A new analysis by the Federation for American Immigration Reform (FAIR) finds that, as of 2021, the most recent date for which there is comprehensive data, remittances sent abroad drained more than $200 billion from the U.S. economy. 2021, of course, marked the onset of the greatest wave of immigration ever experienced by the United States, mostly illegal aliens, which means that that figure has certainly increased significantly.
More important than the exact dollar amount drained out of our economy, primarily by foreign nationals who are working here, is the negative impact that large-scale remittances have on this country and those on the receiving end of these cash transfers. Remittances have created an unhealthy co-dependency that, like other co-dependencies, harms both parties.
The vast majority of remittances leaving the U.S. are sent by immigrants – legal and illegal – to family members in their home countries. The desire to help family members abroad is perfectly understandable, even commendable. But for the communities across the U.S. where the money is earned, it represents a significant hidden cost.
The $200 billion-plus a year that is remitted to other countries is money that is not spent in the communities in which it was earned. That means that these jurisdictions are not collecting sales and other taxes that finance essential services. It means that the money is not supporting or creating local businesses, which also pay taxes on their earnings and create jobs and business expansion that are also essential to the economic vitality of those communities. Thus, the actual dollar amount leaving the country represents only part of the impact of remittances on the American economy.
The impact of the loss of several hundred billion dollars a year from our nearly $30 trillion a year economy is relatively minor compared with the unintended damage it does to the long-term economic prospects of the countries receiving the payments. Economic stagnation is the driving push factor behind large-scale migration from poor countries to wealthier ones.
Counterintuitively, the infusion of cash sent home by citizens working abroad perpetuates a cycle of poverty and migration. A 2021 report by the Central American Bank for Economic Integration – representing a region where remittances can account for as much as 20 percent of GDP – found that the money received by family members back home is spent largely on consumption rather than economic development. What is a godsend for the individuals receiving the remittances, however, is an impediment for the societies in which they live.
Sending the best and brightest of a nation’s labor force to work in another country is quicker and easier than developing a vibrant homegrown economy – especially in countries plagued by systemic economic and political corruption. Additionally, a keeping-up-with-the-Joneses phenomenon develops in which primarily young able-bodied men feel compelled to emigrate in order to provide for their families. Thus, the outmigration of workers and the return flow of remittances constitute workarounds for these problems, rather than a cure for them.
Like any co-dependency, breaking the one that has developed around migrants working here and sending money home will be painful, but necessary. The United States cannot endlessly sacrifice the jobs and wages of our own workers who have to compete with cheap foreign labor, and the continued loss of hundreds of billions of dollars a year flowing out of our economy in the form of remittances.
Similarly, the reliance of many countries on expatriates working abroad and sending money home is an unsustainable economic model. The closure of our borders to mass migration and stepped-up efforts to prevent foreign nationals from working illegally in the United States are, no doubt, a disappointment to economic migrants. But it is also an opportunity for the citizens of those countries to remain or return to their home countries to develop sustainable economies that will allow future generations to achieve their aspirations without migrating abroad. American investment rather than perpetual aid, which would see revenues return to this country instead of hundreds of billions of dollars a year in remittances leaving the country, would further assist this mutually beneficial process.