies and the basic necessities of life.

Violence-ravaged Haiti is particularly dependent on remittances from the U.S., with estimated dollar amounts pegged at over US$4 billion annually. And with roughly 500,000 Haitians facing fast-approaching deportation from the U.S., you can imagine how devastating the higher transaction costs for sending remittances will be on a country already in dire economic and social straits.

There’s also no disputing the fact that remittance payments from the U.S. to Cuba are integral to the country’s economic health. It is no exaggeration to say that these funds are in many ways keeping the country afloat today. More important, they are instrumental to many Cubans in helping to keep body and soul together during a major economic crisis.

No one is exactly sure how much money Cuban-Americans send to their families and friends on the island — though it is certainly in the low billions of dollars each year. In fact, the precise dollar figure is a state secret as far as the Cuban government is concerned.

Some estimates of remittances to Cuba from the U.S. vary widely from US$1.5 billion to US$4 billion annually. There are Cuba specialists who argue that these remittances are Cuba’s second largest source of foreign exchange (after medical services contracts with countries abroad).

It is also worth noting that these payments (via a remittance company in Miami) were becoming a key source of revenue for Cuba’s incipient private sector and their import operations. (A representative from a remittance company in Cuba was using the cash payments from imported products as a way to complete its deliveries of U.S. dollars to families on the island.) But the Cuban government, wary of what a growing private sector would mean to state-owned enterprises and the military’s influence, recently put tighter restrictions on importing products from outside Cuba.

Most of these remittances have typically been transferred or wired to the island via Western Union. But when that means of sending dollars to family members was closed off, as it is today under the Trump administration, Cubans have to come up with other creative ways to get their hands on these funds.

There are so-called “informal channels” or “mulas” (private citizens) who are often used to get U.S. dollars to Cuba. The mules or mulas basically carry with them suitcases of consumer items, cash and even car parts on one of the daily flights to Cuba from Miami. In addition, there are packages containing food, medicines and money sent through agencies such as VaCuba (it handles financial services, among other things) and Cubamax (a travel and shipping agency).

My guess is that the real purpose behind the taxing of U.S. remittances — besides the expected tax revenues or as a means of discouraging migration flows — is to punish the Cuban government. The Trump White House somehow believes that tightening the financial screws on Cuba and exacerbating an already precarious economic situation will magically facilitate “regime change.” What it will really do, though, is make everyday life in Cuba more painful and unbearable.

There is also a pretty good chance that it will galvanize Cubans around the government and strengthen its grip on power. Moreover, resourceful Cubans will find ways of circumventing the tax on remittances — as they have learned to do with the early 1960s U.S. economic blockade.

Furthermore, an already displeased Latino vote in South Florida, to say nothing of the 1.3 million Cuban-American community, will not take kindly to such a move (and thus put Republican congressional districts in play in the November 2026 midterms). Trump also needs to be mindful of the fact that restricting remittances to Latin America will severely disrupt relations with a multitude of countries in the region.

But as Trump goes ahead with taxing remittances to Cuba — undoubtedly at the urging of U.S. Secretary of State Marco Rubio — it is sure to back-fire on him. You would think that Trump would have bigger fish to fry these days.

Peter McKenna is professor of political science at the University of Prince Edward Island in Charlottetown.