President Trump entered the Oval Office on a sea of campaign promises. These included repealing and replacing the Affordable Care Act (or Obamacare), reforming both the individual and corporate tax codes, and building a border wall between the U.S. and Mexico.
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After more than four months in office, the president is figuring out that change happens slowly in Washington. A Republican health bill has moved on to the Senate, but it could be weeks or months before significant progress is made, and tax reform is still in the early stages. Even Trump's promise of a border wall has fizzled out, with the latest budget apportioning a minimal amount of funding toward designing and constructing the wall.
However, this doesn't mean there hasn't been controversy surrounding the means by which the border wall could be funded in the future.
Image source: President Donald J. Trump's official Facebook page. Photo by Shealea Craighead.
A border adjustment tax probably isn't the answer
Earlier this year, the idea of a border adjustment tax was floated as a means of generating revenue for the border wall. A border adjustment tax would incentivize domestic businesses that export their products overseas by offering them a tax rebate, while hitting companies that import goods from foreign countries with an import levy.
A border adjustment tax wouldn't be an entirely bad idea. For example, it should significantly reduce the desire of U.S. multinationals to seek a tax inversion, which is where they redomicile in a foreign market with a lower corporate income tax rate. A border adjustment tax for export-driven U.S. multinationals should boost their bottom lines.
Then again, the idea of a border adjustment tax probably wouldn't be popular among the public. There are a number of products such as automobiles, apparel, and electronics that are imported from foreign manufacturers, meaning it's U.S. consumers, not these foreign countries, who would pay the added import levy.
Furthermore, instituting a border adjustment tax is widely expected by pundits to increase the value of the U.S. dollar by 15% to 25% over a couple of years. While that's great news if Americans want to vacation in foreign markets, a significantly stronger dollar could devalue the $23.3 trillion that Americans had in foreign investments as of 2015.
In many ways, the border adjustment tax is a nearly dead idea on Capitol Hill.
Image source: Getty Images.
This new bill to fund Trump's border wall isn't going to be popular
Thus, the dilemma for Trump, Republicans, and contractors who are chomping at the bit to win what could be a $20 billion contract is where the funding will come from.
House Rep. Mike Rogers (R-Ala.) believes he has the answer.
In late March, Rogers introduced HR 1813, officially known as the Border Wall Funding Act of 2017. This bill would "amend the Electronic Fund Transfer Act to impose a fee for remittance transfers to certain foreign countries, and for other purposes." In plainer English, it would impose a 2% fee (in U.S. dollars) on wire transfers (remittances) sent to most Central and South American countries, as well as Mexico and the Caribbean.
According to the bill, fees would not be imposed on transfers conducted by businesses, but all personal transfers to most countries in Central and South America would be subject to this 2% fee, which is on top of the exorbitant fees already imposed by wire transfer service providers, like Western Union (NYSE: WU).
Additionally, the bill would be indifferent to those making money transfers to foreign countries. Regardless of whether the person initiating the transfer is a U.S. citizen or not, the destination of the money transfer is all that would matter.
Image source: Getty Images.
A threat to legal money transfer channels?
However, there's a significant concern with adding a fee on legal-channel money transfers to Central and South American countries, as well as Mexico and the Caribbean: It could encourage consumers who are already paying exorbitant fees to seek grey market channels or illegal ways to transfer money to overseas markets. In effect, it would hurt companies like Western Union, which have enabled significant progress in keeping the flow of funds in licensed money transfer networks. Also noteworthy is that much of Western Union's first-quarter consumer segment growth came from Latin America and the Caribbean, where constant currency-adjusted revenue grew 28%.
Ismail Ahmed, the CEO of WorldRemit, had this to say in an interview with Forbes:
It's tough to see a path forward for Rogers' bill considering the opposition it would face from Democrats in Congress and even more moderate members of his own party. Trump has been adamant that he'll be able to fund a border wall with foreign sources of capital, and construction companies are eager for that to happen, but the likelihood of the Border Wall Funding Act making it out of the House seems slim at best. That's a sigh of relief for Western Union and potentially millions of Americans.
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