On June 16, Senate Finance Committee chairman Mike Crapo (R-Idaho) released the committee’s 549-page component of the budget reconciliation bill that the Senate will soon consider. The Senate bill dramatically narrows the scope of the remittances tax included in the budget bill passed by the House of Representatives on May 22. Lawmakers should take the next logical step and discard the tax altogether.

As I previously discussed, the House-passed bill would impose a 3.5 percent tax on certain remittances sent from the United States (including the US possessions) to foreign countries, starting January 1, 2026. The corresponding tax in the Senate bill has the same rate and starting date. Unlike the House-passed bill, however, the Senate bill would exempt most remittances from the tax. Tax would not be collected on remittances paid for with a US debit or credit card or on remittances paid for by drawing on an account with a US bank, credit union, broker, or dealer.

The tax would apply to remittances paid for in other ways, including cash, a money order, or a cashier’s check. Remittance transfer providers would collect the tax from any remittance sender, including a US citizen, who used a non-exempt payment method.

However, any sender with a Social Security number—including the typical citizen and the typical green card holder or other work-authorized noncitizen—who was charged the tax could claim a refund months later on his or her income tax return. (The Senate bill avoids the House-passed bill’s drafting problem that created confusion about whether non-citizens with Social Security numbers could claim a refund.) As in the House-passed bill, the sender would have to certify to the remittance transfer provider that he or she intended to claim a refund and give the provider his or her name, address, and Social Security number.

In summary, the tax would be collected without a refund opportunity in only a narrow set of circumstances. That would happen when a remittance was sent by a person without a Social Security number—typically a non-citizen illegally present in the United States or in an immigration status without work authorization—using a non-exempt payment method, such as cash, a money order, or a cashier’s check. The Joint Committee on Taxation estimates that the tax in the Senate bill would raise only $1 billion over the upcoming decade, a tiny fraction of the $26 billion that the tax in the House-passed bill was projected to yield.

As I and others have noted, a remittances tax would create a number of problems. It would impose administrative burdens on senders and remittance transfer providers, would raise privacy concerns by requiring providers to collect information from senders, could encourage illegal immigration by weakening the economies of countries that rely on remittances from the United States, and might arouse fears of broader capital controls.

Although the Senate bill’s narrowing of the tax would greatly diminish these problems, it would not eliminate them. That outcome can be attained by rejecting the remittances tax in its entirety.