Paul L. Caron

Friday, March 5, 2021

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Sarkar's Capital Controls As Migrant Controls

This week, Ariel Jurow Kleiman (San Diego; moving to Loyola-L.A.; Google Scholar) reviews a new article by Shayak Sarkar (UC-Davis), Capital Controls as Migrant Controls, 109 Cal. L. Rev. ___ (2020).


Governments regulate migration in myriad ways. Via border policies, economic (dis)incentives, and inclusionary or exclusionary social and legal systems, governments seek to draw or repel migration into a domestic economy. As Shayak Sarkar argues in his most recent article, Capital Controls as Migrant Controls, they can also do so by regulating migrants’ financial activities. Building on his past scholarship on migrants’ financial habits and the legal infrastructure governing them (e.g., here and here), Sarkar describes and analyzes legal systems that constrain migrants’ financial activities in the U.S. He argues that this financial regulation not only controls migrants’ capital, but that it controls migrants as well.

Sarkar focuses on three examples of what he calls “capital controls”—although he notes that his use of the term is somewhat broader than its traditional meaning of restrictions on foreign capital inflows and outflows. He first discusses taxation of migrants’ remittances back to home countries (more on this momentarily). Second, he explores rules that restrict undocumented workers’ access to Social Security benefits and that require eligible noncitizens to leave the U.S. in order to collect payments. Third, he describes consumer-banking identification requirements, which often work to exclude undocumented workers from U.S. banking services. The article’s scope is broad, canvassing laws on immigration, taxation, financial regulation, and the social safety net. To make the current discussion more tractable, I will focus here on his analysis of remittance taxation.

In this context, a remittance is a wire money transfer that a migrant worker sends to family members residing in home countries. Although each individual transfer is small, in the aggregate they amount to hundreds of billions of dollars per year and can comprise a relatively large share of GDP in certain developing nations. Remittances play a vital role in shoring up families’ budgets and experts consider them a valuable tool for improving wellbeing in low-income countries. For these reasons and others, most who study remittances warn against their taxation in sending countries.

Yet Oklahoma imposes a tax on remittance transfers. Although Oklahoma’s law does not explicitly target migrants’ remittances, the law’s drafter specified that the tax would affect “illegal immigrants and drug traffickers from Mexico” who send money back home. Industry groups have described the tax as furthering Oklahoma legislators’ “anti-immigration agenda,” notwithstanding the law’s alleged purpose to combat money laundering. Oklahoma legislators have also proposed increasing the tax for those without “valid” identification, a group that seems to mostly include undocumented immigrants. Other states have proposed similar legislation, some of which would specifically target undocumented workers’ remittances, including North Carolina, Mississippi, Texas, and Arizona. Similar proposals surfaced at the federal level in connection with border wall funding.

Sarkar argues that remittance taxes serve as capital controls that, by extension, seek to control migrants themselves. The taxes discourage immigration by reducing one of the primary motivators for migrating in the first place—that is, supporting family back home. Together with Sarkar’s other two examples of Social Security expulsion and bank-account ID requirements, these capital controls serve as a proxy for migrant controls. Although they do not restrain migrants’ movement directly, they do so indirectly by guarding, expelling, and marginalizing migrants’ capital.

Sarkar also notes an interesting proposed remittance tax from California that stands somewhat in contrast to the above examples. A California state senate bill proposed a 3% fee on undocumented workers’ remittances, with the revenue raised supporting emergency medical services that the state provides to undocumented immigrants. The charge might be described as a sort of “benefits tax,” where undocumented workers’ remittances serve as a proxy for their presence in the state and use of public services. Distinct from the other proposed remittance taxes that tend to fund anti-immigration enforcement, California’s tax would welcome undocumented workers into the contributory safety net. It would confer some level of fiscal citizenship on a group that is often intentionally excluded from these unwritten fiscal contracts. In doing so, the tax would also undermine arguments that undocumented workers don’t contribute to our shared coffers (an argument that tax data repeatedly refute, see here and here).

At the end of the article Sarkar considers the constitutionality of such capital controls, paying special attention to Oklahoma’s tax. He considers the extent to which dormant foreign affairs preemption, dormant Commerce Clause, and immigration federalism might erect legal stumbling blocks for state-level remittance taxes. Although he concludes that Oklahoma’s tax would likely escape invalidation under dormant foreign affairs preemption, the other two legal standards might be more exacting. Regarding the dormant Commerce Clause, Oklahoma’s existing law clearly burdens international capital flows, discriminating against nonlocal actors. State-level remittance taxes also implicate federalism concerns by undermining the federal government’s ability to speak with “one voice” in regulating international commercial transactions.

Sarkar’s analysis is impressive. It is comprehensive, thoughtful, and creative. Scholarship on capital controls often spans a narrow band of economic and fiscal policy analysis from Keynesian celebration to neoliberal critique. Sarkar transcends this constrained conversation, adopting a more holistic and humanistic approach. These financial flows are not headless wire transfers, but often are vital lifelines between loved ones. Foregrounding their human origin spotlights the myriad ways that regulation of migrants’ capital regulates migrants themselves, limiting their movement and infringing on their rights. Sarkar does a great service to scholars, advocates, and migrant worker families by reminding us of this important relationship.

Here’s the rest of this week’s SSRN Tax Roundup:

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